Why Is an Activist Investor Interested in Retailer Mattress Firm? It\'s Not What You Think

Private equity firms and radical investors Berkshire Partners LLC hold a stake in the retailer\'s mattress holding company. (MFRM)
But not for what you want.
Often, when an acquisition company, known for its activism, holds a large stake in a company, its intention is to instigate change and possibly make an acquisition.
But it is impossible in this case.
Berkshire disclosed a copy of 10 in February 9.
A 4% stake in mattress company.
In February 24, the retailer nominated two board candidates from Berkshire and its investment arm Stockbridge, who will run for the company\'s annual meeting.
Changes seem to be coming.
Private equity firms tend to target businesses worth less than 7-
Earnings before interest, tax, depreciation and amortization (
EBITDA, which can be used to pay interest on debt and amount of free cash flow to repay debt)
That they still have to offer a premium for this, but only allow financing for up to six dealstimes EBITDA.
Usually, the lower the multiples, the easier it is to get debt financing, because EBITDA indicates the cash flow that can be used to pay off the debt.
In this case, a high multiple means that debt financing will be more difficult to arrange, that is, unless PE companies are willing to pay a lot of cash.
But the market value is $1.
Total debt was nearly $55 billion.
47 billion, the value of the mattress company is about $3 billion, about a multiple of 8. 57-
It is twice the $0. 35 billion adjusted EBITDA expected for the current fiscal year as of January 31, 2017.
The retailer, which owns more than seven times its stake, is not an easy buy-out target.
In addition, the mattress company has just completed a $0. 78 billion deal to acquire Sleepy\'s, its main competitor, which has increased its debt on its balance sheet.
Given that retailers have accumulated a lot of debt to make acquisitions and are in the process of consolidation, it makes it more difficult to get more debt.
Data from Moody\'s Investor Services
The mattress company\'s total debt includes $0. 665 billion.
To purchase a fixed-term loan from Sleepy, which currently has a fixed-term loan of $0. 687 billion (
Amortized from the initial $0. 72 billion)
Its revolver borrowed $60 and other debts of $57 million, mainly made up of mortgages.
With all debt and mattress companies busy integrating new acquisitions, it is unlikely that Berkshire will make many demands on the company. term.
What is this radical PE company doing?
Berkshire may be considering increasing returns by making more investments in listed companies in which it intends to have a say in how to manage the company, although this is a reservation, people familiar with the matter said.
Given the company\'s balance sheet, the shares held by militants do not necessarily mean Berkshire is seeking to push for leveraged acquisitions or share buybacks, the sources confirmed.
Berkshire\'s board members may also have little to do with the company\'s largest shareholder, peer PE company J. W.
Stroller Associates LP.
The investment company holds 36 pounds. 7% stake.
Initially, this partnership will help J. W.
New York children\'s ward-
Headquartered in 40 North Management LLC, this is another company with approximately 8 equity in Matress.
5%, a letter was sent on February.
The military called for retailers to shake the board.
40 North said it was concerned that most board members were not independent of J. W.
Although PE now holds a minority stake in mattress suppliers, Childs.
Berkshire may also see an opportunity to help guide a company in an industry that is transforming.
Mattress companies must focus on the growth of competitor start
Ups in New York-Headquartered in Casper Co.
, It sells an affordable but comfortable mattress in a compact box with a \"try\"before-you-buy\" guarantee.
At least externally, the retailer said it was not too worried.
While Casper is known for the beds in the box, its price is not necessarily much cheaper than the mattresses sold by the mattress company.
For example, although Casper\'s twin mattress costs $500, the model of the mattress company is as cheap as $300. \"Sleep start-
Ups is of course important because they are able to stimulate the interest of young viewers in sleep and they may not care what type of mattress they slept on a few years ago, a spokesperson for the mattress company said in an emailmail.
The spokesman added that customers still prefer to touch and feel the mattress before purchasing it.
Perhaps this is Berkshire\'s stake in the mattress company, which invested in the company before the acquisition was launched.
But it may not, given the company\'s debt burden.
More likely, Berkshire is doing something new;
Time will tell us what it is.