The Churning Bed


The Wall Street Journal.

Sept. 29, 2012 


The Churning Bed

By Al Lewis

If there is money stuffed in a mattress, private-equity firms will pull it out.

Last week, mattress maker Sealy announced its sale to Lexington, Ky.-based rival Tempur-Pedic for $228 million.

This represents a staggering destruction of value since 1989 when Trinity, N.C.-based Sealy fetched $1.8 billion in inflation-adjusted dollars. It seems a succession of private-equity firms, effectively creating no jobs and no growth, played a nightmarish game of Flip This Mattress.

Sealy's story begins with "The Burning Bed," a 1984 film starring Farrah Fawcett as a battered housewife who finally lights her husband on fire. This became the nickname of a 1989 bridge loan that heralded the collapse of the entire junk-bond market.

The loan was from First Boston Corp. to Cleveland-based buyout firm Gibbons, Green, van Amerongen. It was used to buy Sealy. Gibbons, Green took on more than $1 billion in debt. Sealy, founded 1891 by a Texas cotton- gin maker, never dreamed of so much loot.

Gibbons, Green offered junk bonds to repay First Boston's bridge loan, but the junk-bond market had collapsed. So by 1990, First Boston ended up owning Sealy. It tried and failed at yet another junk-bond offering. By 1993, it dumped Sealy for $250 million on a group led by Chicago buyout artist Sam Zell.

Mr. Zell sold off Sealy's wood-furniture business for $35 million. He and other investors paid themselves a $100 million "special dividend" after a debt restructuring. By 1997, they racked up Sealy's debt to $260 million. Then they sold the company to Mitt Romney's Bain Capital for about $800 million, including the assumption of this debt.

Under Bain, Sealy's debt soared above $900 million.

Some people say private-equity firms are in bed together. More often, they just share the same mattress. The private-equity owners of Serta and Simmons, for instance, announced in August a deal to sell these mattress makers to another private-equity firm, Boston-based Advent International, for an estimated $3 billion.

In 2004, Simmons was sold in a private-equity auction for $1 billion. Bain noticed the lofty price and hired Goldman Sachs and J.P. Morgan Chase to shop Sealy around. It ultimately found a buyer in New York buyout firm Kohlberg Kravis Roberts.

KKR paid $1.5 billion for Sealy, and loaded on more debt. It took Sealy through an initial public offering in 2006, cashed shares, but remained its largest shareholder. It 2010, KKR opened Sealy's first manufacturing operation in China.

Since its IPO, Sealy stock has tumbled about 90%. Its second-largest shareholder, H Partners Management, hasn't taken this lying down. In a March letter filed with the Securities and Exchange Commission, it said: "This value destruction is due to the poor judgment, interference and conflicts of interest of one shareholder: Kohlberg Kravis Roberts."

H Partners said KKR sacked Sealy with debt, fumbled opportunities to expand and extracted tens of millions of dollars in fees.

And where was H Partners? Sleeping?

When KKR bought Sealy in 2004, it had 6,000 employees and 31 plants. Today, it has fewer than 4,300 employees at 25 plants. Sealy had annual sales of $1.2 billion when KKR bought it in 2004, which is where they remain today.

In 1989, before private-equity firms came along, Sealy reported sales of $702 million. That's about $1.3 billion in 2012 dollars.

So where's all the value private equity is supposed to add? Sealy's slew of self-dealing owners only wore the mattress thinner. They probably didn't lose any sleep over it, either.

—Al Lewis is a columnist for Dow Jones Newswires in Denver. He blogs at; his email address is