It’s March 2021. We’re about a full year into Covid, I still can’t say I miss living in San Francisco. But I do have epic nostalgia for Equinox — also known as “the ‘Nox” (a satirical yet strangely fitting moniker) by SF millennials. With its bottomless supply of eucalyptus towels and an endless flow of Kiehl's Amino shampoo, it quickly became my sanctuary between the office and the 80-square-foot, windowless space I called my room.
Despite not having access to the ‘Nox’s utilitarian-zen gray and beige studios the past year, I’ve still happily shelled out $40 a month for its on-demand fitness class streaming offering, Equinox+. A few months ago, I also decided to indulge in a Black Friday deal and locked myself into a year-long Whoop subscription, partially to entertain my curiosity and partially out of admiration of Whoop's sneaky ability to bolt recurring revenue onto hardware.
At my day job in Corp Dev & Strategy, I think a lot about market dynamics and driving value via inorganic means. So naturally, the more I used both Equinox+ and Whoop, the more I couldn’t help but question why they weren’t more tightly integrated already — or better yet, offered as a unified solution.
TLDR; Equinox should acquire Whoop to bridge digital and physical and create a category-defining solution in connected fitness.
It was fun to flesh out this thesis in my piece below. I’d love to hear your thoughts!
Setting some context
Equinox is a global lifestyle brand with over 300 locations in major cities that operates a portfolio of brands including Equinox gyms, Equinox hotels, Soucycle, and PURE Yoga. Equinox Group is owned by a consortium of investors including founder Harvey Spevak and The Related Companies, a US real estate firm.
Whoop is a stylish biometric monitor that offers granular tracking of exertion, recovery, and sleep — it’s probably the only wearable on the market that will tell you when not to work out. Whoop has raised $205M to date from investors like IVP and SoftBank and boasts a $1.2B valuation.
EquiWhoop — better together
An Equinox/Whoop combination — I'll endearingly call it EquiWhoop here — galvanizes both companies' positions in an increasingly competitive connected fitness market. An acquisition of Whoop by Equinox is intriguing to me for a few main reasons (that I couldn’t help but try and make into puns 😃):
Warming up: Uncanny similarities at the highest level
Compound lifts: Some potential ways 1+1 = 3
AMRAP finisher: Building physical and digital endurance
1. Warming up: Uncanny similarities at the highest level
From a cursory glance, there’s incredible congruence between the brand identities and core ethos of Equinox and Whoop.
Take this marketing copy, for example —
Whoop: "Optimizing performance was not a random sequence of events and decisions, but rather a systematic approach to understanding your body."
Equinox: "In everything we do, we create the possibility for people to maximize the potential within themselves."
Optimizing. Maximize. Systemic approach. Music to the ears of city-dwelling millennials who seek self-actualization through achievement. The fusion of brand and identity is central here — as the somewhat cringe-y Equinox slogan goes, “it’s not fitness, it’s life”. You don’t just work out at the gym, you’re the type of person who is a member of an Equinox Club. And you don’t just have a wearable, you’re the type of person who wants granular tracking of their biometric data via Whoop. The symbolic identities forged by Equinox and Whoop transcend the utility that either company provides for users.
The underlying ethos here is relentless self-improvement, health as a status symbol, and optimized performance in every dimension of life. I’m not surprised that Whoop and Equinox have been able to successfully this ethos given several trends over the past decade: generational redefinition of “health”, valuing experiences over material possessions, and millennials as the burnout generation, just to name a few.
Equinox and Whoop don’t just promise to keep you in shape. They pledge to make you a healthier, stronger, and all-around better person — to be able to ascend to wellness nirvana.
2. Compound lifts: Some ways 1+1 = 3
One of the core tenets of M&A that the value created by the whole should be greater than any sum of its individual parts. Here are some ways I see EquiWhoop driving value that Equinox and Whoop would not be able to as standalone companies.
Drive usage through increased relevance: EquiWhoop could enable programmatic and relevant curation of classes in the digital and physical worlds. Imagine your Equinox app recommending group fitness classes to you based on data collected by your Whoop — for example, if you were planning to sweat it out at an intense HIIT session but your body actually wasn’t fully recovered from your previous workout, you might be recommended a restorative yoga session instead to prevent injury. Conversely, EquiWhoop can send you nudges to squeeze in a workout if you’re well-rested and ready to put strain on your body.
Equinox actually began partnering with Whoop recently to enable this capability for Equinox+, its virtual fitness platform. If I were Equinox, I would closely examine the lift in usage frequency of Equinox+ before and after the partnership. Here’s why. As seen below in an analysis of consumer behavior in the physical world, more frequent usage translated to higher willingness to pay. Making Equinox+ more of a daily use case can thus increase willingness to pay and subsequently reduce user churn due to price. This is table-stakes for a subscription-based business in a competitive space, especially considering that Peloton has an industry-leading 0.46% monthly connected fitness churn.
Uplevel personal training capabilities: Beyond better algorithmically-driven workout recommendations, EquiWhoop can also uplevel higher-touch (and very lucrative) offerings like personal training. In my experience, Whoop provides data that is granular enough to drive insights without being incredibly invasive. This aggregate data on sleep, lifestyle choices, and workout habits can amplify a trainer’s ability to both build better workout routines and provide more value-additive holistic lifestyle coaching.
