A number of private equity firms are considering buyouts Platoon as the connected fitness company seeks to refinance its debt and return to growth after 13 consecutive quarters of losses, CNBC has learned.
In recent months, the pandemic darling has held discussions with at least one company as it considers going private, people familiar with the matter said. The company’s current level of interest in acquiring Peloton is unclear. A number of other private equity firms have circled Peloton as an acquisition target, but it’s unclear whether they’ve had formal discussions.
The companies have focused on how to reduce Peloton’s operating expenses to make a buyout more attractive. Last week, Peloton announced a sweeping restructuring plan that is expected to reduce its annual expenses by more than $200 million by the end of fiscal 2025.
Peloton shares soared more than 18% in premarket trading following the release of CNBC’s report.
There is no guarantee that a deal will be reached and Peloton could remain a public company. The people spoke on condition of anonymity because the discussions are private.
A Peloton spokesperson declined to comment on the CNBC report.
“We do not comment on speculation or rumors,” the spokesperson said.
Peloton became a takeover target after seeing its market capitalization fall from a high of $49.3 billion in January 2021 to around $1.3 billion as of Monday.
Peloton has a consistent and profitable subscription business with millions of loyal users, but the company has been hamstrung by the equipment that originally made it a household name. The company’s bikes and treadmills are expensive to manufacture and have been the subject of numerous high-profile recalls that have turned members away from the brand and cost Peloton millions.
Additionally, as many consumers across all income groups forgo expensive purchases, there is limited demand for home exercise equipment that can cost thousands of dollars.
Over the past two years, Peloton has been on a downward trajectory as it struggles to increase sales, generate free cash flow and chart a path to profitability. Demand for its equipment fell and its costs became too high for a company of its size.
Last week, Peloton announced the resignation of CEO Barry McCarthy after releasing a disastrous earnings report that fell short of Wall Street’s expectations. The same day, it announced plans to reduce its workforce by 15%, or about 400 employees, explaining that it “simply had no other way to align its expenses with its revenues.”
The savings Peloton will generate from the restructuring will come primarily from layoffs, as well as cuts in marketing, research and development, IT and software. The cuts will make it easier for Peloton to generate sustainable free cash flow, which executives say can be achieved even without sales growth, and will make it more attractive to private equity firms interested in it.
Debt has also weighed on Peloton. Its debt totaled about $1.7 billion as of March 31. The company owes $692.1 million on its term loan, which could mature as early as November 2025, and $991.4 million on its 0% convertible senior notes, which mature in February 2026. according to a review of Peloton’s most recent quarterly securities filing.
Last week, the company said it was working closely with its lenders to J.P. Morgan And Goldman Sachs on a “refinancing strategy”.
“Overall, our refinancing objectives are to reduce leverage and extend maturities at a reasonable overall cost of capital,” the company said. “We are encouraged by the support and interest shown by our existing lenders and investors and look forward to sharing more on this topic.”
A source close to the company said Peloton should have no problems refinancing its debt.
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