After years of interest from private equity firms, Sleep Country Canada Holdings Inc. CEO Stewart Schaefer has formally approved to sell the company to Fairfax Financial Holdings Ltd. for $1.24 billion (CA$1.7 billion). Announced on July 22nd 2024, the deal agreement involved a subsidiary of the Toronto-based financial holding company purchasing all issued and outstanding common shares of Sleep Country at CA$35 per share, representing a 28% premium over the closing share price on Friday. The transaction involved the participation of prominent Canadian investment banks, with Blair Franklin Capital Partners and CIBC World Markets serving as advisors for Sleep Country.
Schaefer's official announcement came as Sleep Country remarks its 30th anniversary this year. The company started out with a single mattress store in Vancouver in 1994 and has since become a well-known brand in Canada. Today, it operates 307 stores and 18 warehouses under multiple brands, including Sleep Country. In recent years, the company has encountered intensified competition from online businesses selling boxed mattresses delivered directly to customers' homes. On top of that, consumers have been delaying major purchases, such as mattresses due to high inflation, increased borrowing costs and rising mortgage rates. Fairfax Financial sees the acquisition as a strategic investment that aligns with the firm's primary focus on long-term value. The deal offers Fairfax clear exposure to the stable and growing mattress retail market in Canada, supported by Sleep Country's strong brand presence and diversified product offerings. Marin Landry, Stifel's Managing Director of Equity Research, believes the valuation in the Fairfax deal is "slightly opportunistic" given Sleep Country's significant presence in the Canadian mattress market, with an estimated 40% market share.
Fairfax intends to leverage Sleep Country's established market position and operational expertise, while potentially exploring synergies with its other retail investments. Fairfax chairman and CEO Prem Watsa said: "We are thrilled to have Sleep Country and its talented team led by Stewart Schaefer join the Farifax Group. Sleep Country is Canada's leading sleep retailer with brands that are recognised by all Canadians. We look forward to working with Stewart and the entire Sleep Country team to further develop this remarkable Canadian success story over the long term."
The Friday before the deal was announced, Sleep Country's share price closed at CA$27.28. Following the announcement, the share price surged roughly 27%, closing at CA$34.67 on Monday. Fairfax's share price saw a modest increase of less than 1%, closing at CA$1,598.14. The deal is expected to close in the fourth quarter of this year, pending regulatory approvals. Upon closure, Sleep Country intends to delist its common shares from the TSX and will no longer be a reporting issuer under Canadian securities law.
In essence, Fairfax Financial's acquisition of Sleep Country is a strategic initiative aimed at enhancing its retail sector portfolio with a reputable and financially stable company. This move underscores Fairfax's commitment to long-term growth and market expansion.
Written by: Lewis Nguyen
Sources: Yahoo Finance, Retail Insight Network, BNN Bloomberg, Mergerlinks
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