Mattress Firm Moves to Acquire Sleepy's and Announces Preliminary Results

Mattress Firm Holding Corp. (NASDAQ: MFRM), known to many as the nation’s largest specialty mattress dealer, announced its preliminary fiscal third quarter financial results. More importantly, the company announced that it will be acquiring Sleepy’s and related entities for a grand total of $780 million.

Note that Mattress Firm has a market cap of just under $2 billion.

The company expects to generate annual synergies of roughly $40 million by the third year post-closing. Additionally, Mattress Firm expects to receive future cash income tax benefits totaling over $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.

Separately net sales for the third fiscal quarter are expected to increase 50.7% to $699.5 million, reflecting comparable-store sales growth of 3.8% and the addition of new and acquired stores, versus the consensus estimate of $647.45 million in revenue. Earnings per share (EPS) are expected between $0.80 and $0.82 in the fiscal third quarter compared to the consensus estimate of $0.77 in EPS.

Steve Stagner, CEO of Mattress Firm, commented on the acquisition:

This transformational acquisition unites the nation’s two largest mattress specialty retailers, providing customers with convenience, value and choice through our truly border-to-border and coast-to-coast, multi-brand retail stores and distribution network. Over the years we have admired Sleepy’s for the strong business they have built. The Acker family has a long history in the mattress specialty retail industry through four generations and over 58 years. I look forward to partnering with David Acker during this transition period, as we bring together these two great companies that share a strong focus on culture, the customer and overall service experience.

Shares of Mattress Firm closed Monday down 3% at $49.36, with a consensus analyst price target of $57.11 and a 52-week trading range of $38.66 to $71.41. Following the release of the report, shares were initially halted in the after-hours trading session.

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