Steinhoff International, an African retail giant little known outside the continent, has made its first foray into the U.S., agreeing to pay $2.4 billion for Houston-based Mattress Firm in the biggest-ever African buyout of a U.S. company.
The acquisition as a way for Steinhoff to enter the U.S. market, which it says is attractive due to high disposable consumer income, Forbes reported. The deal is expected to work well with the company’s existing operations in Africa and Europe.
A family-owned furniture seller based in Stellenbosch, South Africa, Steinhoff is often called “Africa’s Ikea,” for its home furnishing retail chains, Wall Street Journal reported. Until recently, it concentrated on expanding in Europe, the U.K.and Australasia. In May Steinhoff agreed to pay $793.77 million for British retailer Poundland, where most things cost a pound — about $1.31.
This month Steinhoff says it’s buying Mattress Firm for $2.4 billion — $64 per share. Stock in the big-box mattress retailer, which owns Sleepy’s and Sleep Train, closed at $29.75 on Friday, ABC 17 News reported.
The takeover is more than four times bigger than the next-largest African U.S. buyout, according to data from financial intelligence firm Dealogic, ABC 17 reported. That deal saw gold producer AngloGold buy parts of Minorco for $550 million in 1998.
Mattress Firm is the largest mattress retailer in the U.S. with more than 3,500 stores in 48 states and reported sales of $3.5 billion in 2015, according to a statement.
Founded in 1964, Steinhoff makes and sells retail furniture, household goods and clothing in Europe, Africa and Australasia. It has more than 40 brands in 6,500 stores and employs 100,000-plus people in 30 countries, trading on the Frankfurt and Johannesburg stock exchanges.
The deal is expected to create the world’s largest multi-brand mattress retail distribution network, Austin Business Journal reported. Steinhoff plans to use a combination of bank and bridge loans to finance the deal, which is expected to close by the end of September.
Founded in Germany by billionaire Bruno Steinhoff, Steinhoff moved its headquarters to South Africa in 1998. In 2015, it established a Netherlands-based holding company but kept its management in South Africa.
Mattress Firm’s strong brand and retail presence is an efficient way for Steinhoff to expand into the U.S., Forbes reported. By combining them, Steinhoff said Monday it will own the world’s largest multi-brand mattress retail distribution network.
Not everyone thinks it’s a good idea, according to Forbes:
Over the past year, Mattress Firm’s shares have fallen over 50 percent due to earnings shortfalls and an inability to rally investors around the company’s $780 million acquisition of Sleepy’s, which more than doubled its debt outstanding. Monday’s takeover price is roughly equal to Mattress Firm’s year-ago trading prices.
Steinhoff not only sees an attractive expansion activity, it also believes the investment will bolster its financial profile. The company characterized Mattress Firm as an attractive investment for its strong recurring cash flows and low capital expenditure needs. Furthermore, Steinhoff commended Mattress Firm’s ability to integrate acquisitions within its fragmented market.
“This transaction will allow Steinhoff to not only enter the U.S. market with an industry leading partner and a national supply chain, but it will also expand Steinhoff’s global market reach in the core product category of mattresses.
Mattress Firm will operate as a subsidiary of Steinhoff, retaining its current headquarters in Houston. Both Ken Murphy, CEO of Mattress Firm, and Steve Stagner, executive chairman, will remain in their positions and join Steinhoff’s executive committee.
