Ontario's Teachers Pension Plan buys Simmons Mattress

There was a time, not long ago, that mattress business was terrific. There were big margins and if you were supplying hotels at Vegas, for example, you had it made. In fact, Profit magazine’s top fastest growing companies featured one of Canada’s family businesses, Price Mattress, that manufactured mattresses but managed to sell into the USA back in the good old days.

Gerry Price took a smarter approach. He figured out how to add incremental improvements to the mattresses made at his plant in Toronto, yet charge less than Sealy, Serta and Simmons. He then wooed key retailers with exclusive deals on a mix of attractively priced private-label brands and models licensed by Oklahoma City-based Lady Americana Associates Inc. His resulting revenue growth has been anything but sleepy, from $1.3 million in 2000 to $21.6 million in 2005. This 1,588% increase placed Price Mattress 38th on the 2006 PROFIT 100 ranking of Canada's Fastest-Growing Companies.

Gerry Price was a fighter but did not manage to save his company this recession. So it is no surprise that the Simmons Company, maker of Beautyrest mattresses, said on Friday that it planned to be sold to private investors in a $760 million transaction. The New York Times reported that it would include a bankruptcy filing.

The company said it had support from more than the two-thirds of its noteholders and lenders needed for a prepackaged restructuring planthat would reduce its debt to about $450 million, from $1 billion.

The buyers are Ares Management, a private equity firm, and a unit of the Ontario Teachers’ Pension Plan. The mattress sector has been hurt across the board by the downturn in the economy. The Simmons filing would be on the back of those from Foamex International, a maker of polyurethane foam used in mattresses; Consolidated Bedding, which makes the Spring Air mattress brand; and retailers including 1-800-Mattress and the Mattress Discounters Corporation. The company will put the plan out to a vote soon and expects to file for bankruptcy in 30 to 60 days, a Simmons spokesman said. The bankruptcy could then take two more months, he said.

Simmons has been in negotiations with lenders after it failed in late 2008 to meet loan requirements related to debt associated with the 2003 purchase of the company by the private equity firm Thomas H. Lee Partners from Fenway Partners, another private equity firm, the spokesman said. Simmons said the purchase price included equity injections from the buyers as well as debt commitments from some lenders. Simmons also said it had lined up $35 million of debtor-in-possession financing from existing lenders to keep operating while in bankruptcy. The company said its Canadian and Puerto Rican units were not expected to file for bankruptcy but were among the assets being acquired

Baby steps

Open wide, Mummy wants you to eat well and grow up nice and strong. So does the Carlyle Group. want to grow. In fact, David Rubenstein said in a speech earlier this year that most of Carlyle’s growth will be in China and India.

With that strategy in mind, Carlyle bought a 17%-ish stake in one of China’s biggest baby-formula companies, Yashili Group Co. These guys were the people who thought it is OK to put some melamine in its baby formula. Apparently, Melamine passes food tests and adds minerals, but has an unfortunate side effect when eaten by humans. Carlyle is the latest in a line of PE firms who see the potential for profits here, including Kohlberg Kravis Roberts & Co., CDH Investments and Hopu Investment Management Co. I just hope they can bring in some ethical thinking, not just growth of profits. Carlyle has a strong management team with a solid ethical core and I think this will impact on Yashili Group's guiding principles.

Jacoline Loewen, (jbloewen at loewenpartners.com) is a partner in a private equity firm, Loewen & Partners, dedicated to raising capital for family business owners and developing their growth strategies.

99 Bottles of Beer

Lots of beer getting consumed over the past year according to North American Breweries. It is true that in a recession, ice-cream, candy and beer do very well, helping people’s waistlines grow as their stocks shrink.

I guess that’s what happened with the bottom line for KPS Capital Partners, which has just conducted a dividend recapitalization of North American Breweries. This is pretty soon after creating it (in part from another InBev asset). The company did confirm they had done very well proving that there are business that do well when others are crashing.

Jacoline Loewen, (jbloewen at loewenpartners.com) is a partner in a private equity firm, Loewen & Partners, dedicated to raising capital for family business owners and developing their growth strategies.

