Steinhoff Buy Of Mattress Firm Says Don't Sleep On Africa

| About: Mattress Firm (MFRM)

Summary

Steinhoff is paying a premium of over 100% for MFRM, a struggling Houston bedding company.

The deal gives the South African company its first entry into the U.S. market.

Expect more African acquirers. Short sellers beware.

Shares of Mattress Firm (NASDAQ:MFRM) of Houston more than doubled in value Monday on its takeover for $2.4 billion by a company few in the U.S. have ever heard of - Steinhoff International of South Africa.

It's a huge premium for what is essentially a turnaround, as Mattress Firm has seen lower cash flow for years and was called a short here just this month. While the advice was sound on fundamentals, it cost a lot of shorts in practice following the Steinhoff swoop.

Steinhoff listed on the Frankfurt Stock Exchange in Germany last year, after having been listed in Johannesburg, South Africa, for many years, and retains a secondary listing there. The company is based in Stellenbosch, near Cape Town.

Steinhoff saw value in Mattress Firm because it gives the company an entrance into the U.S. market for a full line of home furnishings and provides assets valued in U.S. dollars, which are stable and even growing in value against many global currencies.

There are currently 9 South African companies in the Global 2000, a listing of the largest publicly-traded companies in the world, based in South Africa and 21 African companies on the list overall.

The mix has been changing, with gold miners having dominated 10 years ago and with a much wider range of companies today. Naspers, for instance, which is number 680 on the global list, is an investor in several successful Internet companies, including China's Tencent (OTCPK:TCEHY). But the list also includes a Nigerian cement company, Dangote.

The point is that this kind of thing is going to happen more often. Some of the world's greatest entrepreneurs, like Elon Musk (NASDAQ:TSLA) and Canonical founder Mark Shuttleworth, are natives of Africa. While most economic reports from the continent emphasize poverty and hunger, the level of extreme poverty has been going down, as have birth rates. Instead of just issuing poverty reports, African institutions are now issuing prosperity reports, praising countries like Rwanda, Botswana and Malawi in turn.

Steinhoff is sometimes called "Africa's Ikea," although it was originally a German company, moving its headquarters after buying an African furniture company. Most of its operations are in Africa where it sources from 44 countries and sells in 30.

The SAB in SABMiller (OTCPK:SBMRY), which is in the process of being bought by ABInbev (NYSE:BUD), stands for South African Brands. That deal, worth about $108 billion, combines what is essentially a Brazilian company with a South African one.

The point is that you are making a mistake if you just see Africa as a continent of poverty and tinhorn dictators. It is growing, it has public companies to be proud of, it's growing more, and you can expect a lot more deals like the one for Mattress Firm in the future.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.