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WW International’s $106mn acquisition of Sequence

Updated: Oct 30, 2023

Acquisition Overview

Leading global provider of weight management solutions, WW International (known as WeightWatchers), has confirmed the acquisition of Sequence, the consumer brand of Weekend Health Inc. This subscription platform specialises in chronic weight management, granting access to GLP-1 drugs such as Ozemic and Wegovy, which have gained notoriety in recent years after their popularisation by renowned celebrities. Despite its relatively small value, the deal marks a significant milestone in the company's strategic expansion during a potentially pivotal period for the healthcare industry, as the company aims to integrate clinical interventions for eligible individuals and provide sustainable, science-backed solutions across multiple weight management pathways. The acquisition was announced on the 6th of March 2023 and closed at the start of Q2.

Deal Structure

WeightWatchers secured the acquisition of Sequence in a cash and equity transaction valued at $132 million over two years, encompassing a minimum of $26 million of Sequence's cash, bringing the effective net purchase price to $106 million. The deal has been structured such that $100 million was paid at the closing of the transaction, comprising $65 million in cash ($39 million net of Sequence’s cash) and $35 million in the form of 8.065 million newly-issued shares of WeightWatchers’ common stock. Additionally, $16 million in cash will be paid on the first anniversary of the closing, followed by another $16 million in cash on the second anniversary. Following the acquisition announcement, WeightWatchers' shares were up 79% from their closing price of $3.87 as markets opened to $6.93. The share price closed at $6.55 as the acquisition was confirmed on April 11 and the share price continues to steadily rise. Looking more long-term, WeightWatchers believe that the deal will be EPS accretive by the fourth quarter of 2023, further bolstering shareholder outlooks.

Fortis Advisors LLC advised the parties on the closure of this deal.

WW International Overview

As a prominent global weight loss and weight management company, WeightWatchers has spent six decades inspiring millions of people to adopt healthy habits for sustainable living. With a foundation in science-based principles, WeightWatchers employs a unique blend of technology and community support to help members achieve and maintain their weight loss goals. As the company has evolved, it has embraced a human-centric technology approach, focusing on personalization to cater to individual needs more effectively. This strategy has led to the development of innovative solutions, such as its digital app, which offers customized meal plans, fitness tracking, and access to a vast support network. This acquisition of Sequence signifies WeightWatchers' commitment to further expanding its technological capabilities and positioning itself as a frontrunner in the rapidly evolving healthcare landscape. This is perhaps in response to recent challenges including a 19% year-on-year revenue decline in Q4 2022 to $223.9 million and a 17.6% drop in digital subscribers to 2.8 million; it is therefore hoped that continued investment in innovation will lead to growth, and positive signs are already emerging. By integrating clinical interventions and telehealth solutions, WeightWatchers aims to provide a more comprehensive and versatile approach to weight management, catering to a broader range of individuals.

Founded: 1963

Number of Employees: 7,100

Enterprise Value (EV): $1.79bn

LTM Revenue: $1.04bn

LTM EBITDA: $197.07mn

LTM Operating Income: $76.65mn

Market Capitalisation: $462.39mn

Sequence Overview

Sequence, founded in late 2021, is a San Francisco-based subscription telehealth platform specialising in chronic weight management. Since its inception, the platform has experienced rapid growth, reaching an annual revenue run rate of approximately $25 million, turning cash flow positive in late 2022, and serving around 24,000 members across the U.S. as of February 2023. An efficient operating model, combined with deep product and engineering expertise, has allowed Sequence to streamline complex insurance processes and scale up customer acquisition primarily through word of mouth. For a $99 monthly fee, members receive telehealth appointments, access to dietitians and fitness coaches, and an app to track weight loss progress. Clinicians can prescribe popular obesity medications, such as GLP-1 drugs, although the cost of these medications is not included in the membership price.

Industry Insight

The weight management industry is currently experiencing a surge in demand for personalised, technology-driven solutions due to the increasing prevalence of obesity and rapid advances in treatments. These include GLP-1 drugs like Ozempic and Wegovy, which have shown promising results with patients losing approximately 15% of their body weight in just over a year. The advent of telehealth services has also enabled companies to deliver these drugs as part of online obesity treatment programs. Telehealth providers, such as Ro, Found, and Calibrate, are emerging as vehicles for delivering GLP-1 drugs to patients, incorporating prescriptions into their virtual care weight loss programs.

More broadly, as economies recover from the COVID-19 pandemic and gradually move back to normal life, the healthcare industry is undergoing systemic change. Three main trends stand out: changing consumer habits, increasing demand for personalised solutions, and a greater focus on digital health services.

Changing consumer habits: The pandemic has brought health and wellness to the forefront of people's minds, with many adopting healthier habits and seeking more comprehensive, long-term solutions for weight management. As a result, companies like WeightWatchers are seeking to adapt to these changing consumer behaviours.

