No tears needed for Simmons owner
Don’t feel sorry for T.H. Lee, the private equity firm that has been the majority owner of Simmons since 2003.
On the surface, it looks like the firm stands to lose a boatload of money by agreeing to sell the bedding producer to affiliates of Ares Management and the Ontario Teachers Pension Plan for about $760 million. After all, an investor group led by Lee paid $1.1 billion for the company in 2003.
But consider that less than a year after Lee completed the deal, Simmons issued $269 million in discount notes to pay a dividend to stockholders — primarily T.H. Lee.
Then in February 2007, another $300 million was borrowed to pay some $278 million in dividends to stockholders. Again, the primary beneficiary was T.H. Lee.
Even though we’re not privy to the exact amount Lee received from these two dividends (the firm owned 71.1% of Simmons stock as of Dec. 27), we think it’s safe to assume the firm will do no worse than break even on its Simmons investment, once it receives its share of the proposed $760 million deal.
While that’s certainly not the type of return private equity firms have come to expect (Simmons’ previous owner, the private equity firm Fenway Partners, essentially doubled its $513 million investment five years), T.H. Lee should consider itself lucky to have escaped without a loss.
Tyrone commented:
Uh, Steve. It looks like your apostrophe key on your keyboard is broken.
Pablo commented:
Your above comments may be true. However, it was the greed of senior management that led to this transaction and ultimately led the company to be over leveragered. Let's not forget the big bucks a few walked away with while employees with many years of service were thrown out on the curb as a "justified cost savings". Let's cut to the chase. You ruined a lot of lives. Hope you're happy.
Steve commented:
Its safe to say that most of these investment firms do not lose money or lose very little when making these sorts of deals. There is a reason why they invest in companies and that reason is green. They are investment companies after all and take risks at the same time they take advantage of opportunities to make money when presented, which is why they have money to spend. If either one of us was in this position Im sure we would have done the same thing to a certain degree. Its the nature of business. Were in it to make money.
