Retail giant Sleep Country Canada is being acquired by a wholly-owned subsidiary of Fairfax Financial Holdings Limited in a $1.7 billion deal.
“We have concluded that this transaction is in the best interests of Sleep Country and is fair to our shareholders. Following a comprehensive assessment and our extensive negotiations with Fairfax, we are pleased to have reached an agreement that provides certainty of significant and immediate value to shareholders,” said Christine Magee, Chair of the special committee of independent directors of Sleep Country that oversaw the negotiation of the transaction, in a statement.
In a news release, it was announced that Fairfax will acquire all of the issued and outstanding common shares of Sleep Country for $35 in cash per common share. The purchase price represents a 34 per cent premium to the 20-day volume-weighted average price of the company’s common shares on the TSX for the period ending on July 19, 2024, and a 28 per cent premium to the closing price on July 19, 2024.
Sleep Country is Canada’s leading specialty sleep retailer and operates under the retailer banners; Sleep Country Canada, Dormez-vous, the rest, Endy, Silk & Snow, Hush and Casper Canada. The company has omnichannel and eCommerce operations, including 307 corporate-owned stores and 18 warehouses across Canada.
“I am extremely proud of the accomplishments of our team. This Transaction clearly demonstrates the value and strength of our brands and organization. We look forward to partnering with Fairfax in this new chapter of Sleep Country where we can continue to execute on our strategic initiatives and transform lives by awakening Canadians to the power of sleep,” said Stewart Schaefer, President and Chief Executive Officer of Sleep Country.
In an interview with Retail Insider, Schaefer said what the new deal means is “probably status quo but maybe even with a greater sense of acceleration.”
“It’s almost like a new horizon with some familiar faces. That’s how I look at it. I’m excited about it. We’re already a strong company with some fabulous, incredible brands but the fact that we’re teaming up with another Canadian iconic super power like Fairfax is quite exciting and the possibilities they were endless before but it just became a little bit more endless with the bank of Fairfax behind you if you know what I mean.
“We’ve been quite active. I’m not going anywhere. Actually it’s a rebirth and re-excitement more than ever before and there’s going to be a lot of exciting things that I’m sure the Fairfax folks will be able to support and help with in the future.”
Schaefer said he foresees company growth through new stores and acquisitions.
“We’ll continue on the path of opening our Sleep Country stores, we’re going to be opening up Casper, Endy, Silk and Snow stores. And we’re actively looking for good real estate and M&A (mergers and acquisitions). We never will buy for the sake of growth, we will be looking to buy companies that we think are great companies, great brands, and companies that we could take to the next level and obviously in my world.”
Fairfax is a holding company which, through its subsidiaries, is primarily engaged in property and casualty insurance and reinsurance and the associated investment management.
“We are thrilled to have Sleep Country and its talented team led by Stewart Schaefer join the Fairfax Group. Sleep Country is Canada’s leading sleep retailer with brands that are recognized 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,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax.
Bruce Winder, Retail Analyst and Author, said the deal makes sense to him.
“Sleep Country is a great success story but found itself in a very difficult furniture industry that surged during the pandemic but has since suffered,” he said. “Sleep Country purchased the Casper brand last year and although top line sales were growing slightly (due to new store openings and the acquisition), it was getting hammered on the bottom line the last two quarters.
“Fairfax provides Sleep Country shareholders with a premium to recent share price and through its strategy to take Sleep Country private, provides an opportunity to lower the retailer’s cost structure out of the public eye. This deal provides an opportunity for Sleep Country to shed cost and build back stronger in a very difficult consumer environment.”
George Minakakis, Founder and CEO of Inception Retail Group, said mattresses are an industry where humans spend 30 per cent of their lives on them.
“What makes this industry attractive is its purchase cycle, which is about every seven to nine years. The Canadian mattress industry is approximately $1.3 billion annually, and Sleep Country controls most of that,” he said. “Add in a growing Canadian population, and the demand is long-term.
“However, Sleep Country missed earnings in Q1 of this year and has been experiencing a rise in its cost structures, mainly from acquisitions, which seem to have been a distraction. The company also saw a decline in same-store sales of -1.8 per cent in 2022 and -6.4 per cent in 2023.
