Why Is This Mattress Business Growing So FAST? From $15M to $43M

In this episode, we dive into a business deal involving a mattress manufacturer in the southern USA. This company’s revenue has skyrocketed from $15.7M in 2020 to $43M in 2022. What's really going on in the mattress industry? Let’s break it down:

Listing

We found this deal on Gottesman Company.

Deal Overview:

Location: Southern USA
Asking Price: Undisclosed
Cash Flow: Not specified
Assets: Manufacturing facilities both internationally and nationally, over 50 branded SKUs, and 1,000+ accessories
Other Financials:

• 2022 Revenue: $43.0M
• 2021 Revenue: $33.0M
• 2020 Revenue: $15.7M
• 2022 EBITDA: $3.7M
• 2021 EBITDA: $4.0M
• 2020 EBITDA: $4.7M

For over five years, this mattress manufacturer has been producing high-quality mattresses and adjustable beds at competitive prices. The business operates both domestically and internationally, which has mitigated supply chain issues and tariff challenges. The company’s revenue is primarily driven by online sales through platforms like Amazon and Shopify, and they are expanding into the B2B vertical. With a well-established home office and manufacturing facility in the southern USA, the company is poised for growth. The ownership is seeking an equity partner to help scale the business while maintaining minority ownership.

Hosts' Insights:

Key Concerns:

‍The hosts, Michael Girdley and Mills Snell, raised several concerns about the mattress manufacturer business. One major issue is the intense competition in the mattress industry, which they described as a "Red Ocean." Many mattress brands appear almost identical, making it hard for consumers to differentiate. Additionally, the heavy reliance on online advertising platforms like Amazon and Google can eat into profit margins due to high customer acquisition costs.

Valuation Opinions:

‍Despite the business's impressive revenue growth from $15.7M in 2020 to $43.0M in 2022, the declining EBITDA is a red flag. In 2020, EBITDA was $4.7M, but it decreased to $3.7M by 2022. This trend raises questions about the sustainability of the business model and whether profits are being significantly eroded by marketing expenses or other operational costs. Furthermore, the absence of 2023 financials adds uncertainty, making it challenging to evaluate the current state of the business.

Employee Dynamics:

‍The hosts noted that the company has a strong management team and talented staff. This is a positive sign for potential investors, as a capable team can drive growth and ensure operational stability.

Growth Potential:‍

Despite the challenges, the mattress manufacturer business has significant growth potential. Expanding into the B2B vertical could open new revenue streams. Additionally, the company's strategy to reduce supply chain problems and tariff issues by increasing domestic production is a smart move. This not only ensures more consistent product availability but also enhances profit margins by cutting down on import-related costs.

Potential Risks and Rewards:

Major Risks:

• High Competition: The mattress market is flooded with similar-looking brands, making it hard to stand out.
• Dependence on Advertising Platforms: Relying heavily on Amazon and Google for sales could further squeeze profit margins.
• Financial Uncertainty: The lack of recent financial data (2023) could hide underlying issues.
• Commoditization: With many indistinguishable brands, the business might struggle to maintain pricing power.

Rewards:

• Strong Revenue Growth: The company's revenue has grown rapidly, indicating strong market demand.
• Diversified Product Range: With over 50 branded SKUs and numerous accessories, the business offers a wide variety of products.
• Growth Opportunities: Expansion into B2B and domestic manufacturing present significant growth opportunities.
• Experienced Team: A capable management team and skilled staff can drive further growth and ensure stability.

Final Thoughts

Overall Takeaway:

‍The mattress manufacturer business presents an intriguing opportunity with its strong revenue growth and diverse product range. However, the highly competitive market and declining EBITDA are significant concerns. The company's potential for growth through B2B expansion and improved supply chain management is promising. Investors should conduct thorough due diligence to uncover any hidden challenges and gain a comprehensive understanding of the business's financial health.

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