Herman Miller Remodeling Continues in DWR Deal

NEW YORK (The Deal) -- Office furniture maker Herman Miller  (MLHR) is continuing to remodel its strategy, striking a deal to acquire modern furniture retailer Design Within Reach for about $154 million in cash.

Zeeland, Mich.-based Herman will acquire an approximately 84% stake in DWR, the companies said after the close of regular trading Thursday.

DWR's current CEO John Edelman and president John McPhee will maintain an approximately 8.5% interest in a newly created Herman Miller consumer division.

Herman Miller anticipates future tax benefits with a present value of approximately $10 million in connection with the acquisition. DWR shareholders will receive approximately $23 per share on a fully diluted basis, while the company's largest shareholders will also be paid an undetermined escrow amount.

Stamford, Conn.-based DWR, which generated about $218 million in revenue during 2013, sells modern residential furniture and home accessories via an established e-commerce presence and throughout its 38 retail locations in the U.S. and Canada. The business will be rolled into Herman Miller's consumer unit, which currently generates only about $60 million and operates within the company's specialty and consumer segment.

The deal follows a competitive auction process for DWR, according to Financo managing partner Lee Helman, who advised DWR on the transaction.


The acquisition will allow Herman Miller to be more vertical in terms of its offerings, Helman said, while also adding increasingly popular modern and contemporary designs.

While Helman declined to identify other parties involved in the auction, furniture peers like Knoll (KNL), Steelcase (SCS) and Humanscale could have been in the mix, according to Mike Dunlap, the owner and principal of Holland, Mich.-based Michael A. Dunlap & Associates, a consulting firm to the furniture industry.

"This really takes them to a new level," Dunlap said of Herman Miller.

Noting the broader implications of the deal, Dunlap added: "most significant is the continued movement in an evolutionary sense to utilize the e-commerce channel in what has traditionally been a brick-and-mortar space."

Herman Miller's annual online sales are likely south of $75 million, Dunlap said. The company posted approximately $1.9 billion in total sales for its fiscal year ended May 31, up from about $1.8 billion a year earlier.

It swung to a $22.1 million loss after posting a $68.2 million profit in fiscal 2013. The loss was partly due to $26.5 million in restructuring costs over that period.


The acquisition also gives Herman Miller the opportunity to increase the mix of its existing branded products sold via DWR's retail operations, improving its volume and margin profile, as well as boosting its revenue and growth rates, said Longbow Research LLC analyst Josh Borstein. The analyst expects the acquisition to be mostly earnings neutral in the current year and accretive thereafter.

"This deal is similar to what Knoll did with the Holly Hunt deal," Borstein said. "It takes them away from pure office into more residential ... Herman Miller and Knoll have iconic products that crossover nicely unlike some big office manufacturers."

Fellow office furniture manufacturer Knoll on Feb. 3 paid $95 million in cash for Chicago-based luxury design furniture brand Holly Hunt Enterprises.

For Herman Miller, the acquisition comes a little more than a year after its last move to transition away from the office furniture space. The company paid $156 million for family-owned New York fabric and textiles maker Maharam Fabric--representing a price-to-sales multiple of about 1.5--on April 25, 2013.

Financo's Helman said he is currently working with other furnishing companies and anticipates more deals to be announced this year. Strong M&A activity in the furniture space will be driven by renovations and updates that consumers are making to their homes, he added.

Financo served as financial adviser to DWR on the transaction. An Ellenoff Grossman & Schole team that included Doug Ellenoff, Richard Baumann, Matt Gray, Brandon Cody, Peter Guy, Peter Cohen and Robert Sakosky offered legal advice. Foley & Lardner served as legal counsel to Herman Miller, while Timothy Lopez offered inhouse counsel.

The deal is expected to be completed on July 28. More details surrounding the transaction will be provided on Herman Miller's July 31 conference call, the company said.

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