(Reuters) - Mattress Firm Holding Corp MFRM.O said it agreed to buy HMK Mattress Holdings LLC, the owner of mattress retailer Sleepy‘s, for about $780 million, in a deal that will combine the top two specialty mattress retailers in the United States.
Mattress Firm’s shares were up 10.4 percent at $54.50 after the bell on Monday.
The deal will give Mattress Firm more than 1,050 stores in 17 states and beef up its presence in the U.S. Northeast and mid-Atlantic.
With the deal, Mattress Firm will mark its entry into Massachusetts, Vermont, New Jersey, Maryland, Connecticut and Rhode Island, the company said on a conference call.
Strong results from the two largest home improvement retailers, Home Depot Inc (HD.N) and Lowe’s Cos Inc (LOW.N), this month outlined how consumers are spending more on houses, home improvement products and appliances than on apparel and accessories.
U.S. housing starts also rose solidly in September, a sign that the housing market continues to steadily improve even as economic growth has slowed.
The deal marks the 11th acquisition for Mattress Firm in two years. Its biggest deal before buying Sleepy’s was the acquisition of smaller rival Sleep Train for $425 million in 2014.
Mattress Firm, the biggest U.S. specialty mattress retailer by the number of stores, said the combined company will operate about 3,500 stores in 48 states and it expects annual cost savings of about $40 million by the third year after the deal closes.
The combined company would have had pro-forma sales of more than $3.6 billion over the last 12 months. Mattress Firm reported revenue of $1.80 billion in the year ended February.
It expects profit per share to rise at a low single-digit percentage rate in the first year after the deal closes.
Mattress Firm, which said it expects to fund the deal with cash on hand and by issuing debt, will also assume certain liabilities of about $30 million, the company said.
Barclays was the financial adviser to Mattress Firm and Morgan Stanley advised Sleepy‘s. Norton Rose Fulbright was Mattress Firm’s legal adviser and Sleepy’s was advised by Gibson, Dunn & Crutcher.
Mattress Firm also reported better-than-expected sales for the third quarter ended Nov. 3, helped by a 3.8 percent rise in comparable-store sales.
Reporting by Ramkumar Iyer in Bengaluru; Editing by Maju Samuel