In April 2024, global fitness equipment leader Johnson Health Tech completed a strategic acquisition of assets from the bankrupt U.S. company BowFlex. This transaction not only solidified Johnson’s footing in the global home fitness market but also opened a pathway toward becoming one of the top three brands in the industry.
Analysts estimate that BowFlex will contribute approximately $63 million in revenue to Johnson this year, a promising addition to the company’s financial performance.
However, the path to this acquisition was far from smooth.
Just a year ago, BowFlex was still a publicly traded entity on the U.S. stock market, struggling with widening losses and a declining share price. Faced with mounting financial pressure, BowFlex’s management sought potential buyers to avoid further financial distress.
Several fitness companies and investment groups, including Johnson and other Chinese buyers, expressed interest in acquiring BowFlex.
Initially, Johnson considered purchasing BowFlex outright as a means to enter the U.S. market via a "backdoor listing." With BowFlex’s higher product image compared to Johnson’s Horizon brand, such a move promised enhanced profit margins. However, Johnson’s board rejected this plan, citing concerns over BowFlex’s financial statements and unresolved debt obligations, which posed significant risks.
As BowFlex’s financial situation worsened, its creditor banks became increasingly anxious about outstanding debts. Ultimately, they compelled BowFlex to delist and declare bankruptcy, opening the door for a favorable opportunity for Johnson and other buyers.
Utilizing Section 363 of the U.S. Bankruptcy Code, Johnson could acquire BowFlex’s valuable assets without inheriting its historical debt or liabilities.
Section 363 of the U.S. Bankruptcy Code allows for the expeditious sale of assets under court supervision, usually through auction or competitive bidding. This process benefits buyers by enabling them to purchase assets unencumbered by past debts and obligations, while creditors aim to maximize recovery.
For Johnson, this acquisition approach significantly mitigated risks and eased the board’s initial concerns. Consequently, Johnson positioned itself as the "stalking horse" bidder, setting a benchmark price while enjoying priority in the acquisition process. Johnson ultimately secured BowFlex’s assets for $37.5 million and completed the transaction within two months.
Through the acquisition, Johnson acquired BowFlex’s trademark, inventory, and receivables. To streamline operations and optimize costs, Johnson reduced BowFlex’s workforce by approximately 80%, including the closure of BowFlex’s China office and the termination of all local employees.
Notably, Johnson was not the only company interested in BowFlex. According to sources, a mainland Chinese fitness company also joined the bidding but ultimately withdrew, possibly due to political tensions and China’s restrictions on outbound capital. This decision left Johnson in a favorable position to acquire BowFlex at a relatively low price.
Roger’s Commentary
I've been closely following Johnson's acquisition of BowFlex and have discussed it with several industry insiders.
Feedback from some former BowFlex employees highlights concerns over the role of the U.S. creditor bank. They believe the bank, eager to recover its investment, aggressively pushed the transaction through under Section 363 of the U.S. Bankruptcy Code, which left BowFlex in a difficult position and was forced to delisting and bankruptcy.
Other former employees pointed to BowFlex’s strategic missteps, particularly its heavy focus on JRNY, the fitness app, and extensive software development. This focus diverted substantial resources from profitable areas, ultimately exacerbating the company’s losses.
Regarding Johnson’s goals for this acquisition, some insiders suggest that the move was not solely about expanding market share but also was likely strategically sidelining a potential competitor. With significant overlap between Johnson’s home fitness products and BowFlex’s lineup, Johnson may be inclined to limit investments in BowFlex to avoid internal competition.
However, others disclosed that after the acquirisition, Johnson had been actively developing new product lines for BowFlex while continuing to sell the existing models, indicating a balanced approach. Let's wait and see what Johnson will bring to new Bowflew brand.
Ultimately, Johnson’s acquisition of BowFlex provides valuable insights for Chinese fitness equipment companies considering overseas expansions. This transaction highlights the importance of strategic timing, effective risk management, and the unique advantages offered by U.S. and local bankruptcy laws.
2024-11-15 Roger from Suzhou, China (cs01@fitqs.com)
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