Mattress Firm Holding has entered into an agreement to acquire all of the outstanding equity interests in HMK Mattress Holdings, the holding company of Sleepy's and related entities.
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The aggregate purchase price is $780 million, subject to working capital and other customary adjustments.
Sleepy's is the nation's second largest specialty mattress retailer, with over 1,050 stores in 17 states in the Northeast, New England, the Mid-Atlantic and Illinois.
The closing of the acquisition, which is subject to expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other regulatory approvals, is expected to occur during the first half of Mattress Firm's fiscal year 2016.
As part of the consideration, the company has agreed to assume certain quantified liabilities totaling approximately $30 million.
In addition, Adam Blank, the current chief operating officer and general counsel of Sleepy's, will join the Mattress Firm executive management team and will contribute up to $10 million of the equity value he holds in Sleepy's in exchange for shares of Mattress Firm common stock.
The remainder of the consideration payable to the equityholders of Sleepy's will consist of cash. The company expects to fund the cash requirements of the closing of the acquisition with cash on hand and the proceeds from the issuance of senior secured debt. The transaction has been approved by the Boards of Directors of both companies.
The company expects to generate annual synergies of approximately $40 million by the third year post-closing.
In addition, the company expects to receive future cash income tax benefits totaling over $11 million annually for more than 10 years from the deductible tax basis goodwill generated from the transaction and from the carryover tax basis of other assets, both subject to the company's ability to generate future taxable income.
The company plans to continue to operate under both the Mattress Firm and Sleepy's brands in the near term and will maintain an East Coast office on Long Island, New York. ■