The country’s largest mattress maker is in danger of becoming a victim of the coronavirus this summer, and it’s the company’s private equity owners that have made it vulnerable.
Serta Simmons Bedding, a 150-year-old manufacturer that controls nearly 40 percent of the US mattress market. The US faces a liquidity crisis as its retailers struggle with state-mandated closings that have closed stores across the country, sources told The Post.
In turn, at least two of the so-called vulture companies are now surrounding the company, betting that it could run out of cash as early as July and be forced to sell fire to creditors, sources close to the situation said. At least one of those funds is buying portions of the company’s senior unsecured debt, which was recently trading at just 42 cents on the dollar, indicating Wall Street believes a default is likely.
“I heard that they are going to need to restructure in the next quarter or two,” said an industry executive.
Experts say Serta Simmons got into trouble in part because the company, like the recently bankrupt Neiman Marcus and J. Crew chains, has been indebted to a private equity firm that left it little leeway to navigate a crisis. .
Advent International, a Boston-based purchasing firm whose other consumer investments have included Lululemon and the Tween Five Below chain, led a leveraged $ 3 billion purchase in 2012 that left the company in $ 2 debt. , 3 billion. Part of the burden came from a $ 670 million debt-fed dividend that Advent took to itself in 2016.
In March, before the coronavirus reached the US. The company, which in addition to Serta and Simmons owns the Beautyrest and Tuft & Needle brands, had $ 100 million on its balance sheet and generated more than $ 200 million in Ebitda, or earnings before interest. , depreciation and amortization of taxes, according to Moody’s Investor Service.
That, according to Moody’s, amounted to a “highly leveraged” capital structure that was “unsustainable.”
That’s despite Advent’s moves to aggressively cut costs more than a year ago.
Earlier last year, Serta Simmons president David Swift, a senior veteran of Advent, annulled company CEO Michael Traub and hired restructuring firm Alvarez & Marsal to find $ 40 million in savings from costs, an industry executive said. The company laid off 160 employees, including much of its senior and highest-paid staff, according to the source.
About a month later, Swift replaced Traub as CEO, but things got more difficult. Mattress Firm, the largest mattress retailer in the US USA ended its exclusive relationship with Serta Simmons and began selling Tempur Sealy beds, two industry executives said. Serta Simmons also lost a distribution deal with Big Lots, a major liquidation chain.
Together, that’s more than $ 300 million lost annually, “said one of the executives, or about 15 percent of his total revenue of $ 2.3 billion. That is also less than $ 2.8 billion in revenue in 2017, according to Moody’s.
With the arrival of the coronavirus, mattress sales have increased further. Tempur Sealy, a smaller publicly traded rival that controls more than 25 percent of the market, saw its sales drop more than 50 percent in April. Tempur Sealy said Thursday that it expects sales for the current quarter to drop 30 percent and that it will be “at least” a breakeven point for the quarter in Ebitda terms.
Meanwhile, Serta Simmons’ huge debt burden has reduced her ability to offer mattresses at low prices, analysts say. The company “likely underperformed” against Tempur Sealy and other brands during Memorial Day weekend sales events and is “battling its peers,” Raymond James said in a note Wednesday.
“Serta Simmons (privately held equity) is highly leveraged and recently chose not to renew her Las Vegas showroom lease, which we believe will put her at an additional disadvantage with smaller clients,” the brokerage told customers in a statement. Wednesday research note.
Advent International declined to comment. Serta Simmons’ representatives did not respond to requests for comment.