Mattress Firm, Sleepy’s Deal Complete

February 8, 2016  by in Acquisition, Industry   

The purchase price of HMK Mattress Holdings, the holding company of Sleepy's and related entities, was $780 million, subject to working capital and other customary adjustments. The deal closed Friday. Sleepy's is the nation's second largest specialty mattress retailer, behind Mattress Firm, and operates more than 1,050 stores in 17 states in the Northeast, New England, the Mid-Atlantic and Illinois.

The company expects to generate annual synergies of about $40 million by fiscal 2018. In addition, the company expects to receive future cash income tax benefits totaling more than $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.

Adam Blank, previously Sleepy’s COO and general counsel, has been named president of Sleepys.

In his expanded role Blank reports to Stagner and will support the continued growth of Sleepy's, as well as the evaluation and integration of best practices across the combined company.

In addition to the closing, Mattress Firm it has amended its $865 million senior secured credit facility with Barclays Bank PLC, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Inc., and Wells Fargo Securities LLC, as joint book running managers and joint lead arrangers. The secured credit line is comprised of  an amended asset based revolver of $200 million that includes a sublimit for letters of credit and swingline loans, subject to certain conditions and limits, and an incremental term loan borrowing of $665 million. The amended asset based revolver will mature on the fifth anniversary of closing, and the incremental term loan will mature in October, 2021 along with the Mattress Firm’s existing term B loan.

Mattress Firm also said it closed on the rollover and sale of an aggregate $63 million of new shares of  common stock, at a price of $35.75 per share. About $38 million of the common stock represented the rollover of equity interests owned by entities associated with Calera Capital Partners and by Blank. Additionally, entities associated with J.W. Childs Associates purchased $20 million and Steve Stagner, Mattress Firm CEO, purchased $5 million of new shares of common stock.

"We are excited about the opportunities our combined company will offer our customers, employees, business partners, vendors and shareholders, as the first truly border-to-border and coast-to-coast, multi-brand mattress specialty retailer," Stagner said. "This transformational acquisition expands our footprint into major markets in the Northeast and Mid-Atlantic. 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."