Integration A Challenge For National Bedding
National Bedding Company faces some tough integration risks by acquiring bankrupt Sleepmaster, promptingMoody's Investors Service to slap a B1 rating on the company's $235 million acquisition facility. Kevin Ziets, associate analyst at Moody's, said the company will have its work cut out for it in digesting Sleepmaster. "Any acquisition involves risks, but when the deal more than doubles the size of the company and when the acquired has been preoccupied with Chapter 11 proceedings, the challenges of integration are greater," he noted.
National Bedding faces other integration tasks, Moody's notes, including realigning management reporting structures, improving systems and migrating Sleepmaster toward more exclusive sleep-shop relationships. Ziets explained that these multi-vendor and exclusive-to-one-brand shops are a growing channel in which both National Bedding and Sleepmaster have been involved, but the task of advancing the strategy adds to the integration risk. The companies are the top two domestic licensees of the Serta mattress brand.
To the deal's credit, Moody's notes the strong market position of Serta, which is the second largest conventional mattress brand in the U.S. "The pro side is that NBC's capable management team is gaining control of the strong Serta brand in a historically and increasingly brand receptive industry," Ziets noted. Burt Kaplan, co-chairman of National Bedding, pointed to the management's seasoned and successful history of mattress license acquisitions. He stated that although the Sleepmaster deal is a larger transaction, the company is still confident that the outcome will be positive.
At the close of the transaction, revolver usage will include $31.9 million of standby letters of credit issued to support industrial revenue bonds and $5.6 million toward the transaction. This limits credit funds to $22.5 million with minimal cash balances, Moody's states. The credit's term loans will go toward the acquisition, Kaplan affirmed, adding that NBC is paying about $110 million of Sleepmaster's secured debt. NBC's pro-forma debt levels are approximately 3.4 times EBITDA.
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