Does all of this weigh in on this acquisition? It might, of course, with a slower economy driven by inflationary pressures and higher interest rates, which is not helping retailers as we know. Canada’s retail sales in May of this year were down. Some suggest that it may be as low as -3.2 per cent when you black out the impact of the higher immigration we’ve experienced.
“In my view, this is more of an opportunity to remove the brand from the public market’s scrutiny. Pursue an organizational restructure, invest in AI and automation to reduce cost structures as much as possible, and further improve customer experiences and marketing capabilities. This brand has always been a Canadian success story, and this next shift for them will secure their future.”
Michael Kehoe, Broker of Record for Fairfield Commercial Real Estate, said the Fairfax Financial Holdings Limited share acquisition of Sleep Country Holdings Limited is a notable transaction on the Canadian retailing scene.
“Sleep Country Canada is one of Canada’s most respected retail brands and a dominant player in the sleep retail category. I am expecting that the strength of the Sleep Country brand will be enhanced with the Fairfax partnership once all approvals are secured and the transaction is complete,” he said.
“From a commercial real estate standpoint, it will be interesting to see how future Sleep Country strategic initiatives may add to the existing 307 corporate-owned stores and 18 warehouses across Canada. This will be a new chapter for the Sleep Country brand and my expectations are high for their continued success.”
Officials said the transaction will be implemented by way of a court-approved plan of arrangement under the Canada Business Corporations Act and is expected to close in the fourth quarter of 2024. The transaction is subject to customary conditions, including the receipt of shareholder and court approvals and regulatory approval under the Competition Act (Canada). Completion of the transaction is not subject to a financing condition. In connection with and subject to closing the Transaction, the company will apply to have its common shares delisted from the TSX and the Company will cease to be a reporting issuer under Canadian securities laws.
“The Transaction was reviewed and overseen by the Special Committee. The Board, on the unanimous recommendation of the Special Committee, in consultation with its financial and legal advisors, and following a consideration of a number of factors, unanimously determined that the Arrangement is fair to Sleep Country shareholders and is in the best interests of Sleep Country, and recommended that Sleep Country shareholders vote in favour of the Arrangement at a special meeting of Sleep Country’s shareholders to be held to consider the Arrangement and approve the Transaction,” said Sleep Country.
“In connection with such determinations and resolutions, the Special Committee and the Board received an opinion from CIBC Capital Markets to the effect that, as of July 21, 2024, the consideration to be received by the holders of Sleep Country common shares is fair, from a financial point of view, to such holders, subject to the limitations, qualifications, assumptions and other matters set forth in such opinion. The Special Committee also received an independent opinion from Blair Franklin Capital Partners as of that same date, on a fixed-fee basis, to the effect that the consideration to be received by the holders of Sleep Country common shares is fair, from a financial point of view to such holders, subject to the limitations, qualifications, assumptions and other matters set forth in Blair Franklin Capital Partners’ opinion.”
The deal will be subject to the approval of (i) at least 66 ⅔ per cent of the votes cast by holders of all Sleep Country common shares present in person or represented by proxy at the meeting; and (ii) a simple majority of the votes cast by shareholders at the meeting, excluding votes from certain shareholders, as required under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.
In addition to shareholder approval, the Arrangement is subject to approval by the Ontario Superior Court of Justice (Commercial List) and regulatory approval under the Competition Act (Canada), as well as the satisfaction of certain other customary closing conditions. The completion of the Arrangement is not subject to any financing condition.
The company expects to call and hold the Meeting of shareholders prior to the end of the third quarter of 2024.
CIBC Capital Markets is acting as financial advisor and Davies Ward Phillips & Vineberg LLP is acting as legal advisor to the Special Committee and the company. Blair Franklin Capital Partners is acting as financial advisor to the Special Committee, including providing a fixed-fee fairness opinion regarding the transaction. Torys LLP is acting as legal advisor to Fairfax.
So basically, this confirms the end of Sleep Country. Too bad the parasites are acquiring it.
Five to seven years isn’t the lifespan of a good mattress provided you buy for quality and take care of it properly. The total weight on the mattress also affects wear and tear.
The one in my guest room, purchased from a liquidation store and my primary mattress for a decade, is twenty-three years old and has maintained its shape. Guests frequently comment on how comfortable it is.
I also got the twelve year old mattress that replaced it for a good price at a family-run general furniture store. Covered with a mattress protector and a soft sleeping pad over that, it’s in almost as good shape as the day I bought it.