Bain Flips Sealy, KKR Buys In –

Kohlberg Kravis Roberts & Co. agreed to acquire mattress and bedding manufacturer Sealy Corp. in a deal valued at $1.5 billion. An investment group that includes Bain Capital, Charlesbank Capital Partners, JPMorgan Partners, CIBC Argosy Merchant Fund and BancBoston Capital isselling the business after an investment period that began in 1997.

Long a target of private equity firms, mattress companies have attracted financial sponsors for some time now. Most recently, Thomas H. Lee Partners acquired Simmons Co. from Fenway Partners for $1.16 billion. Fenway, meanwhile, in 1998 had bought the business from Investcorp, which last year acquired Trivest’s Aero Products air-mattress company. TA Associates also got in the mix, with its $350 million LBO of Tempur World in 2002.

In almost all mattress deals, firms cite the industry’s strong cash flows and stability as a primary draw. And for the Sealy acquisition in particular, KKR Partner Scott Stuart noted, “Sealy is a global company, leading the industry in brand recognition, market share, technological advancement, and product innovation.”

He added, “[The company’s] recent sales performance reflects its brand strength as well as new product introductions.” Last year, Sealy posted $1.2 billion of sales.

In buying the business, KKR and Sealy management will acquire approximately 92% of the company, with existing Sealy shareholders retaining the balance. The firm is paying roughly nine times adjusted 2003 EBITDA. The transaction is expected to close in April and will be financed through a combination of debt and equity, with Goldman Sachs & Co. and J.P. Morgan Securities reportedly arranging a debt package.

Going forward, Sealy President and Chief Executive David McIlquham said he expects KKR to “expand and accelerate” the company’s product development programs, and he sees the company “moving forward with the international expansion of [its] brands.”

In selling the business, Bain and the rest of the investment team stand to see a substantial return. The consortium, in 1997, paid $140 million in equity to acquire the company in a $790 million recapitalization, according to reports. Through the sale to KKR investors will see a return of approximately five times their investment, sources say.