Let’s Sleep On It: Notes on Mega-Mattress M&A

Ares Management and Teachers’ Private Capital today announced a $730 million agreement to buy mattress maker Simmons from THL Partners. Some notes:

*** Ares/Teachers plan to put both Serta and Simmons under the same super holdco, but will operate them as separate, independent entities. Were they merged, it would become the nation’s largest mattress manufacturer (title currently held by KKR’s Sealy).

No idea how Ares/Teachers will actually manage the obvious conflicts of interest. For example, will Ares’ Simmons reps not look at their own funds’ quarterly reports that contain confidential info on Serta, and vice versa?

*** Ares/Teachers would be Simmons’ sixth private equity owners. The most recent was Fenway Partners, which sold the company to THL in 2003.

*** THL actually made money on its investment, via a pair of dividends in 2004 and 2007. Just about $50 million cash-on-cash, but that’s not bad for a company that’s going bankrupt on its watch (or it is bad, based on your perspective).

*** Simmons does plan to file for Chapter 11, but that won’t happen until late October or November. In other words, the PE-backed bankruptcy count for September remains at one.

*** I first caught wind of this deal nearly two months ago, because the FTC was beginning to ask other mattress makers about it (apologies, dear reader, but I was unable to confirm it). Reason for the early FTC involvement was that some of the Simmons noteholders were nervous that the transaction had no chance of passing Hart-Scott Rodino muster, and asked for some preliminary advice. Worth noting that this deal, now announced, will enter into a second round of FTC scrutiny. It also must get through both the bankruptcy court and noteholder vote.