Mattress Firm Holding (MFRM) announced a $780 million deal for the parent company of Sleepy's, combining the two largest mattress specialty retailers in the U.S. and gaining a coast-to-coast presence. The deal, which was announced late Monday, Nov. 30, appears to have followed a private equity-oriented auction process.

The acquisition of HMK Mattress Holdings, the holding company for the Sleepy's and Mattress Discounters banners, among others, breaks down to approximately $740 million of cash and debt, approximately $30 million of quantified liabilities assumed, and up to $10 million of rollover equity. The adjusted enterprise value equates to approximately $673 million.

Mattress Firm for many years had thought a combination of the two industry players "needed to happen," Mattress Firm CEO Steve Stagner said on a Monday call with investors after the close of regular trading. He indicated that conversations about a possible deal had taken place over the years. The mattress retailer entered Sleepy's sale process in late September of this year, he said, indicating there were "quite a few others" in the mix at that time.

"We presumably were the only strategic, but from our understanding, we were not the only [party] in the process," Stagner said. "It was a mature process by the time we entered."

Shares of Mattress Firm, listed on the Nasdaq, jumped about 7% to $52.81 in Tuesday trading, assigning the Houston-based company a market capitalization of nearly $2 billion.

Mattress Firm said it anticipates annual synergies of about $40 million in the third year following completion of the deal.

Sleepy's generated about $1.1 billion in annual sales and about $70 million of Ebitda over the last 12 months, company CFO Alex Weiss said on the Monday call with investors. The transaction price equates to a multiple of approximately 11.1 times the target's trailing 12-month Ebitda.

"We view this multiple as rich given Sleepy's struggles in recent years, with store productivity flat over the past five years and Ebitda approximately flat over the past two years, despite healthy industry growth," Wedbush Securities analyst Seth Basham wrote in a Dec. 1 research note.

Accounting for the $40 million in anticipated cost synergies over the next three years, the acquisition multiple would fall to about 7.1 times, the analyst said. The multiple drops even further to about 6.4 times with the inclusion of associated tax benefits of $11 million for over 10 years, Basham added.

Founded in 1957, Sleepy's is both family- and management-owned, though San Francisco- and Boston-based private equity firm Calera Capital also owns a minority stake in the company. Besides physical stores operating under the Sleepy's and Mattress Discounters banners, the company also sells mattresses online via Sleepys.com, 1800mattress.com and Mattress.com, plus serves as a wholesaler for Amazon (AMZN - Get Report) , Sears Holdings (SHLD) , as well as to hotels and colleges.

The Hicksville, N.Y.-based HMK Mattress has north of 1,050 stores in 17 states in the Northeast, New England, the Mid-Atlantic and Illinois, bringing Mattress Firm's portfolio to roughly 3,500 retail stores and 80 distribution centers across 48 states. Together the companies generated pro forma sales of north of $3.6 billion over the last 12 months.

The target's parent company HMK Mattress has a $170 million senior secured term loan due 2018, according to Moody's Investor Service.

Mattress Firm plans to finance the transaction with both cash on hand and new debt, most of which Weiss said he expects to come in the form of an add-on to its existing term loan.

The deal does not include a break-up fee, Weiss said. The transaction is expected to close during the first half of Mattress Firm's fiscal year 2016, subject to regulatory approvals including clearance under the Hart-Scott-Rodino Antitrust Improvements Act.

For Mattress Firm, Sleepy's represents the latest of many acquisitions over the past several years. Its last big deal was the $440 million acquisition of Rocklin, Calif.-based Sleep Train, completed in October 2014, through which it gained a significant presence on the West Coast.

Upon completion of the transaction, Sleepy's current COO and general counsel Adam Blank will take on the role of president of Sleepy's.

Kindel Elam served as in-house general counsel for Mattress Firm. Barclays provided financial advice and a fairness opinion to Mattress Firm on the transaction, while Norton Rose Fulbright served as legal counsel. The Norton Rose deal team included Gene Lewis, Amber Ervin, Zahra Usmani, Leslie Daniel, Dan Wellington, Steve Kuntz, Jarret Stephens, Samantha Dyal, Brian Smith, Robbie Mashburn and Danny Prati.

Morgan Stanley's Ian Sugarman and Justin Craig served as financial adviser to Sleepy's, while Gibson, Dunn & Crutcher offered outside counsel. The Gibson team included Sean Griffiths, Brian Gingold, Andrew Baroody, Christopher Lang, David Rosenauer, John-Paul Vojtisek and Michael Collins.