Talk about appreciation. With its winning $1.16 billion bid for mattress maker Simmons Co., Thomas H. Lee Partners will pay $677 million, or 140%, more than seller Fenway Partners paid Investcorp for the company in 1998. Assuming a $1.1 billion purchase price (excluding $60 million in fees and expenses), the price tag is 8.9 times EBITDA of approximately $123 million. The deal is expected to close this month.
A source close to the deal said the debt portion will be approximately 6.25 times EBITDA. Goldman Sachs will lead the financing, contributing 50% of the total debt, with UBS and Deutsche Bank splitting the remainder equally. The source said a term loan B will likely take up the largest portion of the debt package, coming in at approximately $400 million, followed by roughly $340 million in senior subordinated notes in the form of junk bonds. The deal also includes a revolver said to be in the neighborhood of $75 million.
TH Lee’s equity contribution will be just under $305 million in equity, with Simmons management rolling over an additional $39 million. Fenway will retain a 10% stake in Simmons after the deal closes.
TH Lee paid more than double what Fenway did when it bought Simmons from Investcorp for $483 million in 1998, but the source said the purchase price multiples for each deal were in the same nine-times neighborhood. In 2002, Simmons’ revenue was $670 million, with EBITDA topping $99 million, and the company predicts 2003 revenue and EBITDA will exceed $793 million and $123 million, respectively. Gross sales will top $850 million in 2003, according to the source.
Simmons sells several bedding lines, ranging in price from $199 to $5,000, and according to the source, the bed maker focuses on premium products, which carry retail prices of $800 and higher. From 2002 to 2003, Simmons’ premium sales increased 19%, and today make up 50% of the company’s current unit sales.