Skip to: Content
Skip to: Site Navigation
Skip to: Search
MONDAY, NOVEMBER 23, 2009
| Subscribe to Newser's RSS feeds RSS | Follow Newser on Twitter Twitter


7

Simmons Bankruptcy: Study in Private Equity Run Amok

Buyout firms profited as mattress maker saw its debt skyrocket

Share

(Newser) – The mattress company Simmons will be filing for bankruptcy protection soon, wiping out bondholders and jeopardizing more jobs at a company that's already fired a quarter of its work force. While Simmons watched its debts balloon nearly tenfold since 1991, a string of private equity firms bought and sold the company seven times, making $750 million as the company collapsed. Simmons is only one of several firms pumped up and sold in what the New York Times calls "a Wall Street version of Flip This House."

The Times compares the private equity boom of the last decade, fueled by easy money,  to the subprime mortgage boom, and predicts many more casualties. After Thomas H. Lee Partners bought Simmons in 2003, using borrowed cash,  it then sucked out millions in fees and used more borrowed money to pay itself dividends, which only pushed Simmons deeper into debt. Now that cheap money is a thing of the past, Simmons is drowning in debt. And it's not alone: Of the 220 companies that defaulted this year, more than half were once owned by private equity.

Simmons manufactures the Beautyrest mattress seen here.
Simmons manufactures the Beautyrest mattress seen here.   (Photo: Business Wire)
The mattress company Simmons is filing for bankruptcy under the weight of $1.3 billion in debts, but private equity firms that bought and sold it have profited handsomely.
The mattress company Simmons is filing for bankruptcy under the weight of $1.3 billion in debts, but private equity firms that bought and sold it have profited handsomely.   (©Wallula Junction)
« Prev« Prev | Next »Next » Slideshow

In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, buyout kings like upended the old order on Wall Street.
- Julie Creswell

« Prev« Prev | Next »Next » Slideshow
OFF THE GRID
11.20.09
The Health-Care Wars Have Just Begun
11.19.09
Sarah Palin Deserves Some More Attention
7 comments
VIEWING:
 
Doctor_Zaius
Oct 5, 09 7:43 AM CDT
Exactly. This whole mess was caused by deregulation of big business. Reply
Vote up! Vote down!
+10
IN RESPONSE:
Janniel
Oct 5, 09 8:16 AM CDT
Brought to us by the Reagan Revolution. The great communicator punked us. These parasitic practices need to be stopped. We need better laws and oversight (which we had before Reagan started tearing down the joint).
Vote up! Vote down!
+8
bewilderbeast
Oct 5, 09 7:47 AM CDT
This is the vaunted, hallowed "capitalist" "free enterprise" system. It's a lie. What we have instead of risk and reward, is reward with little risk if you're connected right. Even when scams are exposed, no real people get nailed (certainly no "high-ups"). Instead the crimes are "victimless" (your pension? Tough) and perp-less (it wasn't old Joe that did it, it was the corporation Steal, Inc that did it - sue them. Oops they've declared bankruptcy, Tough). Reply
Vote up! Vote down!
+6
MarkMcJackoff
Oct 5, 09 8:01 AM CDT
Another great name about to go down the tubes. Hastened, I might add by the Obama's choice of bed. Now if Michelle had chosen something from The Simmons Beautyrest Black Luxury collection, and made her choice as public as she did with her very expensive antique bed the company's order book would have skyrocketed and all those jobs would be saved. As you can see there is an Obama connexion on almost every news story. They just aint pulling their weight for the country. Reply
Vote up! Vote down!
-3
RogerMohajir
Oct 5, 09 8:01 AM CDT
If ever there was a case of "You've made your bed, now lie in it," this is it. Whatever happened to valuing companies based upon their assets, with a modest adjustment (up or down) for their reputation/brand? Reply
Vote up! Vote down!
+1

View all 7 comments »

LEAVE A
COMMENT Comment Policy
Facebook ConnectPost this comment to Facebook?

After connecting you will have the option to post your comment on your Facebook profile.

 

Related Newser Stories

13 Stories

 Lehman Weighs 
 Spinning Off 
 $45B in Assets 

In the most sweeping bankruptcy action yet, assets will become separate unit

May 14, 09 7:52 AM CDT
(Newser) - Bankrupt Lehman Brothers is preparing to spin off a grab-bag of assets worth $45 billion in their current state but as much as $400 billion at "nondistressed" prices, the Wall Street Journal reports. The planned sale of shares in the unit—the biggest move yet to unwind the... More »

MORE ABOUT:
private equity • real estate • bankruptcy • Lehman Brothers • banking • financial crisis

Lehman to Spin Off $4.5B Private Equity Arm

A strategy of hold and manage, rather than sell into weakness, has emerged

Jan 9, 09 8:29 AM CST
(Newser) - Lehman Brothers, bleeding out but not quite dead, will spin out its private equity arm into an independent firm, which will take on new investment from a South African billionaire investor, the Wall Street Journal reports. The Lehman estate will retain a small interest in Lehman Brothers Merchant Banking, which... More »

MORE ABOUT:
private equity • bankruptcy • Lehman Brothers • retirement fund • spin-off • financial crisis

Fed Loosens Reins on Private Funds Buying Into Banks

But some worry risky loans will result

Sep 23, 08 5:51 AM CDT
(Newser) - The Fed has loosened the rules that curtailed private investments in banks, the Wall Street Journal reports. The move may inject more cash into the financial system—if private equity chooses to invest—but will raise fears of profit-hungry investors snapping up stakes in banks to make quick cash with... More »

MORE ABOUT:
investing • private equity • Federal Reserve • bank • buyout firms • bank regulation • banking industry

13 Stories


Business  •  US 
TwitterFollow @NewserBusiness on Twitter

 
private equity • bankruptcy • Thomas H. Lee Partners • credit market • buyout firms • mattress

from our news partners