TIE was a friendly place to be

I attended TIE last night as a guest of Victor D’Souza, a terrific finance consultant. TIE is for Indian entrepreneurs but not limited to your race – I tend to not like events specific to gender or geographic locations, but this one worked very well because everyone was made to feel welcome. There were some smart lawyers, accountants and of course private equity in the room too.

The warm and erudite Sunny Kumar was there, representing MaRS and Ontario Centres of Excellence. He was commenting on the restrictions in size for government loans to start up companies. The maximum is $500,000 which sounds like a lot if you were given that personally, but burns up quickly once you are trying to build a product and get clients.

Sunny is an expert in medical and pharma businesses but is also helping with other start ups at MaRS. You can reach him at sunny.kumar at oce-ontario.org

What we can all learn from Sam Walton

In these times, business owners need more than a coffee to get going. I find a bit of inspiration when I listen to Sam Walton's wise words. Even though he has been gone a long time, his legacy of Walmarts lives on. Take a look at his ideas, so many are now industry best practices:

Rule 1: Commit to your business. Believe in it more than anybody else. I think I overcame every single one of my personal shortcomings by the sheer passion I brought to my work. I don't know if you're born with this kind of passion, or if you can learn it. But I do know you need it. If you love your work, you'll be out there every day trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you — like a fever.

Rule 2: Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations. Remain a corporation and retain control if you like, but behave as a servant leader in your partnership. Encourage your associates to hold a stake in the company. Offer discounted stock and grant them stock for their retirement. It's the single best thing we ever did.

Rule 3: Motivate your partners. Money and ownership alone aren't enough. Constantly, day by day, think of new and more interesting ways to motivate and challenge your partners. Set high goals, encourage competition, and then keep score. Make bets with outrageous payoffs. If things get stale, cross-pollinate; have managers switch jobs with one another to stay challenged. Keep everybody guessing as to what your next trick is going to be. Don't become too predictable.

Rule 4: Communicate everything you possibly can to your partners. The more they know, the more they'll understand. The more they understand, the more they'll care. Once they care, there's no stopping them. If you don't trust your associates to know what's going on, they'll know you really don't consider them partners. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors.

Rule 5: Appreciate everything your associates do for the business. A paycheck and a stock will buy one kind of loyalty. But all of us like to be told how much somebody appreciates what we do for them. We like to hear it often, and especially when we have done something we're really proud of. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They're absolutely free — and worth a fortune.

Rule 6: Celebrate your success. Find some humor in your failures. Don't take yourself so seriously. Loosen up, and everybody around you will loosen up. Have fun. Show enthusiasm — always. When all else fails, put on a costume and sing a silly song. Then make everybody else sing with you. Don't do a hula on Wall Street. It's been done. Think up your own stunt. All of this is more important, and more fun, than you think, and it really fools competition. "Why should we take those cornballs at Wal-Mart seriously?"

Rule 7: Listen to everyone in your company and figure out ways to get them talking. The folks on the front lines — the ones who actually talk to the customer — are the only ones who really know what's going on out there. You'd better find out what they know. This really is what total quality is all about. To push responsibility down in your organization, and to force good ideas to bubble up within it, you must listen to what your associates are trying to tell you.

Rule 8: Exceed your customer's expectations. If you do, they'll come back over and over. Give them what they want — and a little more. Let them know you appreciate them. Make good on all your mistakes, and don't make excuses — apologize. Stand behind everything you do. The two most important words I ever wrote were on that first Wal-Mart sign: "Satisfaction Guaranteed." They're still up there, and they have made all the difference.

Rule 9: Control your expenses better than your competition. This is where you can always find the competitive advantage. For twenty-five years running — long before Wal-Mart was known as the nation's largest retailer — we've ranked No. 1 in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you're too inefficient.

Rule 10: Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody else is doing it one way, there's a good chance you can find your niche by going in exactly the opposite direction. But be prepared for a lot of folks to wave you down and tell you you're headed the wrong way. I guess in all my years, what I heard more often than anything was: a town of less than 50,000 population cannot support a discount store for very long.

Jacoline Loewen, (jbloewen at loewenpartners.com) is a partner in a private equity firm, Loewen & Partners, dedicated to raising capital for family business owners and developing their growth strategies.