5 Facts: Could an Equinox IPO Challenge Peloton?
The SPAC (special purpose acquisition company) craze continues with Equinox Holdings fishing for the best deal for its initial public offering (IPO) among a field of potential mergers. Equinox Holdings has a majority stake in fitness company SoulCycle, rival to streaming exercise and workout machine enterprise Peloton Inc. (NASDAQ: PTON), and operates a range of fitness clubs and even hotels.
Now, the company is on the verge of an IPO through a merger. What about the potential deal could be useful for investors?
1. Equinox is in Talks with 10+ SPACs
This week’s news, first reported by Sportico, has Equinox Holdings shopping around among approximately 12 SPACs for the best deal on a potential IPO. The company also isn’t certain to go the SPAC merger route for its IPO. In addition, it is looking into the possibility of using a more traditional private equity firm. However, with Businessweek reporting that SPACs collectively control over $1 trillion in purchasing power as of March 2021, it seems likely Equinox may find what it’s looking for among these numerous, well-funded entities.
2. The Company’s Valuation is Strengthened by Expectations
With COVID-19 starting to noticeably decline and the economy beginning to reopen, investors are now looking for good recovery plays. An unidentified private equity investor involved in the current Equinox negotiations said Wall Street might put Equinox into this category, with fitness clubs likely to reopen in the near future with a surge in demand.
Silver Lake Partners, an equity firm, provided the company with a chunk of cash last year specifically to challenge meteoric fitness sector success story Peloton, at which time Equinox was valued at $9 billion. With a recovery boost figured in, the valuation might be even higher (Peloton currently has a $30 billion-plus market cap).
3. SoulCycle is Offering Outdoor Classes
SoulCycle, one of Equinox’s major brands and a higher-end fitness company, began offering outdoor cycling classes in 20 cities in the middle of March, 2021. The move is clearly an effort to increase revenue before COVID-19 is completely vanquished, since the outdoor venue made possible by warming weather across much of the United States makes social distancing and compliance with health rules easier.
However, the company likely still has an uphill battle to compete against Peloton, which established itself as the streaming fitness sector’s leader during 2020 while pandemic lockdowns remained in place.
4. The SPAC Boom May Be Attracting Government Attention
On the bearish side of the equation, Equinox Holdings may be trying to go public with an investment mechanism currently drawing potentially unfavorable government scrutiny, specifically from the Securities and Exchange Commission (SEC).
With more than 400 SPACs currently active, as reported by Benzinga, and March investments in SPACs skyrocketing 3,043% year over year to $30.8 billion (with the month not even over yet), some government investigation is probably inevitable sooner or later.
Rumors say the enforcement division of the SEC is querying banks for information about the SPACs, meaning a serious investigation could be forthcoming. While there is a small risk this could short-circuit Equinox’s IPO plans, the possibility still exists, depending on the SEC’s findings and actions.
5. Equinox is Directly Challenging Peloton
The $43 billion private equity firm Silver Lake Partners made a major investment in Equinox Holdings last February, with the express purpose of challenging Peloton in the fitness sector. According to fitness business news site Club Industry, the investment was aimed at developing a robust digital platform, opening 50 new locations yearly, and possibly offering its own at-home fitness bike models.
The equity firm saw the potential for Equinox to take on Peloton at that time—though on a cautionary note, this was prior to Peloton’s scorching bull run over the course of 2020, powered by the total shutdown of in-person gyms and a home fitness boom prompted by COVID-19 risks.
When Could Equinox IPO?
At this point, Equinox Holdings is still just a potential IPO, so detailed information about its performance and that of its various brands still isn’t publicly available. However, it’s clear the company may launch with a valuation of $9 billion or perhaps somewhat higher, and it seems to be strongly considering a near-future merger with a SPAC as its bridge onto the public stock market.
The success of Peloton has many investors interested in cutting-edge fitness companies. With Equinox also seeing potential tailwinds from the economic reopening, this is one company worth following as it moves forward with the public offering process.
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