Mattress Firm Holding Corp (MFRM.O) said it would buy privately held bedding retailer The Sleep Train Inc for $425 million, its sixth and largest acquisition announced in the past year, to expand its presence on the West Coast.
Mattress Firm, which reported a better-than-expected quarterly profit on Thursday, said it would also acquire The Sleep Train's liabilities of about $15 million.
The Sleep Train has about 310 stores in California, Oregon, Washington, Idaho, Nevada and Hawaii and the company posted net sales of $471 million for its fiscal 2013.
Its founder and Chief Executive Dale Carlsen will take over as Mattress Firm's president after the closure of the deal, expected in the fourth quarter ending January.
Mattress Firm said it expected annual synergies of $20 million by the year ending January 2018 from the deal.
It said the deal would add to earnings per share in mid single digits in percentage terms in the first year after closing.
Mattress Firm said it would fund the deal with cash reserves and proceeds from the issuance of senior secured debt instruments.
The company's net income rose 1.4 percent to $14.3 million, or 42 cents per share, in the second quarter ended July 30, helped by a rise in demand for higher-margin mattresses and acquisitions including Mattress Liquidators Inc.
Excluding items, Mattress Firm earned 61 cents per share.
Analysts on average had expected earnings of 60 cents per share, according to Thomson Reuters I/B/E/S.
Net sales rose 35.5 percent to $409.9 million, in line with the average analyst estimate.
Same-store sales grew 9.7 percent.
Mattress Firm's shares closed at $56.81 on the Nasdaq on Wednesday. Up to Wednesday's close, the stock had risen 32 percent this year.
(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Kirti Pandey)