Mattress Firm sells for $2.4B

Houston-based company to get twice stock’s value from S. African retailer

Just when it seemed Mattress Firm’s growth had flattened, a South African company has swooped in to buy the Houstonbased retailer for about $2.4 billion.

Steinhoff International Holdings NV on Sunday announced it would pay $64 a share in cash for the company, more than twice the $29.74 its stock closed at on Friday.

Mattress Firm had been on a buying spree, growing to nearly 3,500 locations in 48 states and accumulating more than $2 billion debt, which was quite a load for a company valued at only $1.1 billion on the stock market.

In the first quarter, the company reported a $119 million loss and its new CEO, Ken Murphy, outlined plans to close some of its inefficient and often duplicative stores.

In Houston and many other markets, there are Mattress Firm stores within blocks of each other.

“It’s a huge, beneficial transaction for Mattress Firm,” said Ed Wulfe, chairman and CEO of Wulfe and Co., a Houstonbased retail development and brokerage firm.

Mattress Firm has been an important retailer in the Houston market for years, he said, and the price Steinhoff is paying for the company proves the success of its acquisition strategy.

Steve Stagner, Mattress Firm’s executive chairman, said he’s pleased with the direction Steinhoff will take his company.

“Steinhoff’s management team shares our vision for the growth and expansion of Mattress Firm and, as such, we believe they are the right long-term partner for our customers, employees, suppliers and other stakeholders,” he said.

“It’s a huge, beneficial transaction for Mattress Firm.”

Ed Wulfe of Wulfe and Co.

Until the merger announcement, it seemed Mattress Firm’s rapid growth had reached an impasse. In June, Murphy held a conference call to report a decrease in samestore sales and he offered a weak forecast for the quarters to come. He said the company would focus on integrating and streamlining all its acquisitions.

The mattress industry is largely a sales job. One of Mattress Firm’s marketing strategies is “Replace Every 8,” telling customers they should replace their mattresses every eight years. Profit margins on mattresses are about 30 percent to 40 percent with a 50 percent margin for luxury lines, according to a Consumer Reports report from 2010.

Steinhoff, based in Cape Town, South Africa, is the largest retailer on the African continent, and is aiming to get a foothold in the United States with its acquisition of Mattress Firm and all its stores.

“This transaction will allow Steinhoff to not only enter the U.S. market with an industry leading partner and a national supply chain, but it will also expand Steinhoff’s global market reach in the core product category of mattresses,” Markus Jooste, CEO of Steinhoff said in a statement.

Like Mattress Firm, Steinhoff has also been on an acquisition spree, only across Europe. The company, however, is much larger with a $24 billion value on the stock market.

The deal places an enterprise value on Mattress Firm of about $3.8 billion including net debt.

The board of directors of Mattress Firm and the management and supervisory boards of Steinhoff have unanimously approved the merger with Steinhoff financing the deal through a combination of bank and bridge loans.

Jason Baker, principal at Baker Katz, said the deal makes sense for Steinhoff. “For an outsider, especially one coming from outside the U.S., it would take decades to create the presence that Mattress Firm has created since its inception.”

The transaction is expected to close by or around the end of the third calendar quarter.