Steinhoff International Holdings acquired Mattress Firm in 2016 for $3.8b. Mattress Firm sought Chapter 11 bankruptcy protection in October 2018 when it had more than 3,200 stores. It emerged from bankruptcy a month later with ~2,600 stores. Clearly it has continued shedding locations since its emergence.
Mattress Firm has performed (surprisingly) well since emerging from bankruptcy. Management appears to have right-sized its physical footprint. The company currently owns 20% market share. In 2020, the company grew revenue by 13.1%, while the broader U.S. retail mattress and foundations industry grew by 6.9% (according to International Sleep Products Association). The company drove growth both by selling a higher volume of units and achieving higher average order value. Net income for fiscal year ’21 was negative $165mm but that was driven by a $490mm loss on extinguishment of debt.Company Form S-1
The company’s go-forward growth plan consists of:
Opening approximately 300 new stores in under-penetrated markets over the next three years (without accounting for store closures);
Leveraging and building an omni-channel presence; and
Using data to create personalized experiences.
While operations and performance have been strong, it wouldn’t warrant coverage if there wasn’t at least some hair on it. And, here, that hair comes by way of structure. Mattress Firm won't receive any proceeds from the IPO. Rather, it is shareholders, including Steinhoff, that are selling stock in the company. The S-1 did not disclose how much of the company Steinhoff currently owns or how much it is planning to sell. Steinhoff has substantial debt and is embroiled in various disputes and legal proceedings that may result in additional liabilities. Steinhoff seemingly needs liquidity now and should any of these problems persist and/or get worse, it may seek to sell even more of its stock in the near future.
Additionally, Mattress Firm is constrained by their ownership by hedge funds and other former creditors following its emergence from bankruptcy. In September, it raised an incremental $1.25b Term Loan and $125mm ABL Facility.
The company used the term loan proceeds plus an additional $665mm of cash on hand to:
Pay $523mm to satisfy all obligations and terminate all commitments under its existing term and asset-based revolving credit agreements, both dated as of November 25, 2020;
Distribute $1.35b to existing stockholders, current and former management and certain non-employee directors; and
Pay $42mm in fees/costs/expenses connected to the new ’21 term