Tempur Sealy is restless in his quest to rule the world of dreams. The US mattress maker is buying Mattress Firm in a cash and stock deal worth about $4 billion, including debt.
THE acquire from the playfully named specialist retailer brings vertical integration to the world of horizontal recovery. The timing, which comes amid a slowdown in mattress demand, is a concern. Another is the debt that Tempur will take on.
Privately held Mattress company it reported a net profit of 389 million euros on revenues of 4 billion euros last year. Tempur’s offering — of $2.7 billion in cash and $1.3 billion in stock — values ​​the target at about 9.2 times the company’s value to adjusted EBITDA. This compares to the 11.5 times Tempur itself trades.
The price is lower on inflation-adjusted terms than the $3.8 billion EV that Steinhoff, a scandal-plagued South African retailer, paid for the business in 2016.
Tempur hardly makes a deal. Steinhoff had overpaid then. He ended up taking €2.5bn of write-downs on the business one year after the purchase. The mattress firm filed for bankruptcy in 2018. A restructuring allowed it to close stores and abandon a number of leases.
Meanwhile, the mattress industry is having a tough time. Sales declined as consumers put off major ticket purchases. Mattress manufacturers are also dealing with rising raw material costs and supply chain disruptions.
Serta Simmons Bedding, one of the largest mattress makers in the United States, filed for bankruptcy protection earlier this year. At Tempur, sales were flat last year, but net income was down 27%.
By bulking up now, Tempur is betting he can emerge in a comfortable position for a recovery. The deal is expected to generate at least $100 million in annual cost savings by the end of the fourth year after closing. Taxed and capitalized, they would be worth about $800 million.
But five years is a long time to wait. Additionally, Tempur already has a net debt of $2.9 billion, or 3.2 times adjusted EBITDA. Investors will be uncomfortable until they can pay off loans for a purchase with a history of sleepless nights.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centers provide timely, informed views on capital trends and big business. Click to explore
—————————————————-
Source link