With news of Tempur Sealy in a definitive agreement to buy Mattress Firm, CEO Scott Thompson took questions about the deal in an earnings call the day the announcement was made.
Here are a few highlights from the call:
- Channel conflict. Thompson does not think there will be any marketing channel conflicts and compares this deal to when Tempur purchased U.K.-based retailer Dreams in 2021. He says that not only did that deal not have any channel conflicts, but also that many likely weren’t surprised to hear that the purchase of Mattress Firm was happening. In fact, he said this was a deal seven years in the making, and now happened to be the right time.
“We have Sleep Outfitters, which is a direct competitor to Mattress Firm,” Thompson says. “And although years ago there was noise in the system, once retailers saw how we operated our stores and that we weren’t trying to steal market share from anybody, it wasn’t a problem. Additionally, over the years we have discussed this concept with various customers — large and small — and I think we have a good understanding of what their expectations are. We know it’s going to depend on us having quality products, services and advertising, servicing them correctly, and making sure that they are not put at a competitive disadvantage.
He adds that the company is not looking to significantly move or change the floor. “If you look at our previous acquisitions, we did not push what I call our manufactured products onto the floor; we would let the retailers own the merchandising decision and hold them accountable for their numbers,” he said.
- Logistic synergies. When it comes to logistics, Thompson explains that even with Tempur factories right next to Mattress Firm warehouses, they have never been able to get the two companies to figure out how to clean up some of the logistics.
One of the main issues is that Tempur is ordered-to-delivery on Sealy, so they don’t know what beds they need to make until they get an order. “If we had real committed orders and we had the certainty of distribution, we could pre-build and level out the manufacturing,” Thompson said. “So on the days that we don’t have specific orders if we knew for sure we were going to get some orders, we could go ahead and build some product and level it out. And I think that’s a big quality improvement for us. It’s a workforce issue and there are also unbelievably significant cost savings.
- The timing. Thompson explains that Tempur has wanted to buy Mattress Firm for nearly seven years. “It’s always been on our chalkboard as something that made a lot of sense strategically,” he says.
He also explains that Tempur has been engaged with the Mattress Firm folks for the last two years as they put the company up for sale, a move Thompson describes as “hanging around the hook.” The two companies were in talks with the FTC for quite some time as well, but Thompson says it’s still early days. The talks have given the company preliminary information, none of which was particularly surprising, according to Thompson.
“We wouldn’t have moved forward if we didn’t think that, ultimately, we will be able to clear the process either in the traditional sense or through litigation,” Thompson added.
- The risks. The biggest risk, according to Thompson is macroeconomics and what that looks like 18 months from now. But that’s out of anyone’s control, and after that, he says the biggest risk is people and culture.
Thompson says the history of acquisitions can be checkered and generally has to do with people, structure and culture. “The kinds of synergies that we’re talking about is a vertical integration,” he said. “And so they aren’t as complicated as some acquisitions to get where you’re doing horizontals and lots of people lose their jobs This is a very clean vertical integration. Again, I use Dreams as an example because it was vertical.
- Future of Mattress Firm. Thompson couldn’t speak to the specific success of Mattress Firm with the acquisition, though he put down a very conservative estimate of $100 million. He also says he expects the store number to go down.
It’s actually become more important as to where the stores are, rather than how many there are,” he says. “So there’ll be quite a few that might move around to better locations. But as for the absolute number of stores, I would expect the unit numbers to continue to kind of trickle down a little bit, but there’s still quite a bit of opportunity to fill in. It’s more moving around stores as opposed to just closing stores.”