Fellow Shareholders:
We are extremely excited by today’s news that we’ve signed a non-binding letter of intent and exclusivity agreement to potentially acquire our first scaled, and profitable, health & wellness business.
The possible acquisition is transformative, and we expect it to provide us the necessary scale to achieve profitability in 2025. The target’s current shareholders aren’t taking any chips off the table, choosing to become and remain long-term shareholders of TRNR. This underscores the value both parties see in the combined business.
We’ll be sharing increasing amounts of detail on this latest acquisition target as we move towards closing on the potential deal. For now, shareholders should focus on the following:
WHY WE ARE PURSUING OUR SECOND ACQUISITION IN A YEAR:
● The target company fits with our strategy of using our public listing to make accretive acquisitions of profitable and high-growth businesses in the highly-fragmented health & wellness market globally.
● The target company is still founder-led, has been in business for more than a decade and has never raised external capital. The target is now ready for the next phase of growth, which TRNR is well-positioned to accelerate given our public listing
and distribution.
● At more than $40 million in annual revenues, and profitable, the potential acquisition would drive a step-change for both the top and bottom lines of TRNR.
● The valuation being paid is primarily based on future multi-year performance of the target, which protects the TRNR shareholders and should ensure an attractive earnings multiple.
● There is no cash consideration expected to be paid to the shareholders of the target, and they are exchanging all of their equity to become long-term shareholders in the combined company.
● It is expected that the acquisition can close without a capital raise or financing contingency.
● The target company complements TRNR’s existing brand and product footprint extremely well, expanding and differentiating the assortment of equipment and training options we can offer both businesses and consumers globally.
WHY THIS GROWTH STRATEGY MAKES SENSE:
● The global health & wellness market is massive but fragmented – and constantly evolving for both consumers and businesses.
● This large market size and strong growth is expected to be a constant tailwind for TRNR as it is clear an increasing number of consumers are seeking to address health and longevity and we expect to be exposed to many different facets of the
wellness market.
● This is why TRNR’s goal is to assemble a collection of opportunities for investors to capture the benefit of the underlying trends while meditating against downside risks via a portfolio approach.
○ This includes both B2B and DTC sales channels.
○ Consumers will continue to spend on health and wellness (it represents an “essential” spending category), but companies are equally expected to continue to represent a key purchasing pool (estimated corporate per employee spend between $100-150 in the US).
○ This also includes a broader definition of fitness/wellness (TRNR can sell equipment, services, and any other related wellness offering – including, e.g., GLP-1s or hormone therapies).
○ As the number of offerings increases, buyers and investors alike benefit from TRNR’s differentiated assortment.
● More specifically, TRNR intends to intercept subscale, high-potential businesses before their multiples expand.
○ It is estimated that there are more than 400 Gym & Exercise equipment manufacturers in the US alone.
○ According to the FDA, there are roughly 4,000 brands selling into the supplement space.
○ Even in newly-popular, hyper-specific categories there are multiple companies: there are at least a dozen infrared sauna brands available in the US, and the “cold plunge tub” category already has its own US market studies.
○ The clear takeaway: in the US alone, there are a huge number of companies, spread a huge number of health and fitness categories – the majority of which, by definition, are subscale – available for an informed buyer to consider for
possible acquisition.
In summary, both the completed CLMBR acquisition and the potential acquisition related to today’s Letter of Intent reflect our belief that we will be able to increase shareholder value via strategic transactions, through a combination of operational knowledge and a highly aligned incentive structure between target business owners and TRNR shareholders.
The core of TRNR’s argument is to offer a value based operating strategy, disciplined acquisitions, and an increasingly improving and efficient capital structure, applied to a category rich with targets.
This is why, as we wrote in our most recent quarterly shareholder letter, we’re moving away from scaling a single, direct-to-consumer, connected-fitness platform and brand – FORME. We are moving toward building a portfolio of specialty fitness brands and equipment, through acquiring already-scaled and/or partially-scaled businesses in complementary niches of the larger health and wellness market.
Finally, we also want to call out a few other important background points for shareholders:
First, we acknowledge that many of our expectations for CLMBR at the LOI stage have taken longer to bear fruit than we expected.
That said, we believe that the brand, product line and business are now showing their potential. More importantly, our end markets agree – as evidenced by the 18 CLMBR announcements in 2024 so far about customer wins, distribution agreements, exhibitions and regulatory certifications.
As our earnings reports show, we’re steadily ramping up revenues, with a lot of the growth coming from the CLMBR brand, but we had to take more time than expected to improve the product as well as how it is sold and used.
We also learned from our work with CLMBR that we are better placed to benefit by acquiring businesses that have already scaled past the first $10 million of revenue. The LOI target we have shared today is a different level of business and at a different stage of maturity than CLMBR. The target and its team are long past the particular ups and downs of trying to hit that first $10 million in revenue by manufacturing and selling fitness products and have surpassed $40 million in annual revenue recently.
This proven experience and the scale they’ve achieved are two important drivers for our interest in the company, their brand and their team.
To set some expectations about the deal process from here, our next step would be to sign a definitive agreement to acquire the company, assuming discussions and due diligence continue to mutual satisfaction. Following that milestone, we’d look to formally “close” the deal and complete the transaction to the satisfaction of all appropriate parties and regulators. At each of these phases, we’ll share more information and details about both the rationale for the deal and the acquisition itself.
While we have a lot of work to do growing our existing brands and sales and are taking on new challenges in helping a scaled business get even bigger, we want shareholders to connect all the dots here.
The TRNR team knows the fitness market and how to acquire businesses successfully. We’re building on a real domain expertise in terms of both domestic and international B2B sales of equipment as well as the connected fitness experience. We’re adding brands to our portfolio. And we’re acquiring real revenues, while holding operating costs relatively steady. So while we are starting from modest beginnings, we are putting together the right parts to be a significantly different company within the next 12 months.
We look forward to continuing to take you on this journey, and appreciate your engagement and support.