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Casper Sleep’s Going Private Again—At a Steep Discount to IPO Price

Just 21 months after it became a publicly traded company, Casper Sleep is slinking back into privately owned territory.

The seven-year-old bedding brand has struggled to right its finances, landing on S&P Global Market Intelligence’s September list of public retailers at greatest risk of defaulting on loan obligations. Further S&P analysis highlighted home furnishings as one of retail’s most distressed sectors.

While the company was at the forefront of the “bed-in-a-box” trend and celebrity investors including Leonardo DeCaprio and Ashton Kutcher built buzz around the brand, questions regarding profitability amid pre-IPO losses had dogged the seller of pillows, bed frames, bedding, dog beds and even lighting that CEO Philip Krim co-founded in 2014.

In January 2020, prior to its IPO the next month, Casper reported a $67 million loss on revenue of $312 million for the first nine months of 2019 after spending $114 million on marketing. An onslaught of “bed-in-a-box” competitors quickly eroded whatever first-mover advantage Casper ever had.

Casper’s IPO in February last year came as Wall Street began taking a closer look under the springs, analyzing the financials of money-losing firms. Following 2019’s lackluster IPO of ride-sharing firm Uber and the megawatt WeWork fiasco, direct-to-consumer (DTC) startups suddenly weren’t at the top of investors’ wish lists.

Casper, which inked a Bed Bath & Beyond deal in August, was somewhat of a “Wall Street darling” before it filed to go public, valued at roughly $1.1 billion as a so-called unicorn. But its fortunes went downhill after its IPO plans were revealed in January 2020. For starters, mounting losses spooked investors. The DTC mattress firm had targeted an IPO share price at between $17 to $19 for a valuation of $705 million. Flagging investor interest drove Casper to trim the offering price to between $12 to $13 a share, reducing its own valuation to $500 million at the low end. Sold shares were priced at $12 on Feb. 5, 2020, and began trading the next morning at $14.50, valuing Casper at $575 million before the stock ended its first trading day on the Big Board at $13.50. The IPO raised $100.2 million.

Since its IPO, Casper in June 2020 was the target of a lawsuit seeking class-action status alleging that it misled investors. The company allegedly claimed improving gross margins in its IPO paperwork, but a first-quarter post-IPO earnings statement showed narrowing margins and documented a rise in net losses year-over-year, as well as plans to wind-down in Europe. The lawsuit pointed to Casper’s disclosure that it had to unload outdated inventory at steep discounts, something the plaintiffs alleged was material information that should have been included in the company’s IPO documentation.

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Casper’s stock ended last week’s trading session at $3.55 a share, giving it a market cap of just under $150 million. The shares on Monday shot up 88.5 percent to $6.69 following news of its impending sale to Durational Capital—still marking a more than 50 percent drop from its IPO opening price. The private equity firm will be paying a 94 percent premium to Friday’s closing stock price for the privilege of taking the company private. Casper’s current market cap on Monday, following the stock price bump, was $277.3 million.

On Monday, the company reported third-quarter results for the quarter ended Sept. 30 reflecting widening losses that grew 59.4 percent to $25.3 million on a 26.8 percent revenue increase to $156.5 million. Casper said gross profit had decreased by 6.7 percent to $63.9 million.

Vacating the CEO post, Krim pointed to ongoing industry-wide supply chain challenges that had resulted in “sustained inflationary pressures across the industry impacting our ability to meet demand effectively and efficiently and impairing the company’s liquidity position.”  He noted that the proposed acquisition by Durational Capital will offer shareholders “immediate and substantial value, and ensures the business has the financial flexibility required to support continued growth.”

Krim is slated to depart from his role as CEO this week, to be succeeded on Thursday by Emilie Arel, currently president and chief commercial officer at Casper. Arel was previously the CEO of Fullbeauty Brands, a plus-size apparel company.

Durational Capital’s agreement to acquire Casper in an all-cash transaction is expected to close in the first quarter of 2022.