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David Perry

Serta, Simmons owners pleased

LAS VEGAS - Two years after it assembled the largest bedding portfolio in the world, Ares Management and the Ontario Teachers' Pension Plan oversee two of the fastest growing bedding brands competing in the tough mattress marketplace.
     The private equity owners of No. 2 Serta and No. 3 Simmons say the market share gains of those two producers are a result of focused growth strategies backed by strategic investments from their parent, including technology, product development and national advertising programs.
     Serta unveiled its national advertising campaign in the third quarter of 2011 and Simmons is expected to unveil its advertising campaign in the second quarter of this year, officials said.
     Serta President Bob Sherman and Simmons CEO Gary Fazio believe that "focusing on increasing market share through these types of investments will ultimately lead to faster earnings growth, rather than focusing on such things as cost cutting and seeking efficiencies. We are in complete agreement with that," said Bennett Rosenthal, senior partner and co-head of private equity at Los Angeles based Ares Management.
      In an exclusive interview with Furniture/Today, Rosenthal provided an update on how AOT Bedding Super Holdings (the parent of Serta and Simmons) has worked with the two companies to drive growth and how it will continue to do so in the future.
     He said the two companies are exploring how to establish partnerships with key customers to help them drive growth in their businesses "through the use of our brands together," but did not spell out exactly how such partnerships would look.
     "The concept is to work with these key retailers to develop win-win strategies that grow revenues for both the retailer and the manufacturer in the short and long term," he said.
     Rosenthal said Serta and Simmons officials have been busy in the past two years, since he last spoke to Furniture/Today in what was then the first interview he had granted to the press about Ares' views on its bedding investments.
     Rosenthal said that following a thorough industry review shortly after the Simmons acquisition, the AOT board has been working with Sherman and Fazio to develop growth strategies that have enabled each company to build market share.
     The first step was a thorough audit of retailer and consumer sentiment about the industry and the purchasing decision-making process. Then Sherman and Fazio each went back to their organizations armed with that market data and developed new products.
     In Serta's case, that resulted in the successful launch of iComfort and the iSeries line. In Simmons' case, it ultimately resulted in a relaunch of the Beautyrest brand.
     In Sherman and Fazio, two bedding veterans with very different management styles, Ares and Ontario Teachers believe they have the two top executives in the mattress manufacturing sector.
     "Bob's management style is growth-oriented, and he aggressively pursues opportunities when presented. For example, he pushed the organization to bring the iComfort line of gel-based products to market a year ago, which broke sales records for a product launch," Rosenthal said.
     "At Simmons, overall revenue growth has been consistent, and steady improvements have taken place under Gary's leadership, including the additions of several key executives to help implement the business plan. I am very encouraged by the new additions to the Simmons line as well as its rebranding and advertising campaign," he said.
     According to Rosenthal, the two executives have taken different paths, and have been able to attract top talent to their management teams. AOT appreciates the contributions each has made to the success of the brands, he said.
     "In meetings with some investors shortly after the Simmons transaction, I was asked why we haven't consolidated the two brands, and my response was that we knew that both organizations were strong as separate units," Rosenthal said. "Therefore, the smart answer was to accept the differences in corporate culture, and work with Bob and Gary to grow each brand in a manner that leverages the strength of each of their respective product portfolios and customer relationships. Given the performance of both companies, I haven't heard that question in more than a year."
     At the time of the Simmons acquisition, there was considerable industry speculation that Ares and the Ontario Teachers would consolidate manufacturing at Simmons and Serta. Instead, the companies have worked to consolidate back office operations like purchasing, logistics, and information technology systems while largely leaving the manufacturing plants alone, with each brand having its own national network of production facilities.
     Last year, it was announced that the Simmons plant in San Leandro, Calif., was making some Serta mattresses for distribution in California to meet a specific need in that market, but no other manufacturing sharing arrangements have been revealed.
     "We've done a little bit of sharing with our manufacturing facilities, but that hasn't been our focus. I would warn people not to read too much into this single case," Rosenthal said.
     Instead, he said, the two companies have both grown by anticipating and meeting customers' needs, and could grow even more from working together where such cooperation makes sense for their customers and AOT's businesses. Their cooperation only occurs when it can achieve efficiencies, enhance results, or provide better products and services to customers.
     "Growth and investment in the brands has accelerated," he said. "The growth is there for everyone to see."
     AOT Bedding Super Holdings is responsible for approximately $2 billion in annual bedding shipments by Serta and Simmons.

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