Mattress Firm to Acquire Sleepy’s

November 30, 2015  by in Acquisition, Industry   

The deal will combine the two largest bedding retailers in the U.S. Mattress Firm is the largest bedding retailer in the U.S., and Sleepy’s is No. 2 with more than 1,050 stores in 17 states in the Northeast, New England, Mid-Atlantic and Illinois.

The acquisition is expected to close during the first half of Mattress Firm’s fiscal year 2016. The deal is subject to expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other regulatory approvals.

As part of the deal, Mattress Firm has agreed to assume certain quantified liabilities totaling about $30 million. In addition, Adam Blank, the current COO and general counsel of Sleepy's, will join the Mattress Firm executive management team and will contribute up to $10 million of the equity value he holds in Sleepy's in exchange for shares of Mattress Firm common stock. The remainder of the consideration payable to the equity holders of Sleepy's will consist of cash. Mattress Firm expects to fund the cash requirements of the closing of the acquisition with cash on hand and the proceeds from the issuance of senior secured debt. The transaction has been approved by the boards of directors of both companies.

Under the combined company, Mattress Firm is looking to generate annual synergies of about $40 million by the third year post-closing. In addition, the Mattress Firm expects to receive future cash income tax benefits totaling over $11 million annually for more than 10 years from the deductible tax basis goodwill generated from the transaction and from the carryover tax basis of other assets, both subject to the Company's ability to generate future taxable income.

The company plans to continue to operate under both the Mattress Firm and Sleepy's brands in the near term and will maintain an East Coast office on Long Island, N.Y.

"This transformational acquisition unites the nation's two largest mattress specialty retailers, providing customers with convenience, value and choice through our truly border-to-border and coast-to-coast, multi-brand retail stores and distribution network," said Steve Stagner, Mattress Firm's CEO. "Over the years we have admired Sleepy's for the strong business they have built. The Acker family has a long history in the mattress specialty retail industry through four generations and over 58 years. I look forward to partnering with David Acker during this transition period, as we bring together these two great companies that share a strong focus on culture, the customer and overall service experience.

"Both Mattress Firm and Sleepy's are excited about the opportunities this combination will create for our over 10,000 collective employees, as well as our customers, vendors, business partners and shareholders,” Stagner said. We look forward to adding the talented mattress professionals at Sleepy's to our family. Upon closing, Adam Blank will become president of Sleepy's and support the continued growth of Sleepy's, as well as the evaluation and integration of best practices across the combined company."

Stagner said the acquisition puts Mattress Firm one step closer to building a national network.

“With pro forma sales of over $3.6 billion through approximately 3,500 retail locations in 48 states, our combined company will be able to further benefit from national scale in key areas including distribution, customer delivery, advertising, sourcing and procurement, and operating expenses,” he said.

Blank said Sleepy’s had helped improve its customers sleep for more than 58 years.

“The combination of Sleepy's and Mattress Firm creates the nation's first true national mattress specialty retailer, and will benefit both our customers and our employees,” he said. I look forward to working with Steve and the Mattress Firm team as we combine the best of Sleepy's and Mattress Firm."