Private equity firms win big in Simmons deals
David Perry, Executive editor -- Furniture Today, October 12, 2009
There is no doubt that private equity firms have reaped rich rewards with their investments in Simmons over the years. And there is also no doubt that Simmons has been paying the price of late for the massive debt levels loaded onto the company.
Those points emerged clearly in The New York Times' Oct. 5 look at how Simmons has fared at the hands of private equity investors. The Times reported that Simmons' private equity owners have raked in about $750 million in profits over the years, while the company's debt has soared from $164 million in 1991 to $1.3 billion today.
Now, as we know, Simmons is headed toward a Chapter 11 filing as part of a deal to be sold to the owners of Serta. And Simmons has made cutbacks that saw more than one-quarter of its workers lose their jobs.
The villains in the Times coverage are the private equity owners, who kept adding more debt onto Simmons while paying ever-increasing prices for the company. The Times talked extensively with officials at Thomas H. Lee Partners, which bought Simmons in 2003 and made about $77 million in profit on its investment, the newspaper said.
According to those officials, the problems at Simmons resulted not from mismanagement or too much debt but simply from the economic downturn!
That is an astounding assertion, and one that is at the very heart of what is wrong with private equity owners. Yes, a bull market would have enabled Simmons to continue making debt payments, for a while, but debt has real consequences. It must be repaid. Interest mounts. Too much debt can bring a company down.
The private equity crowd keeps pushing that day of reckoning down the road, but, make no mistake, there is a day of reckoning. And the Chapter 11 filing for Simmons will be part of that reckoning.
But it's also important to note that a bankruptcy for Simmons will not be the end of that company. Yes, it will be a black mark, but Simmons will emerge from the process as a much stronger company. That's one thing the Times stories didn't convey. Simmons remains a powerful brand with a long-term future in the industry.
For the record, I was quoted in one of the Times stories. The Times quoted me accurately as wondering how many more times Simmons can be sold to new owners who hope to make more piles of money.
Contact David Perry at dperry@reedbusiness.com
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