Equinox has already embraced this concept at its clubs by offering not just fitness training but also programs like sleep coaching. EquiWhoop can take this holistic wellness-focused approach to the next level in both the digital and physical realms.
Increase stickiness with a biometric system of record: I’ll draw a nerdy comparison to a framework in enterprise software to explain why this is important. A simple way to classify software is either as a system of record or a workflow application — in EquiWhoop, Whoop is the source of truth for all your biometric data (system of record) while Equinox enables your yoga or HIIT class (workflow application).
Similar to how it’s easier for a sales team to cancel a contract for a random file sharing tool (workflow) than for Salesforce (system of record), it’s easier to cancel a simple gym subscription than a connected fitness platform where all your data and activity is stored. This, in addition to the actionable recommendations that can be delivered algorithmically and through coaching, could make EquiWhoop stickier than either Equinox or Whoop standalone.
3. AMRAP finisher: Building physical and digital endurance
Just like how AMRAP (As Many Reps As Possible) workouts build cardiovascular and muscular endurance, owning Whoop builds Equinox's stamina for competing in an increasingly crowded connected fitness world. This is the core of the deal thesis but also the leap of faith that needs to be made.
Competition in connected fitness has heated up in 2020, primarily bolstered by pandemic tailwinds — content-centric players like online workout video library Daily Burn saw a 268% y/y surge in membership in the early days of the pandemic, and equipment-centric players like Hydrow and Echelon raised $25M and $65M, respectively, to take a bite of the at-home fitness boom.
However, the category is already becoming commoditized. Many pure-play online services have comparable libraries of workouts, every brand seems to be launching slight permutations of the same treadmill and stationary bike. Consider the humorous case of Peloton and Echelon, two brands whose names, logos, and flagship stationary bike offerings are essentially identical, as an example — according to reviewers, “the Echelon Connect EX3 costs significantly less than a Peloton bike, but gives you essentially the same experience.”
Despite intensifying competition in connected fitness, lack of meaningful differentiation gives EquiWhoop the opportunity to be a category-defining leader through seamlessly fusing digital in-home and physical in-gym.
Amidst a pandemic-driven boom in at-home solutions, 75% of consumers have noted they will eventually return to pre-pandemic routines and the actual gym. To highlight the underlying trend here, I’ll draw a parallel to the parable of Walmart vs. Amazon, which I witnessed firsthand when I interned with Walmart Online Grocery a few years back. In the battle for online grocery, it's not a matter of physical or digital — rather, it's about how you can best leverage your brick-and-mortar presence to accelerate your digital efforts, and vice versa. This is precisely why Walmart is leveraging its stores as delivery hubs and Amazon bought Whole Foods.
I see a similar pattern playing out in connected fitness, especially given the trend I highlighted earlier of fitness being more about holistic wellness and less about the workout itself. There are simply some dimensions of wellness that can’t be emulated by a piece of connected fitness equipment in your living room — hands-on instructor support, candlelit yoga, steam rooms, and the feeling of moving in synchrony with a group of strangers, just to name a few.
Given this, I believe the ability to elegantly bridge digital and physical, rather than another Mirror clone or Peloton class category, is going to be the next big thing in connected fitness. With its robust portfolio of more than 300 physical locations in major cities in the United States and its recent foray into live streaming, Equinox has a clear head start that Whoop can help accelerate.
Wait, but …
Unfortunately, given Equinox’s current financial profile and Whoop’s rich valuation of $1.2B, an acquisition of Whoop by Equinox may simply not be feasible. Though Equinox is a private company that doesn’t disclose financials, its credit ratings signal lack of investor confidence. Moody's recently downgraded Equinox’s debt to Caa3 from Caa2, a subprime rating that suggests very high credit risk. Moreover, it believes Equinox’s EBITDA will be roughly 30% below 2019 pre-COVID levels, pushing debt-to-EBITDA above 12x through fiscal year 2021.
Assuming Mirror’s 1.6x takeout value premium ($500M acquisition vs. $300M valuation), we can expect an acquisition of Whoop to cost nearly $2B (!!!). With a highly levered balance sheet and dubious ability to take out more debt, Equinox is unfortunately unlikely to have the financial firepower to make this sort of acquisition.
In the greatest plot twist of all time, we may actually see the opposite happen if Equinox continues to face pandemic headwinds — Whoop, with its strong cash position and investor backing, could swoop (or shall I say, sWhoop) in and acquire a financially distressed Equinox 🧐
In most M&A scenarios, financial upside justifies the deal. Big swing plays that rely more on conviction in what could go right (e.g. Facebook + Kustomer, Salesforce + Slack) are far less common.
This is what made EquiWhoop such an exciting thought exercise. It is fundamentally driven by a leap of faith toward the conviction that the way to win connected fitness is through the intersection of physical and digital. We can model out the potential short-term incremental revenue upside from an EquiWhoop combination, but the crux of this deal is rooted in a huge bet on a vision of the future rather than in cold hard numbers.
As the pandemic subsides and people begin returning to gyms, I’d be incredibly curious to see how the battle for connected fitness unfolds.
Thanks for reading. I’m always game for discussion and even more so for healthy debate — I’d love to hear your thoughts, please shoot me a message!