Springwel Mattresses to acquire D2C brand SleepyCat in a fire sale

Companies that are unable to scale eventually get sold to larger players and these transactions typically happen at a steep discount.

Springwel Mattresses is in advanced stages to acquire SleepyCat, a direct-to-consumer (D2C) mattress startup in a fire sale, sources told Moneycontrol. The transaction, largely a share sale, has been in the works for a few months and is expected to close in the coming weeks, they added.

In such transactions, the company and its investors get shares in the acquiring company instead of a monetary payout.

“The deal between Springwel and SleepyCat is unlikely to have a cash component. The category that SleepyCat operates in is highly competitive and fundraising had become tough, so a sale to a larger player seemed like the best option,” a person with direct knowledge of the matter told Moneycontrol.

It is unclear if the SleepyCat team will stay on and run the business independently or become a part of the Springwel.

SleepyCat and Springwel did not respond to Moneycontrol’s queries.

SleepyCat competes with other well-funded and larger startups such as Peak XV Partners-backed Wakefit and Premji-funded The Sleep Company. The Sleep company recently raised $22 million in its largest round ever, highlighting that investors are only betting on the top performers and avoiding startups.

Consolidation in the D2C space is not new. Companies that are unable to scale eventually get sold to larger players and these transactions typically happen at a steep discount. SleepyCat is one such example.

Founded in 2017 by Kabir Siddiq, the company managed to raise a little over $5 million from DSG Consumer Partners, Saama Capital, Rishabh Mariwala’s Sharrp Ventures and others in about seven years, according to Tracxn, a private markets data provider.

In August, reports said Springwel was in talks to acquire a majority stake in SleepyCat for Rs 70-80 crore but discussion had stalled.

Despite the funding, SleepyCat didn’t scale as fast as it would have liked to.

In FY19, when the company received its first institutional cheque, it had a revenue of Rs 10 crore and generated a profit of Rs 55 lakh but four years later, at the end of FY23, its top line grew to Rs 55 crore, while losses widened to Rs 16 crore.

For most startups, growth in the initial years is exponential because the revenue base is low but that wasn’t the case with SleepyCat, which likely explains why it hasn’t raised a new round since 2021 even at the height of the funding frenzy.

SpringWel Mattresses, a legacy company acquired by Ananta Capital in July 2022, has consistently grown its top line.

The company clocked a revenue of Rs 253 crore in FY23, an increase of 24 percent from the previous year, regulatory filings sourced via Tofler showed. The company’s profit, however, remained flat at Rs 2 crore in both the years.

Legacy players like Springwel have been buying smaller companies, especially new-age ones, in the space to consolidate their position. Last year, Springwel rival Sheela Foam bought a 35 percent stake in Furlenco, an online furniture company. Event alert: Moneycontrol and CNBC TV18 are hosting the ultimate event on artificial intelligence, bringing together entrepreneurs, ecosystem enablers, policymakers, industry leaders, and innovators on May 17 in Gurugram. Click here to register and gain access to the AI Alliance Delhi-NCR Chapter.