Private equity firms circle Peloton for potential buyout

A number of private equity firms have been considering a buyout of Peloton as the connected fitness company looks to refinance its debt and get back to growth after 13 straight quarters of losses, CNBC has learned. 

In recent months, the pandemic darling has had talks with at least one firm as it considers going private, people familiar with the matter said. The firm’s current level of interest in acquiring Peloton is unclear. A number of other private equity firms have been circling Peloton as an acquisition target, but it’s unclear if they have held formal discussions.

Firms have zeroed in on how to cut Peloton’s operating expenses to make a buyout more attractive. Last week, Peloton announced a broad restructuring plan that’s expected to reduce its annual run-rate expenses by more than $200 million by the end of fiscal 2025. 

Shares of Peloton soared more than 17% in premarket trading after CNBC’s report was published.

There is no guarantee a deal will be made, and Peloton could remain a public company. The people spoke on the condition of anonymity because the talks are private. 

A Peloton spokesperson declined to comment on CNBC’s reporting. 

“We do not comment on speculation or rumors,” the spokesperson said. 

Peloton has become a takeover target after seeing its market capitalization plummet from a high of $49.3 billion in January 2021 to about $1.3 billion as of Monday.

Peloton has a consistent and profitable subscription business with millions of loyal users, but the business has been hamstrung by the equipment that originally made it a household name. The company’s bikes and treadmills are costly to make and have been the subject of numerous, high-profile recalls that have turned members away from the brand and cost Peloton millions. 

Plus, as many consumers from all income groups pull back on big-ticket purchases, demand for at-home exercise equipment that can cost thousands of dollars is limited. 

Over the last two years, Peloton has been on a downward trajectory as it struggles to grow sales, generate free cash flow and chart a path to profitability. Demand for its hardware has fallen and its costs have been too high for a company of its size. 

Last week, Peloton announced CEO Barry McCarthy would be stepping down as it issued a disastrous earnings report that missed Wall Street’s expectations. On the same day, it announced plans to cut its staff by 15%, or by about 400 employees, explaining “it simply had no other way to bring its spending in line with its revenue.”

The savings Peloton will generate from the restructuring will come primarily from the layoffs, along with cuts to marketing, research and development, IT and software. The cuts will make it easier for Peloton to generate sustained free cash flow, which executives said can be obtained even without sales growth, and will make it more attractive to the private equity firms that have been 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 are due in February 2026, according to a review of Peloton’s most recent quarterly securities filing. 

Last week, the company said it’s working closely with its lenders at JPMorgan and Goldman Sachs on a “refinancing strategy.”

“Overall, our refinancing goals are to deleverage and extend maturities at a reasonable blended cost of capital,” the company said. “We are encouraged by the support and inbound interest from our existing lenders and investors and we look forward to sharing more about this topic.”

One source close to the company said Peloton isn’t expected to have any issues refinancing its debt.