Coverage: South African company buying Sleepy’s/Mattress Firm for $2.4 billion

A South African retailing giant has agreed to acquire Sleepy’s parent Mattress Firm Holding Co. for $2.4 billion, marking its first foray into the United States.

Alexandra Wexler of The Wall Street Journal had the news:

Steinhoff, a family-owned furniture seller based outside Cape Town, South Africa, is called “Africa’s Ikea” for its home furnishing retail chains. Until recently, it had trained its sights on expansion in Europe, from Germany and Switzerland to Poland and Bulgaria, and Australasia. Last month, it agreed to pay £597 million ($793.77 million) for British retailer Poundland Group PLC, which sells most of its goods for a pound, or about $1.31 at today’s rates.

The company said on Sunday it would push into the U.S. as well, acquiring Mattress Firm for $64 a share in cash. The offer represents a 115% premium to Mattress Firm’s closing price Friday of $29.74. Steinhoff described the deal as one that would “create the world’s largest multi-brand mattress retail distribution network.”

Houston-based Mattress Firm, meanwhile, is the largest U.S. specialty mattress retailer with 3,500 company-operated and franchised stores in 48 states and sells a variety of brands including Tempur-Pedic and Sealy. Founded in 1986, it too has been expanding through acquisitions, including the purchase of rival Sleepy’s in February. The expansion has bolstered sales but also resulted in rising costs. Mattress Firm warned in June that it expected a loss for the fiscal year as it moved to rebrand all its stores under the Mattress Firm banner.

Arash Massoudi of the Financial Times notes that mattress retailers have struggled against online competitors:

Mattress Firm Holding, based in Houston, announced plans in June to help rejuvenate its weak performance and rebrand all its stores under the Mattress Firm banner after a series of acquisitions, poor results and increased competition from online retailers.

Ecommerce companies led by Amazon continue to disrupt the performance of traditional brick-and-mortar stores. Ecommerce sales are expected to increase by 13 per cent in 2016, while overall US retail sales are projected to rise by just 2 per cent, according to a report by eMarketer.

Steinhoff said in a statement on Sunday that the North American mattress industry “has demonstrated long term stability and consistent growth”.

Steve Stegner, chief executive of Mattress Firm since 2010, led a number of acquisitions, including the $780m deal for the owner of Sleepy’s last year, before relinquished the position to company insider Ken Murphy in March. Mr Stegner took the roles of executive chairman and chairman.

JW Childs Associates, a mid-market US private equity firm, owns 36.5 per cent of Mattress Firm and is its largest shareholder.

Mike Stone of Reuters reports that Steinhoff is also expanding into Europe:

Steinhoff is a German-listed $22 billion furniture conglomerate led by South African retail mogul Christo Wiese who is also Steinhoff’s chairman and largest shareholder.

Steinhoff, which owns brands in Africa, Australia, the U.K. and across Europe, last month agreed to pay nearly $800 million for British-based discount chain Poundland (PLND.L) after two previous attempts to expand in Europe fell through this year.

The Mattress Firm Holding deal would give Steinhoff access to the growing U.S. market, and help diversify its operations and guard against possible repercussions following Britain’s June vote to leave the European Union.

Markus Jooste, chief executive officer of Steinhoff, said the deal “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.”