Tempur Sealy International, Inc. (TPX) inked a deal to acquire Dreams for $475 million less net debt and any working capital deficit. Shares of Tempur Sealy have jumped 133.6% over the past year.
Through the acquisition, Tempur Sealy will achieve robust sales growth, especially in the international markets. The acquisition will complement Tempur’s UK operations and its recently-formed Sealy UK joint venture operations.
Upon completion, Tempur Sealy’s annualized worldwide direct-to-consumer business is expected to record sales of $1 billion while the international segment will represent more than 20% of its consolidated sales. (See Tempur Sealy stock analysis on TipRanks)
The deal is expected to be accretive to Tempur Sealy’s EPS by $0.20 in the first year before synergies. Dreams is estimated to report annual sales of approximately $450 million in the first year after the completion of the deal. Furthermore, Tempur Sealy’s leverage is forecasted to be a little less than 2x adjusted EBITDA.
Dreams is a leading specialty bed retailer in the United Kingdom with a multi-channel sales strategy, over 200 retail locations, an industry-leading online channel, and manufacturing and delivery assets.
Dreams will function as an independent business unit and continue to be led by the current management team.
Tempur Sealy plans to finance the deal by utilizing available cash and bank borrowings. The company also amended its senior credit facility increasing it by $300 million.
The acquisition is expected to close in the third quarter of 2021 and is subject to certain regulatory approvals.
Tempur CEO Scott Thompson said, “This transaction is consistent with our stated strategy of acquiring companies when we see their addition as mutually beneficial and accretive to long-term shareholder value. We expect, over time, to leverage Tempur Sealy’s global scale to realize synergy opportunities and long-term sales growth.”
On April 30, Piper Sandler analyst Peter Keith reiterated a Buy rating and increased the price target from $47 to $50 (28% upside potential) on the stock.
Following the company’s upbeat Q1 results Keith said, that the company’s competitive advantage “remains at an all-time high, the bedding industry has never been healthier, the consumer is in excellent shape, and International should show sequential improvement in trends into 2022.”
Overall, TPX has a Strong Buy consensus rating based on 6 Buys and 2 Holds. The average analyst price target of $46 implies 17.9% upside potential from current levels.
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