Private equity firms are circling Peloton for a potential buyout

Many private equity firms have considered buyouts Peloton CNBC has learned that the combined fitness company plans to refinance its debt and return to growth after 13 straight quarters of losses.

People familiar with the matter say the pandemic darling has been talking to at least one company in recent months that is considering going private. The company’s current level of interest in acquiring Peloton is unclear. A number of other private equity firms are circling Peloton as a takeover target, but it’s unclear whether they have held formal talks.

Companies have focused on how to cut Peloton’s operating costs to make the buyout more attractive. Last week, Peloton announced a broad restructuring plan that is expected to reduce annual operating costs by more than $200 million by the end of fiscal year 2025.

After the publication of the CNBC report, Peloton’s shares increased by over 18% in pre-market trading. Shares closed more than 15% higher.

There is no guarantee that the deal will be completed and Peloton may remain a public company. The people spoke on condition of anonymity because the conversations are private.

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

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

Peloton became a takeover target after its market capitalization fell from a high of $49.3 billion in January 2021 to about $1.3 billion on Monday.

Peloton has a steady and profitable subscription business with millions of committed users, but the business has been hampered by the hardware that originally made it a household name. The company’s bikes and treadmills are exorbitant to produce and have been the subject of numerous high-profile recalls that have alienated users from the brand and cost Peloton millions.

Additionally, as many consumers across all income groups are pulling back on huge purchases, there is circumscribed demand for home exercise equipment that can cost thousands of dollars.

Peloton has been on a downward trend over the past two years, struggling to grow sales, generate free cash flow and chart a path to profitability. Demand for the company’s equipment has dropped and costs are too high for a company of its size.

Last week, Peloton announced that CEO Barry McCarthy would step down after releasing a disastrous earnings report that fell miniature of Wall Street expectations. On the same day, he announced plans to reduce his workforce by 15%, or about 400 employees, explaining that “there is simply no other way to bring your expenses in line with your income.”

The savings that Peloton will generate as a result of 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 make the company more attractive to interested private equity firms.

Peloton is also burdened by debt. Its total debt as of March 31 was about $1.7 billion. The Company owes $692.1 million under the Term Loan Facility, which matures in November 2025, and $991.4 million under the 0% Convertible Senior Notes, which mature in February 2026. a review of Peloton’s latest quarterly securities filings.

Last week, the company said it was working closely with lenders at JPMorgan AND Goldman Sachs on the “refinancing strategy”.

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

One source close to the company said Peloton is not expected to have any problems refinancing its debt.