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Sleep Country, founded by Stephen Gunn, Christine Magee and Gord Lownds in Vancouver in 1994, has 215 stores across eight Canadian provinces, including 47 outlets in Quebec under the Dormez-vous? brand.Deborah Baic/The Globe and Mail

DEAL OF THE DAY

Sleep Country announces $185-million secondary share offering

Sleep Country Canada Holdings Inc. announced a secondary stock offering worth $185-million after the close on Monday that will see private equity company Birch Hill Equity Partners Management Inc. offload another piece of its holdings.

TD Securities Inc. and BMO Nesbitt Burns Inc. are leading a bought deal that was priced at $18.50, a share a discount of 55 cents compared to where the stock closed at on Monday. Brokers will now try to sell that stock on to third parties.

Sleep Country was privatized in 2008 by Birch Hill and Westerkirk Capital Inc. and taken public again this past summer on the Toronto Stock Exchange at $17 a share.

Sleep Country, which raised $300-million in its IPO, had the ignominy of being the first sizable IPO to trade down on its first day in 2015 in Canada.

Earlier this month, it finally rose above its IPO price. Press release

Octagon Capital shutting down

Octagon Capital Corp. is the latest casualty of the malaise engulfing Bay Street brokerages.

The small Toronto-based independent broker and investment bank is being wound down and is expected to go out of business by the end of the year.

"We made a decision just to get out of the brokerage business," John Palumbo, Octagon Capital's chief executive officer, said in an interview.

Octagon is far from the only small independent brokerage to run into recent difficulties. A ragged resources market, a choppy equities environment and widespread secular changes in investment banking have taken a heavy toll on many of the smaller shops on Bay Street with some being swallowed up by larger competitors and others shutting down entirely. Over the past three and a half years, more than 50 Canadian investment dealers have either gone out of business, merged or been acquired, according to data from the Investment Industry Association of Canada (IIAC). Story

INVESTMENT BANKING

Lending a loss leader for banks in M&A

Big banks that lend to Canadian companies not only want to win mergers and acquisitions (M&A) fees in a takeover deal – increasingly they need to. Lending is becoming a loss leader for other activities in investment banking.

"These days, the cost of capital, the cost of funding, lending money is a difficult business because it's very low return," Jason Henderson, head of global banking and markets in Canada with HSBC Bank Canada, said in an interview.

The M&A or financial advisory fee can be what pushes a deal over the top in terms of profitability for the bank.

"Winning an M&A mandate is something that me and my team would sit across from a CFO, or a treasurer, or a CEO and say 'we'd really like you to use us to win some mandates because I've got this huge balance sheet that's sitting here, that you're drawing on, that doesn't really make us much money,'" Mr. Henderson said.

M&A fees – typically a percentage of the value of the deal – are among the most lucrative of all investment banking activities. One per cent is standard on a deal of up to $1-billion (it tends to go down above $1-billion). These fees are generally awarded to one bank, or split with only one other party – unlike a bought-deal financing or an initial public offering (IPO) that is generally split with a large syndicate.

One of HSBC's biggest mandates this year was acting as a co-lead financial adviser to Valeant Pharmaceuticals International Inc. when it acquired Salix Pharmaceuticals for $11.1-billion (U.S.). HSBC and Deutsche Bank (the other co-lead financial adviser) also co-led an associated debt financing on the deal. Financial advisory fees, which is paying a bank for arranging the financing for a takeover, aren't quite as lucrative as a full-fledged M&A fee, but they are still sizable.

(Valeant has its own internal team that specializes in deal making so it doesn't need to pay external bankers an M&A fee per se. What these individuals within Valeant don't have, though, is expertise in arranging financings).

STREET MOVES

BLG adds oil and gas lawyer in Calgary

Borden Ladner Gervais LLP says it has lured a Calgary oil and gas partner away from rival Norton Rose Fulbright LLP.

BLG said Monday that Miles Pittman has left Norton Rose for BLG, which he joins as a partner in the oil and gas group in Calgary.

BLG says the move boosts the firm's strength in energy mergers and acquisitions and project structure and development. Story

BITS AND BOBS

KERN Partners changes name to reflect change in leadership

KERN Partners Ltd., the Calgary-based private-equity firm, has changed its name to reflect its change in leadership.

The company, which has numerous energy-focused investments, is now known as Azimuth Capital Management.

The firm decided to rebrand after co-founder Pentti Karkkainen left the firm. Mr. Karkkainen had gradually stepped back from day-to-day operations. Another founder, Vincent Chahley, left more than a decade ago. The name KERN was made up from the initials of the founders' children. Story

If you have any story suggestions for Daily Deals, e-mail us at deals@globeandmail.com or nmcgee@globeandmail.com.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:00pm EDT.

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Sleep Country Canada Holdings Inc
-1.57%29.39

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