Sealy optimistic about KKR deal
By David Perry -- Furniture Today, March 15, 2004
Trinity, N.C. — Trinity, N.C.— A savvy new owner with a long-range vision for the company is expected to help bedding market-share leader Sealy get even bigger.
After a $1.5 billion merger deal with affiliates of Kohlberg Kravis Roberts & Co. was announced, Sealy's president and CEO sat down with Furniture/Today to outline how the deal will help Sealy grow.
"One of the great things about our partnership with KKR is that they subscribe to our belief the company is driven by the entire management team," said Dave McIlquham.
He and other Sealy managers will have a stake in the world's largest bedding producer.
In the past, management ownership in the company has been limited, McIlquham said. But this deal is different: "We are going to give all senior management and some middle management a chance to invest in this deal. That is a terrific gesture on the part of KKR, and it's smart. It's one of the key components that will take us to the next level."
When employees "have skin in the game, they take direct ownership in the business and their part in it, are more focused, and are more discriminating in the decisions they make," McIlquham said.
No changes are contemplated in Sealy management, strategy or operations.
"Investors don't buy companies like Sealy unless they totally believe in the management team and the strategy," McIlquaham said.
KKR holds its investments for about eight years on average, he said, and has held some for 10 years or longer. "We clearly look at this as being a long-term partnership, and that is very attractive to this management team," he said.
The deals for Simmons, acquired last fall for about $1.1 billion, and now Sealy show that investors like what they see in the mattress business, McIlquham said — strong brands, "terrific cash flow," growing average unit selling prices and steady sales growth, which averaged 7.4% in the last 10 years.
The deal for Sealy, expected to close in April, represents a 9.3 multiple of adjusted earnings before interest, taxes, depreciation and amortization. That compares to the Simmons multiple of 9.0.
McIlquham said KKR was attracted to Sealy because it's a great brand, has a history of growth, has developed compelling new technologies, is an international business with the potential for more growth, and has an experienced management team. In addition, Sealy has strong cash flows and debt that "is very manageable."
Bain Capital, which is selling Sealy to KKR, will make "a very, very nice return" on its investment, just as Fenway Partners did on its investment in Simmons, he said.
