Sheela Foam, India’s largest home mattress manufacturer, acquired rival Kurlon Enterprise, the maker of Kurl-on mattresses, and purchased a controlling stake in the furniture rental company Furlenco, the company said in a release filed with stock exchanges. Sheela Foam will acquire 94.66% stake in Kurlon Enterprise at a valuation of Rs 2,150 crore while it would infuse a primary fund of Rs 300 crore to buy 35% stake in Furlenco at a valuation of Rs 857 crore.
The acquisition will be funded by a mix of equity, internal accruals, and debt. Although Sheela Foam has a history of acquisition, this is the first time it has been announcing two acquisitions in one go. The acquisition of Kurl-on is expected to complete before November 2023 subject to regulatory clearance, while the Furlenco transaction is likely to complete by August 2023.
Kurlon Enterprise is a private company currently owned by South India based Pai family. It had a revenue of Rs 808 crore in FY22. Furlenco is a flagship brand of House of Kieraya (HOK), a start-up-based in Bengaluru founded by Ajith Mohan Karimpana who is the current CEO of the company. It has a revenue of Rs152 crore in FY23. Bollywood actress Deepika Padukone is an investor in the company.
The acquisition of Kurlon will help Sheela Foam to create a strong pan-India presence. The latter is strong in the North and West markets while Kurlon dominates the South and East zones. Noida based Sheela Foam is strong in foams while Kurlon focuses on rubberised coir.
Sheela Foams operates mainly through exclusive brand outlets (EBO) whereas Kurlon has a multi-brand outlet (MBO) network. The production facilities of Sheela and Kurlon are to a large extent complimentary giving a greater footprint to the company. While it will help in serving customers better, it will also lead to economies of scale and buying power on the supply side with bulk buying. In addition, a combined manufacturing capacity will lower capital expenditure in the next couple of years. This may improve operating margin by 200-300 basis points for combined entities in the next three years. The synergy benefit is expected in 12-24 months after the deal closure.
The Indian modern mattress market is valued at about Rs 18,000 crore in 2022 and expected to grow at 10% annually in the next few years. Local market is fragmented and organized players accounted for nearly 40% in FY21 compared with 33% in FY12.
The acquisition of Furlenco will help Sheela Foams to diversify in the furniture business. This will increase its addressable market while saving time-to-market to create a furniture brand from scratch. Post infusion of fresh equity, Furlenco is expected to become self-sufficient and likely to turn EBITDA positive by October 2023 and PAT positive by FY25.
Source: Economic Times