Clients exercise in a class during a boot camp in New York, U.S. (Photographer: Scott Eells/Bloomberg)

Flywheel Sports Taken Over by Lender, Exploring Sale

(Bloomberg) -- A lender to boutique fitness studio operator Flywheel Sports has seized control of the company and is working with an adviser to gauge interest from potential buyers, according to people familiar with the matter.

Kennedy Lewis Investment Management LLC, a New York-based investment firm, took over Flywheel and its board last month, said the people, who asked not to be named because the matter is private. Kennedy Lewis owns roughly 75 percent of the company, which has more than 40 studios that stretch from the Hamptons to West Hollywood and are known for their high-intensity indoor cycling and barre classes.

“We are excited to partner with Flywheel in exploring growth opportunities for the at-home Flywheel bike given the extremely positive trends in this space,” said David Chene, one of the founders of Kennedy Lewis.

Flywheel Sports Taken Over by Lender, Exploring Sale

Flywheel is working with Houlihan Lokey to explore strategic options including a full or partial sale and has received interest from potential buyers including private equity firms and family offices, one of the people said. Flywheel has advised their investors of the change in control to Kennedy Lewis.

A onetime darling of the Manhattan fitness industry, Flywheel was co-founded in 2010 by Ruth Zukerman, one of the founders of SoulCycle. The company received an injection of almost $109 million in 2014 from the Benvolio Group -- which invests on behalf of the family of former Coach Inc. chairman Lew Frankfort -- and Greenwich, Connecticut-based private equity firm L Catterton.

Peloton Backing

L Catterton went on to back at-home bike maker Peloton Interactive Inc., and has since sold its investment in Flywheel. In an email, Elena Sukacheva, Flywheel’s president, declined to comment and referred questions to Kennedy Lewis. Representatives for Houlihan Lokey and Benvolio declined to comment.

Kennedy Lewis, which targets idiosyncratic credit opportunities, provided a loan to Flywheel last year to refinance existing debt and provide working capital to build its in-home business. Earlier this year, Flywheel entered into a negotiation with the investment firm over the covenants tied to its borrowings and the need for new capital to grow the business. Kennedy Lewis injected another $15 million in exchange for taking majority equity control in the company.

Benvolio remains a minority Flywheel shareholder with a stake of about 15 percent, the people said.

Growth Options

Flywheel has primarily been building its studio business and is now going to put a focus on selling its bikes to help that business garner more traction with consumers. The bike starts at $1,699 before tax, delivery and a $39-a-month-subscription.

The company is weighing growth options including potentially selling the at-home bikes and subscriptions via Amazon and Best Buy, according to a person with knowledge of its plans. Most of its studios are profitable, some of the people familiar with the company said.

Flywheel pulled earlier plans to sell all or part of itself after failing to drum up investor interest, the Financial Times reported in December. That process, run by a different advisory firm, sought around $350 million for the company, a person familiar with the matter said.

Peloton also sued Flywheel last September alleging that Flywheel copied its at-home bike technology and infringed on its patents. The case is ongoing.

“Flywheel firmly denies the claims raised by Peloton and strongly believes that our Flywheel at-home home product does not infringe Peloton patents,” Sukacheva said in a statement. “Peloton’s lawsuit is a classic example of a big business trying to intimidate a competitor out of the marketplace.”

Flywheel’s struggles in the studio business have occurred even as some rivals thrive with consumers prioritizing spending on fitness and wellness. Earlier this year, Peloton picked banks to lead a potential initial public offering that could value it at more than $8 billion, having last year raised $550 million at a valuation of $4.15 billion.

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