No. 1 Mattress Maker Dreams Of Making A Bundle On NYSE

BY AMY REEVES

INVESTOR'S BUSINESS DAILY

Posted 4/5/2006

Sealy Corp.

Trinity, N.C.

(336) 861-3500

sealy.com

Lead underwriters:

Citigroup and Goldman Sachs

Offering price: $14-$16

Expected date: week of April 3

Ticker: ZZ

THE BUZZ

For the last 20 years, the mattress market has been so steady it could

put you to sleep.

From 1984 to 2004, U.S. industry sales grew at an average of 6.3% a

year, with 2001 the only year showing a decline, according to the

International Sleep Products Association. Last year industry sales grew 11.9%.

Sealy is in position to benefit. With around 20% of U.S. market share,

it's the leader in a market still dominated by American companies. But

like many big-name firms only now going public, Sealy arrives after

going through the private-equity rounds and a restructuring.

"The positive is that it's a market leader," said Francis Gaskins,

president of IPO Desktop. "It'll do well because people always like to see large companies go public. But it's a classic leveraged-buyout squeeze, in terms of the balance sheet."

Last year Sealy's grew the top line after sales were nearly flat the

previous three years. The restructuring helped trim administrative costs,

though the company still has serious debt.

There's not much of a peer group with which to compare Sealy's

offering. The only pure-play bedding maker trading on the major markets is Tempur Pedic, which went public in December 2003. It's now trading near 14, which might account for Sealy's price range. Select Comfort, a mattress maker that also runs a retail chain, has been enjoying strong growth lately and trades near 40.

THE COMPANY

Sealy is the name of the small town in Texas where inventor Daniel

Haynes started selling mattresses in 1881. The company was incorporated in 1906 and rolled out its well-known Sealy Posturepedic line in 1950. It went international in 1995.

Sealy has been on the stock market before, but was taken private in a

leveraged buyout in 1989. Since then the company has changed hands a

couple of times, most recently in the 2004 buyout by private-equity firm

KKR.

In addition to the two Sealy lines, the firm owns the Stearns & Foster

and Bassett brand names. All four mattress types have conventional

innerspring structures.

Sealy also sells seven brands of specialty mattresses, which do not

have innersprings. The company plans to keep building its specialty

business, since that market is growing at an annual clip of almost 30%.

Another focus is on high-end bed sets, selling for $1,000 and up. That

sector has enjoyed strong recent growth.

RISKS/CHALLENGES

Sealy comes to the market burdened by debt - in its case, $961 million.

The IPO will shrink that, but even then the debt will be worth almost

as much as Sealy's total assets.

Although no rival comes close to Sealy's market share, it isn't for

lack of trying. Some 700 U.S. companies are in the mattress business. With the growth in specialty markets, Sealy must keep innovating to keep its dominant position.

Like a lot of manufacturers these days, Sealy is suffering from the

high cost of raw materials. It uses steel and petroleum byproducts to make its mattresses. Both of those commodities cost an arm and a leg these days. The firm also warns that lumber prices might go up due to Gulf Coast rebuilding.

THE RESULTS

Sealy's net sales last year reached $1.47 billion, up 12% from 2004.

Earnings per share came in at 91 cents vs. a year-ago loss. EBITDA rose 16.5% to $233 million.

USE OF PROCEEDS

The sale of 20 million shares should net the company about $277

million. It will pay $125 million in a special dividend to existing

stockholders, $11 million in termination fees to KKR, and $17.3 million in a bonus to management. The rest will go toward various debts.

THE MANAGEMENT

David McIlquham

Chairman, president and CEO

He became president and chief operating officer in February 2001. In

April 2002 he moved from the latter job to chief executive. Before that

he spent 11 years in Sealy's sales and marketing department.

Jeffrey Claypool

Senior vice president, human resources

He's been in his current job since September 1991.

Lawrence Rogers

President, Sealy International Group

Joined Sealy in 1979 and has served in various positions. Attained his

current post in January 2001.