Connected-fitness company Peloton Interactive (NASDAQ:PTON) agreed to acquire fellow fitness company Precor after the market closed on Monday. The $420 million acquisition expands Peloton's manufacturing capabilities, grows its potential customer base, and benefits from Precor's experience and research/development teams.

At the end of the first quarter of its fiscal 2021, Peloton had $2 billion in cash, cash equivalents, and marketable securities. While the company's official press release didn't disclose how its acquisition of Precor will be financed, Peloton has enough cash on hand to fund the deal if it so chooses.

A rider touches the screen on a Peloton Bike while performing a workout.

Image source: Peloton Interactive.

Precor has operations around the world, but Peloton seems most interested in its manufacturing capabilities in North Carolina and Washington. Peloton's supply chain has struggled in 2020 due to unprecedented demand, and customers have endured long wait times. Part of the company's solution to this problem was establishing manufacturing facilities in the U.S. Today's acquisition of Precor helps with this.

Peloton could also be expanding its customer base. Until now, the company's treadmill and stationary bike products have been used in households. However, Precor's business has many commercial customers, including hotels and colleges. Therefore, this acquisition could be a sneaky way for this growth stock to expand its total addressable market.

While there were certain things investors likely expected from Peloton in 2021, a splashy acquisition like this comes as a surprise for many. Accordingly, Peloton stock was up 9% after hours as investors digested the news.

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