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Why Under Armour Had Back-To-Back Acquisitions

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Connected fitness

It may take a lot to claim the top position from the undisputed market leader—NIKE (NKE). However, Under Armour’s (UA) back-to-back acquisitions of two connected fitness firms this year may do just that. In January 2015, Under Armour (UA) acquired Copenhagen-based connected fitness firm Endomondo for $85 million. The company has ~20 million registered users, primarily in Europe.

At the 4Q14 earnings release, Under Armour announced the purchase of San Francisco-based MyFitnessPal for $475 million. It purchased the company to bring together the world’s largest digital health and fitness community.

MyFitnessPal is one of the world’s largest digital resources for healthy living and nutrition. It has ~80 million registered users. The acquisition is expected to close in 1Q15. Under Armour plans to finance the purchase by using a mix of cash on hand and additional debt.

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Exponential growth

All three sites—Under Armour’s own MapMyFitness, Endomondo, and MyFitnessPal—are growing exponentially. Combined, the three sites grew 46% in 2014. They added ~100,000 users per day. This was a total of 40 million members for the year.

In January 2015, Under Armour’s connected fitness platform recorded over 100 million workouts. It added 4.2 million new unique users. This was a staggering growth pace.

The rationale

The purchases are strategic. They would enhance the company’s understanding of its consumers’ health and fitness habits—especially athletes. This data is valuable for assessing athletes’ needs. It also helps with new product development and launches.

“By combining a community of 120 million unique registered users, we are developing a digital ecosystem that provides us with unparalleled data and insight into making every athlete better. Understanding the evolving needs of our athletes – how they interact, how they consume, and ultimately how they strive to live healthier lifestyles – will be key inputs to forging deeper relationships and becoming more relevant to how the consumer shops for our Brand,” said CEO Kevin Plank, in the 4Q14 earnings release.

What’s the competition up to?

In contrast, NIKE’s (NKE) digital initiative, NIKE+, also has tens of millions of users. The company plans to grow that number to hundreds of millions. It’s using digital to personalize its relationship with its customers. However, Under Armour’s digital purchases give it the scale that’s absent in its other businesses—compared to its much bigger rival.

Under Armour’s sector orientation and strong growth trajectory meant that a number of ETFs provide exposure to the company. Under Armour’s stock forms a 0.51% weight in the SPDR Consumer Discretionary Select Sector ETF (XLY), a 0.36% weight in the iShares Russell Mid-Cap Growth ETF (IWP), and a 1.73% weight in the the Guggenheim S&P 500 Pure Growth ETF (RPG).

We’ll discuss the connected fitness platform in more detail in the next part of this series.

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