Sleep Country Canada Holdings Inc. ZZZ-T has signed a $1.7-billion deal with Prem Watsa’s Fairfax Financial Holdings Ltd. FH-T after the mattress and bedding retailer had waved off roughly half a dozen potential buyers who had been circling the business.
While Sleep Country had not advertised itself as being for sale, according to chief executive officer Stewart Schaefer, its stock price had attracted attention from suitors over the past year or so.
“I don’t believe that our stock reflected and unleashed the value of, really, what Sleep Country is. Maybe if I called it ‘Sleep Country AI,’ then something would change,” Mr. Schaefer joked in an interview on Monday after the announcement of the deal.
Fairfax has offered to acquire all of the company’s issued and outstanding common shares, which trade on the Toronto Stock Exchange under the symbol “ZZZ,” for $35 apiece. But the shares have traded as low as roughly $21 in the past year, attracting much lower offers.
“I’m not interested in selling at a distressed price because we don’t need to,” Mr. Schaefer said. “We are this great business. We have a strong balance sheet. We’re not worried about economic recessions. I’ve lived through, I don’t know how many stock market crashes and recessions. Everybody needs mattresses. Even if they put a pause on this discretionary spend, they’re eventually going to come back.”
Sleep Country was founded in British Columbia 30 years ago. In recent years, the company has increased its sales significantly and has bought up competitors such as Endy in 2018, Hush Blankets in 2021 and both Casper Canada and Silk & Snow last year. While mattresses still make up the bulk of the company’s business, it has also expanded its sales of accessories such as weighted blankets, sleep and lounge wear, and pet beds.
“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,” Fairfax chairman and CEO Mr. Watsa wrote in a statement on Monday.
Last year, the company reported record revenues of $935-million, up significantly compared with its prepandemic sales. At the same time, profit has slipped, with net income attributable to the company falling by more than 35 per cent to roughly $71.2-million.
Profits have slipped partly because expenses have gone up – including wages, IT and cybersecurity costs, and freight costs, which have come down compared with pandemic-era highs but have started to rise again, Mr. Schaefer said.
Adding to those pressures, consumers who are coping with the effects of inflation and higher interest rates have been pulling back on non-essential spending. That has forced many retailers to offer more promotions and spend more money on advertising to bring people through their doors. With many Canadians facing expensive mortgage renewals in the coming months, the trend could intensify. Mr. Schaefer said that his team considered what all these factors could mean for Sleep Country’s shareholders in the coming years.
“I will tell you that I am fearful that there will be a slowdown, and I feel it’s knocking on the door,” Mr. Schaefer said. On the other hand, he added that this could mean further possible acquisitions becoming available for Sleep Country to consider. “When we do see slowdowns, it does create opportunities – maybe here in Canada, maybe outside of Canada – and having a strong financial sponsor behind you may create opportunities that are beyond Canada.”
Sleep Country board chair and co-founder Christine Magee acted as chair of a special committee of independent directors that oversaw the negotiations. The committee unanimously recommended the deal to the board, and has recommended that Sleep Country shareholders vote in favour. In a statement on Monday, Ms. Magee wrote that the deal “provides certainty of significant and immediate value to shareholders.”
The Fairfax offer represents a 28-per-cent premium to Sleep Country’s closing price on July 19, and a 34-per-cent premium on a 20-day volume-weighted average price of the common shares ending on that day.
The deal is subject to approval from at least two-thirds of Sleep Country’s shareholders, as well as court and regulatory approvals. If it is approved, Sleep Country would go private and cease trading on the TSX.
The company’s share price jumped by more than 27 per cent on Monday after the news, closing at $34.67.
Toronto-based Fairfax is an insurance and investment conglomerate. Its main business is owning and operating insurance companies around the world, from Canada and the United States to Asia and Latin America.
In 2023, Fairfax wrote US$32-billion in gross premiums, making it one of the world’s largest property and casualty insurers. The holding company’s stock has surged over the past year, gaining nearly 59 per cent on the Toronto Stock Exchange.
The company has also invested in retail businesses. Fairfax owns a majority stake in Sporting Life Group, which owns Sporting Life, Golf Town and Team Town stores. Fairfax previously owned Toys “R” Us and Babies “R” Us Canada for three years, before selling the business to Toronto-based Putman Investments Inc. in 2021. The following year, Fairfax took Recipe Unlimited Corp. private, in a deal that valued the restaurant company at $1.2-billion. Recipe Unlimited owns banners including the Keg, Harvey’s and Swiss Chalet.
“This asset is one of the crown jewels – in my personal opinion because I work here – of retailers in Canada. And Prem was the only one that truly recognized that,” Mr. Schaefer said. “I think he thinks very, very long-term.”
With a report from James Bradshaw