The local brand, which once swept the nation with its beaver logo and symbolized the ” Canadian leisure spirit,” now stands at a crossroads. Canadian apparel retailer Roots Corp. announced Tuesday that it has initiated a strategic review process and is not ruling out selling the more than half-century-old company. The company stated that it has engaged JPMorgan Chase & Co. to assist in analysing various options for enhancing shareholder value but emphasized that there is no guarantee that a deal will ultimately be reached.
Following the announcement, Roots’ stock price rose as much as 5.7% in early Toronto trading, reaching C$3.18. However, this price is a far cry from the company’s triumphant IPO. From national symbols to capital restructuring
Since opening its first store in Toronto in 1973, Roots has become a symbol of the Canadian lifestyle with its beaver-logo sweatshirts and casual pants. At its peak, the company had over 100 stores nationwide and more than 100 partner stores in Asia and briefly entered the US market. However, during the 2020 pandemic, most of its US stores were closed, and its expansion pace slowed significantly. In 2015, US private equity firm Searchlight Capital Partners LP acquired a majority stake in Roots.
Two years later, in October 2017, the company went public at C$12 per share and was once seen as a source of pride for the Canadian retail industry as it returned to the capital markets. However, reality after the IPO did not meet expectations. In recent years, the company’s profit margins have remained thin, and its performance has failed to meet the growth blueprint outlined during the IPO. Valuation shrinkage reflects the retail predicament
Analysts point out that despite its financial performance falling short of market expectations, Roots continues to generate relatively substantial free cash flow. TD Cowen analyst Brian Morrison stated in a report that if a deal is ultimately reached, the acquisition price could be between CAD 4 and 4.5 per share, based on valuation multiples of other retailers. Even so, this potential range still seems particularly heavy compared to the original issue price of 12 Canadian dollars.