Peloton Surges to Record High On $420 Million Precor Purchase

Peloton will add 625,000 square feet of new manufacturing space, as well as a large presence in gyms, hotels and universities, following its $420 million purchase of fitness equipment-making rival Precor.
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Peloton Interactive  (PTON) - Get Report shares surged to an all-time high Monday after the connected fitness equipment maker agreed to buy rival Precor for $420 million.

The deal, unveiled late Monday, gives Peloton an increased presence in commercial spaces such at fitness centers, hotel gyms and universities, as well as an expanded manufacturing base that could quicken the pace of deliveries of its signature bicycle to customers, a long-standing criticism of the upstart company. 

The deal is expected to close in the first half of next year and would be the biggest acquisition since the group was founded in 2012.

"By combining our talented and committed R&D and Supply Chain teams with the incredibly capable Precor team and their decades of experience, we believe we will be able to lead the global connected fitness market in both innovation and scale," said Peloton President William Lynch. "We're looking forward to integrating the Precor team into Peloton and excited about what this means for the future of our brand and our ability to continue delivering world-class Member experiences." 

Peloton shares were marked 9.7% higher in early trading Tuesday to change hands at $158.60 each, an all-time high that extends the stock's six-month gain to around 196%.

"We think the Peloton acquisition of Precor is highly synergistic and supportive of long-term growth," said KeyBanc Capital Markets analyst Edward Yruma, who boosted his price target by $25 to $185 per share following last night's purchase

"Peloton remains highly supply constrained and the addition of 625k square feet of U.S. manufacturing capacity should provide increased supply chain flexibility and increase CF device margins over time," he added. "Precor’s strong position in commercial (multi-family, hospitality, etc.) should help reinforce Peloton’s early efforts. It may also help new country expansion (Precor is in 100 countries)."