Texas-based Mattress Firm acquires Sacramento’s Sleep Train for $425 million

09/04/2014 7:48 AM

09/04/2014 11:34 PM

The Sleep Train Inc., the homegrown mattress retailer that’s become a West Coast powerhouse with its name on an NBA arena, was sold to a Texas chain Thursday for $425 million.

In the latest sale of a Sacramento-area corporation, Sleep Train agreed to a takeover by Mattress Firm Holding Corp., a fast-growing Houston chain that’s intent on building a national company. The deal is expected to close in late 2014.

Dale Carlsen, the affable founder and chief executive of Sleep Train, said the Sleep Train brand will remain in place, along with most of the 70 headquarters jobs at Sleep Train’s Rocklin offices.

“I’m not going anywhere,” said Carlsen, who will become president and chief strategy officer of Mattress Firm. “I’m a Sacramento boy.”

Still, the deal represents the disappearance of another Sacramento-area corporate headquarters. SureWest Communications, AgraQuest and RagingWire Data Centers have all sold to out-of-state companies in the past two years.

Civic leaders often grimace when local companies are sold, in part because they’re afraid the new owners won’t be active corporate citizens in the community. But Sleep Train’s high-profile work on behalf of foster children will continue. So will its naming-rights deal at Sleep Train Arena, home of the Sacramento Kings, Carlsen said.

Barbara Hayes, head of the Sacramento Area Commerce and Trade Organization, said the sale of Sleep Train will create a lot of new wealth in the region. Employees own more than 25 percent of Sleep Train and will share in the proceeds.

“There are a lot of people who woke up this morning with money in their pockets they didn’t have yesterday,” Hayes said. “They’ll invest locally. They’ll either invest in local companies or start their own companies. … It will have ripple effects across the region.”

Carlsen said the opportunity to forge a national company proved irresistible.

The combined company will be “the first coast-to-coast, border-to-border specialty mattress company,” he said. “It was an opportunity I couldn’t pass up.”

Sleep Train operates 312 stores in six states. According to Furniture Today magazine, it generated revenue of $471 million last year.

Mattress Firm consists of 1,500 company-owned and franchised stores in 36 states. The publicly owned company earned $52.9 million in profit on $1.22 billion in sales last year. On Thursday, it said that profits increased slightly in the second quarter to $14.3 million, and sales grew 34 percent to $164.5 million.

The Sleep Train acquisition is the third and by far the largest takeover the Houston company has engineered since mid-August. It also spent a combined $66 million to buy chains in Pennsylvania, Illinois and Florida.

Steve Stagner, chief executive of Mattress Firm, said the acquisitions are part of his goal to build “a very strong, dominant national chain.”

“You look across the country and there’s a national office store, a national pet store,” he said. “There’s no national mattress company. … This industry is highly fragmented.”

Mattress Firm has made 25 acquisitions since 2005, he said. Most of the stores now operate under the Mattress Firm brand, but Stagner said he’s unlikely to tinker with the Sleep Train brand. “They’ve built a fantastic brand equity, particularly in Sacramento,” he said.

At the same time, he said, Mattress Firm may opt to open some of its own stores in Sleep Train’s West Coast markets.

The Rocklin company operates three main chains: Sleep Train Mattress Centers in California; Sleep Country USA in Oregon, Idaho and Washington; and Mattress Discounters in California, Nevada, Oregon and Washington. It recently bought a nine-store chain in Hawaii called America’s Mattress.

Stagner said Sleep Train’s well-known foster kids program, which donates mattresses and clothing to foster children, will continue. The takeover could enable the company to “put Dale’s efforts on a national platform,” he said.

A Walnut Creek native and California State University, Sacramento, graduate, Carlsen went to work for an area mattress retailer shortly after finishing school and quickly got the bug to start his own company. The first Sleep Train opened in 1985 on Folsom Boulevard, between Watt and Howe avenues, and Carlsen himself delivered mattresses to customers’ homes in the back of his Toyota pickup.

Carlsen got a huge boost in 1986 when he was introduced to Rush Limbaugh, who was then a radio host on KFBK in Sacramento. Limbaugh began doing radio ads for Sleep Train, and the relationship continued when Limbaugh took his show national. The Limbaugh connection raised Sleep Train’s profile considerably.

The two had a falling-out in 2012 over derogatory comments Limbaugh made about Sandra Fluke, a Georgetown University law student who testified before Congress that birth control should be included in health insurance offered by religious institutions such as Georgetown, a Jesuit school.

Sleep Train acquired the naming rights to the Kings’ arena in 2012, swooping in when the previous sponsor, a sports bracelet company called Power Balance, went bankrupt and stiffed the team for millions of dollars in fees. Sleep Train put an immediate stamp on the Natomas building: Whenever a Kings player makes a three-point shot, the train whistle from Sleep Train’s commercials is sounded over the arena’s public address system.

Carlsen, a season-ticket holder since 1986, also became a part-owner of the Kings last year, joining a group of investors that bought the team and blocked its proposed relocation to Seattle.

The new owners have broken ground on a new arena at Downtown Plaza. The Kings haven’t yet announced a naming-rights partner for the new building, which is expected to open in October 2016.

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