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Counting sheep adds up for PE firms

Helping Americans get a good night's sleep is a $30 billion to $40 billion industry, one that offers huge investment opportunities for private equity firms, according to a report by consulting firm McKinsey & Co.

According to the Centers for Disease Control and Prevention, more than 1 in 3 Americans do not get enough sleep, the McKinsey report notes. To combat their lack of shut-eye, people spend billions on aroma therapy, imported horsehair mattresses, white noise machines and medicine.

"There are many potential entry points and investment opportunities for private equity firms in the U.S. sleep-health economy," said Dan Goldman, associate partner in McKinsey's San Francisco office, in an email.

Mr. Goldman co-authored the report with Alex Panas, senior partner in McKinsey's Boston office.

"These (investment opportunities) range from potential roll-up strategies, for example with mattresses and bedding firms, to building a holistic portfolio of sleep-health solutions which could include sleep labs, consultants and monitoring tools," Mr. Goldman wrote.

However, private equity firms should focus on sleep-related businesses that have brand credibility, differentiation and a pathway for growth, the report noted. Brand credibility gives consumers a "clear reason" to believe the product will deliver on its promised benefit. The business also should offer a specialized material or unique business model and have a pathway to sustainable growth.

As an example, the report noted that in January, private equity firm Pegasus Capital Advisors LP joined with television host and surgeon Mehmet Oz and medical device manufacturer ResMed to create SleepScore Labs. The Carlsbad, Calif.-based company offers a sleep tracking device.