Silentnight Owner Awakens Interest In Dreams

The firm behind Silentnight, the beds manufacturer, is among a pack of predators circling Dreams, the retail chain which has been put up for sale in an effort to secure its future.

I understand that HIG Europe, which acquired Silentnight in a controversial deal in 2011, is examining an offer for Dreams, for which its lenders are courting takeover offers.

HIG's interest in Dreams has emerged three months after Silentnight stopped supplying the beds retailer after the two companies were unable to agree terms. Its takeover of Silentnight was contentious because of the way the deal treated the bed-maker's pension obligations.

HIG has not yet decided whether to pursue a formal bid for Dreams, which is saddled by substantial debts and could risk becoming the latest casualty of the deteriorating high street environment unless a sale is agreed in the coming months.

Ernst & Young, the accountancy firm that is overseeing an auction of Dreams, has asked for prospective buyers to submit offers by February 8. It wants to get a deal tied up by the middle of March, shortly before an extension to the waiver of Dreams' borrowing terms with lenders led by Royal Bank of Scotland (LSE: RBS.L - news) expires.

Steinhoff International (Other OTC: SNHFY - news) , the South African owner of Harveys and Bensons for Beds, is also examining an offer for Dreams, although analysts believe it is likely to face objections on competition grounds to a full takeover, and so may limit its interest to approximately 50 of Dreams' 270 stores.

A number of private equity firms, including Electra Partners and Endless, a specialist investor in distressed retailers. are also poring over Dreams' financial information with a view to making offers. Sun Capital, the owner of SCS Upholstery, the sofa retailer, is another potential bidder, as is Apollo Management, the American private equity firm which recently acquired Aurum Holdings, the group behind Mappin & Webb and Goldsmiths.

The most prominent participant in the sale process is, however, likely to be Mike Clare, Dreams' founder, who is lining up backing from one or more financiers to support a bid to buy the company back. Mr Clare sold Dreams to Exponent (NasdaqGS: EXPO - news) , an investment firm, in 2008 for £220m.

Some people close to the situation believe that any buyer of Dreams is likely to put the company through a form of bankruptcy procedure known as a pre-pack administration, although it is unclear whether that will take place.

Despite its indebted financial position, Dreams has actually been performing robustly in recent months, with like-for-like sales during the pre-Christmas and new year trading period up more than 7%.

Dreams employs more than 2,000 people, and any outcome that resulted in significant numbers of shop closures could increase the jobs bloodbath in the retail sector.

More than 9,000 jobs have been put at risk in the last week alone with the collapses of Blockbuster, HMV and Jessops, the camera retailer.

Dreams and HIG declined to comment on Friday.