Increasing demand for personalised solutions: Today's consumers are increasingly seeking personalised healthcare solutions, including tailored weight management plans and programs. This trend is driven by a growing understanding of the role genetics, lifestyle, and environmental factors play in weight loss and overall health. To stay competitive, companies are having to invest in advanced technology and data-driven strategies to develop customised solutions for their customers.

Greater focus on digital health services: The pandemic has accelerated the adoption of digital health services, such as telehealth and remote patient monitoring. This shift towards virtual care offers new opportunities for companies like WeightWatchers to expand their reach and provide more accessible and convenient services to their clients. By leveraging digital platforms and integrating telehealth solutions, these companies can better serve a broader audience and address the evolving needs of consumers in the post-pandemic era.

Thus, changing consumer habits, increasing demand for personalised solutions, and a greater focus on digital health services provide a strong context for WeightWatchers' acquisition of Sequence Telehealth, positioning the company to capitalise on emerging opportunities to ensure long-term success.

Strategic Rationale

It is clear that the industry in general is well-placed for such acquisitions, but WeightWatchers' acquisition of Sequence in particular represents a unique opportunity in line with the company's vision of expanding its market presence and diversifying its product offerings. As CEO Sima Sistani has stated, the company is "at a pivotal point where we can build new capabilities that will expand our market, reinforced by our foundational strengths." WeightWatchers carefully evaluated more than 30 different start-ups that prescribe obesity medications before deciding on Sequence, for which there were several synergistic reasons.

By incorporating clinical interventions, WeightWatchers can better serve the needs of individuals who medically qualify for such treatments. The integration of Sequence's telehealth platform will bolster WeightWatchers' existing services, allowing them to provide a comprehensive, all-encompassing solution that combines clinical care with behaviour change support. CEO Sima Sistani praised Sequence, saying, "They have built a tech stack better than anyone else." She also highlighted Sequence's preauthorization engine, which streamlines the insurance process for expensive medications.

WeightWatchers' expansion into the obesity drugs market through this acquisition will enable them to tap into new revenue streams and enhance their overall growth prospects. Integrating telehealth services into their existing offerings will enhance convenience and accessibility for customers, potentially leading to improved satisfaction and retention rates. The combination of WeightWatchers' weight management solutions with Sequence Telehealth's expertise in telehealth services for obesity treatment could result in synergies and complementary services, leading to a more comprehensive and effective solution for addressing the obesity epidemic. By entering the obesity drugs market, WeightWatchers could strengthen its position as a leader in the weight management and wellness industry, giving the company a competitive edge over rivals who may not have ventured into this space.

Sequence's co-founders and medical director noted in a statement that joining forces with WeightWatchers will enable both companies to "continue to fulfil our joint mission of liveable, sustainable, science-backed weight management”.

Long term prospects

This acquisition follows several years of challenges for WeightWatchers, but this strategic move has the potential to revitalise the company and set it on a path toward continued success. With nearly 650 million people worldwide affected by obesity and an expectation that almost half of Americans will be obese by 2030, the demand for effective weight management solutions is evident. Companies like Novo Nordisk and Eli Lilly, which produce obesity treatments, have seen their shares rise significantly, reflecting the market's potential.

However, the long-term prospects of this acquisition are not without challenges. Regulatory hurdles, integration challenges, and stiff competition with several players vying for market share are some potential obstacles that WeightWatchers must overcome. Additionally, the high cost of GLP-1 medications, which may not always be covered by insurance, could be a barrier for some patients as the fact that these drugs need to be taken continuously. WeightWatchers and other digital health players entering the weight loss drug market must maintain high ethical and clinical standards to avoid being viewed as dishonest drug pushers. WeightWatchers' strong brand recognition and commitment to a direct-to-consumer approach give it an advantage in this sense. The company already has an existing base of 3.5 million subscribers, to whom it can upsell Sequence’s services but even then, WeightWatchers must differentiate its offerings and invest in marketing efforts to gain a foothold in this increasingly crowded space.

WeightWatchers also faces financial risks, as the company is highly leveraged with long-term debt standing at over $1.4 billion, while its market cap remains below $400 million. This presents concerns in a climate of rising interest rates. Nonetheless, the company has consistently produced free cash flows despite experiencing a decline in growth and a loss of subscribers. The Sequence acquisition and the company's cost-cutting initiatives could lead to improvements in cash flows moving forward and furthermore the current risk-to-reward profile for WeightWatchers is appealing, with the stock currently trading at roughly 0.4x forward revenue, a significant reduction from the 2.5x forward revenue value observed in mid-2021. If WeightWatchers is able to take advantage of its timely entrance into the obesity drugs market, then I believe it can truly emerge as a leader in this space. However, it will be crucial to navigate the associated challenges with caution and continually seek new ways to innovate.

Written by Rohan Tandon (Balliol College, University of Oxford)

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