Why Fitness Apps Have Seen Strong M&A Interest From Large Brands
Fitness apps have seen a spike in acquisitions in recent months—with massive non-technology companies jumping to make large deals. Adidas, Under Armour and Weight Watchers have all made recent acquisitions.
Tech startups have been seeing successful exits in the fitness and wearables sector, driven by strong interest from large brands looking to capitalize on the innovation, new users, revenue, brand lift and complementary products that these startups provide.
At Exitround we’ve seen non-technology companies with strong interest in buying tech companies in a range of sectors. Many of these large companies are looking for new innovative products, or are trying to compete better in a market or are looking to open new digital divisions.
Fitness apps, however, have seen a particular M&A surge in recent months—with some outsized deals. For example, Under Armour acquired nutrition tracking app and device company MyFitnessPal in Feburary for $475 million; Under Armour also bought activity tracking app Edomondo in January for $85 million and Gritness for an undisclosed amount.
With its recent acquisitions, Under Armour now has 120 million fitness app users. Last fall, Under Armour passed Adidas to become the second largest sports apparel brand in the U.S. Perhaps spurred by Under Armour, Adidas in August acquired fitness app Runtastic for $239 million. Weight Watchers, meanwhile, snapped up Y Combinator-backed weight-loss app Weilos in April, then picked up fitness video app Hot5 in May.
Fitness apps and related wearable technology are an many ways an ideal fit for the athletics industry. This technology fits into several massive trends, such as the quantified self and consumers’ interest in tracking their physical data; social media and sharing of information about with friends; and mobile devices that are being used in new ways in everything from extreme sports to running.
Athletics also naturally lends itself to measurement and analytics. Professional athletics today relies on data and statistics—from race times to advanced sabermetrics in sports such as baseball. And amateur athletes want to measure themselves as well, not just because they are following professional athletes’ lead, but also because data is how amateur athletes can measure their improvement, particularly in popular endurance sports such as running, cycling and the like. Athletes have become so dependent on these metrics now that many can’t imagine not using them. As the cycling meme goes, “if it’s not on Strava it didn’t happen.”
Unlike other lifestyle apps like food or photography, which use apps to do things like take photos or book restaurants, athletics use the mobile device as a mobile computer to analyze results and even give real time results during an event. As such athletics, and mobile apps (and new wearable devices) are a natural match.
So why are these large incumbents in the fitness/athletics industry so interested in new fitness apps? Many incumbents are traditional apparel brands with relatively slow growth, while new fitness apps are fast growth startups and have different business models (with larger margins) that appeal to these buyers. Secondly, as mentioned above, there is a natural synergy with health apps or wearables. This new technology makes people want to run or cycle or swim more – and naturally complements existing apparel, sports equipment or other athletic products. In some cases with wearables, they could even be directly integrated. As the CEO of Under Armour recently told the Wall Street Journal:
“One thing we emphatically know is that the more they work out, the more apparel and footwear they’re going to ultimately buy,” Under Armour Chief Executive Kevin Plank said of the company’s customers. Mr. Plank said the company will use insights gleaned from consumers sharing data across its platform to help make marketing decisions for its brand.
Third, fitness or wearable startups provide a brand lift for older large companies. At the same time, these startups often have a strong following among a younger demographic. For a teenager who may see Adidas as a brand that her father wears, Runtastic, Adidas’ recent acquisition, may be an app she uses everyday. Fourth, some incumbents may see moving into technology products as a way to increase their valuation among investors. Instead of being viewed as an apparel brand, they can attempt to be seen as a lifestyle device or technology brand. For companies looking for strategic options or trying to boost their stock price, this can be a factor.
Fitness apps are one of the more active sectors for M&A in recent months. Of course there are other sectors that also have strong interest from non-tech buyers. It would not be surprising to see similar spikes in M&A in other categories that have similar consumer interest along with large brand interest–areas such as personal health, fashion, and many more.