Lofty multiple for Sealy testifies to brand's clout
By David Perry, Executive editor -- Furniture Today, March 15, 2004
A megadeal for Simmons last fall opened plenty of eyes in the bedding industry — and beyond. One of the investment groups that was in the hunt for Simmons wound up with an even bigger prize — Sealy.
Sealy's $1.5 billion deal with affiliates of Kohlberg Kravis Roberts & Co. is the latest blockbuster at the upper echelons of the bedding industry. Simmons sold for an impressive $1.1 billion to Thomas H. Lee Partners. Managements of both producers will have stakes in their companies.
Sealy's president and CEO, Dave McIlquham, discussed the Sealy deal over a Jersey Mike's lunch with me the other day at Sealy's headquarters. He noted that private equity firms have a long history in the bedding industry, attracted by its strong brands, consistent growth and strong cash flows.
"When the Simmons deal happened," McIlquham said, "there were enough of those types of investors interested that it became a natural to look at Sealy."
Both bedding producers fetched high prices, but the multiple for Sealy — 9.3 times adjusted EBITDA — is higher than the 9.0 multiple for Simmons.
That lofty Sealy multiple is a testament to the strength of the Sealy brand and organization, and its experienced management team, which will remain in place. No changes in strategy or operations are expected.
The Sealy deal came together quickly. It brings a savvy private equity firm, KKR, into the mattress arena. That deep-pockets company takes a long-range view of its investments, which was attractive to Sealy's management.
McIlquham said that KKR was attracted to Sealy, in part, because of the international nature of its business. Interestingly, he singled out a long-range opportunity for Sealy in the Far East.
The Sealy leader, who toured Chinese bedding plants last fall and was generally impressed with what he saw, doesn't see Chinese-made bedding as a major threat to U.S. bedding producers. The breadth of bedding models U.S. retailers want, and the speed with which they want them delivered, argue against substantial bedding production overseas for the U.S. market, in his view.
But he does see "a huge market opportunity" for Sealy in the Far East as the Chinese economy develops and as China's growing middle and upper classes look for Western-style bedding.
McIlquham estimated that as many as 20 million innerspring mattresses are sold annually in China, a huge market. Sealy currently has no facilities in China.
He called the Chinese market "a great opportunity, and a daunting one." KKR — the Sealy of its field, as one Sealy executive put it — could be of enormous help as Sealy looks to serve the Chinese market.
The Sealy-KKR deal is expected to close in April. It provides the latest endorsement of a top bedding brand by a top private equity firm.
Congratulations to Dave McIlquham and the Sealy team.
