The coronavirus is changing the lifestyle of many Americans profoundly. As more people work from home, learn online and engage in social distancing, they are buying products and services that cater to their emerging needs. As a result, dealmaking is surging in some sectors including makers of exercise equipment.
In our November/December cover story, Mergers & Acquisitions identifies and explores five sectors receiving strong interest from strategic buyers and private equity firms: exercise equipment, cleaning products, food delivery, pets and mobile homes.
Here’s our look at the trends driving M&A in exercise equipment for keeping in shape during the pandemic both indoors and outdoors. (Note: this is part one in a series. For links to the other parts, see the end of the story.)
Staying Fit: The Great Outdoors and Home Alone
The pandemic has made consumers more health-conscious than ever. “The arrival of this novel coronavirus left people hyper-exposed to news about health, hastening the shift toward health and wellness that had already been gaining ground over the past decade,” says Bain & Co. in its ‘Shaping the Consumer of the Future’ report. “In the U.S., 53 percent of consumers are even more concerned about their health now than they were prior to Covid-19.”
Private equity firms have taken notice. “By eating and exercising at home, by forgoing spa and salon services, and by cancelling vacations during the course of the last six months of Covid-19, many consumers have increasing disposable income to use for new occasions and activities, notably outdoor products that offer fresh air, social distancing and fitness,” says Blythe Jack, managing director, TSG Consumer Partners. “This has led to unprecedented demand for outdoor products and commensurate inventory shortages across the industry, especially given the longer lead times for categories like cycling.”
Other increasingly popular outdoor activities include kayaking, hiking and golf. All of these can be enjoyed while maintaining appropriate social distancing, just as many fitness classes are still on hold and people have become wary of gyms.
In September, investment firm Compass Diversified (NYSE: CODI) announced it is buying BOA Technology Inc., a maker of outdoor athletic wear and accessories such as boots and shoes for snowboarding, cycling and mountain climbing, for $454 million.
“With many gyms closed and with the virus still present, we continue to see growth in the sporting goods sector (i.e., fitness and self-care),” says Brian Little, managing director, Duff & Phelps. “Outdoor products and home goods continue to do well as people are staying home much longer than originally expected and have more time on their hands.”
Exercising at home is increasingly popular, fueling the growth of subscriptions for stationary bikes and online programs. Since Peloton Interactive Inc. (Nasdaq: PTON) went public in September 2019, the stock has gained 331 percent through Oct. 23.
And in October, L Catterton invested $200 million in fitness equipment maker Icon Health & Fitness, the owner of the iFit, NordicTrack, ProForm and Freemotion brands. L Catterton was joined by existing investor Pamplona Capital Management.
“Health and fitness have never been more important to consumers globally, and we are seeing explosive growth across our subscription software and fitness equipment businesses,” says Icon CEO Scott Watterson. “We saw this fast-growing demand going into 2020, and this has accelerated sharply as people’s desire to stay healthy has intensified.”
As an indication of just how much is at stake for these companies, Icon and Peloton have been locked in legal battles. In October, NordicTrack maker Icon sued Peloton for patent infringement, claiming Peloton stole features, such as a swiveling touchscreen, for its newest stationary bike. Back in May, Peloton sued Icon, claiming it “attempted to free ride off Peloton’s innovative technology,” because it began broadcasting live classes.
Yoga’s popularity also continues to grow, spawning deals. Apparel maker Lululemon Athletica Inc. (Nasdaq: LULU) acquired Mirror, a maker of in-home fitness equipment, for $500 million, expanding a partnership that began in 2019.
“We are seeing a shift in behavior in terms of working from home, sweating from home and the increased importance of living an active and healthy lifestyle,” Lululemon CEO Calvin McDonald told investors. “These trends play to our strengths and set up an opportunity for us to continue to innovate and gain market share. We are learning how our guests are changing their behaviors, and we are adapting engaging with them in new ways.”
For more on Mergers & Acquisitions’ The New Consumer cover story, see:
The New Consumer: Comfort on the Move