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Thursday, December 22, 2011

Fairfax Financial buys 75% stake in Sporting Life

Prem Watsa: Like a Boss!
From CNW: Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U) and Sporting Life Inc. announce today that Fairfax has purchased 75% of Sporting Life, one of Canada's most prestigious sporting goods and sports apparel retailers, with the long-term goal of supporting the growth and expansion plans of the founders who continue to retain the balance of the shares.

Sporting Life is the high end of retail.  I am from Toronto where Sporting Life is located and  I have been to the Yonge street store a number of times. It's the exact opposite of Wal-mart, extremely knowledgeable and polite staff, great selection for sports equipment and apparel, very high end brands and a very pleasant shopping experience. Of course prices are higher but consistent with what you would expect for such a well run store. This is not a major deal for Fairfax as Sporting Life's sales were only $100m in 2010. The press release doesn't have details on the acquisition price and Sporting Life is a privately held company. Looking at past transactions and price to sales ratios of competitors we can take an educated guess. 


Forzani Group, Canada's largest national retailer of sporting goods was acquired by Canadian Tire this summer at 55% of sales. Dick's sporting goods trades at 100% of sales. Given Sporting Life's high end strategy I'd guess the deal was at most 2x sales or $150m ($200m company value) but these are just back of the envelope numbers.

Prem had this to say on the deal:

"We are very pleased to acquire such a pre-eminent retailer as Sporting Life. Today’s acquisition is consistent with our ongoing interest in acquiring strong, established franchises from entrepreneurial founders who want to find a long-term home for their business.”

What I found strange is Globeinvestor had an in-depth article about Sporting Life published just yesterday and received co-operation from David Russell, co-founder and president of Sporting Life. Obviously he was aware the deal was nearing completion, why not just hold off on the article which discussed going public or finding a private investor. Who knows, they were a private company so I guess they were free to do what they wanted but it seems silly to me.

Disclosure: I think Prem is awesome.

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