Strategy

‘Africa’s IKEA’ to Buy Mattress Firm for $3.8B

Furniture retailer Steinhoff International is seeking to expand overseas amid a deteriorating domestic market.
Matthew HellerAugust 8, 2016

South African furniture retailer Steinhoff International has agreed to acquire Mattress Firm for $3.8 billion, expanding its business to the U.S. amid weakness at home.

Mattress Firm, which acquired rival Sleepy’s in February, is the largest specialty bedding retailer in the United States. The takeover by the firm known as “Africa’s IKEA” would create the world’s largest mattress retail distribution company.

The companies said Monday that Steinhoff would pay $64 a share, more than double Friday’s closing price of $29.74. The stock rose more than 114% to 63.75 in trading Monday.

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“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,” Steinhoff CEO Markus Jooste said in a news release.

As Reuters reports, Steinhoff “has been on an acquisition spree to offset exposure to a deteriorating home market with safer assets in markets such as Europe.” It agreed last month to pay nearly $800 million for the British discount chain Poundland after two previous attempts to expand in Europe fell through.

“Many of South Africa’s companies have found success tapping developed markets like Australia, rather than tackling developing but difficult ones in Africa,” The Wall Street Journal noted.

Mattress Firm has also been expanding through acquisitions but warned in June that it expected a loss for the fiscal year. “Over the past year, Mattress Firm’s shares have fallen over 50% due to earnings shortfalls and an inability to rally investors around the company’s $780 million acquisition of Sleepy’s,” Forbes said.

Steinhoff would pay 60% more than what Mattress Firm should be trading at based on its most likely earnings growth trajectory, according to Thomson Reuters StarMine.

“On the one hand this looks like a full price for Steinhoff to pay,” Richard Chamberlain, an analyst at RBC Europe, told Reuters. “However, we think Steinhoff is paying a strategic premium to allow it to enter the US market with an industry leading partner.”