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Mattress retailer Sleep Country Canada Holdings Inc. has agreed to buy one of its biggest e-commerce competitors, Endy Sleep Inc., for up to $89-million.

Endy, which was founded in 2015, makes its mattresses in Canada and ships for free across the country. It’s one of more than 100 “bed-in-a-box” retailers that sells primarily online, including major competitor Casper Sleep Inc. These startups have posed a significant threat to traditional mattress sellers such as Sleep Country.

The companies announced the deal Thursday after markets closed. Sleep Country will pay $64-million in cash up front and up to $25-million more by 2021 if Endy hits growth and profitability targets. Endy has sold more than 80,000 mattresses to date, and is on track to hit $50-million in sales this year.

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From ROB Magazine: Under attack from Endy and Casper, Sleep Country Canada fights back

It will operate as a separate business and retain its leadership, including co-founding chief executive officer Mike Gettis and Rajen Ruparell, its chair and majority shareholder. The companies said doing so will “encourage the same competitive spirit that positioned both companies as leaders in their respective spaces.”

Sleep Country customers won’t suddenly find Endy-brand mattresses in physical stores. And Endy won’t immediately take advantage of Sleep Country’s distribution centres or logistics systems. But the companies said Sleep Country will take advantage of Endy’s e-commerce expertise, while Endy will gain the benefit of Sleep Country’s broad reach and decades-old brand, working out how they might more seriously integrate operations over time.

“We wanted to find a partner that would help us grow,” Mr. Ruparell said in an interview.

Staying Canadian, and operating as their own business were two key criteria. Mr. Gettis said being bought by Sleep Country “allows us to continue to scale and build trust with the Canadian public.” Endy sells exclusively in Canada and has contract manufacturers making its mattresses across the country. “Remaining in Canada is super important to us – that’s been the key to our success from the beginning,” Mr. Gettis continued.

Mr. Gettis and Mr. Ruparell are friends from Calgary and went to the University of Toronto together. The business is based in the latter city. Prior to the acquisition, Endy has so far been largely bootstrapped, save for an investment earlier this year from former Toronto Blue Jay Jose Bautista.

Sleep Country CEO David Friesema remains confident the bricks-and-mortar mattress marketplace. The company aims to add eight to 12 stores a year, which it surpassed with 17 this year. Since going public on the Toronto Stock Exchange in 2015, its shares have risen more than 40 per cent, to $21.20 at Thursday’s market close. That’s down from highs of about $41, however, and analysts have recently been cutting ratings and price targets, pointing to a slowdown in growth.

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“We have been watching them, and kind of getting to know them, over the last few years,” Mr. Friesema said of Endy. Buying the startup, he said, “just made more and more sense all the time, watching them operate. ... We are currently very strong in the brick-and-mortar business, and not very strong in the online business, because we’re new to it. We find it to be a very complementary acquisition.”

Mr. Friesema expects the online sales to command 15 to 20 per cent of the mattress market in the coming years. While that means 80 to 85 per cent sales will still be Sleep Country’s physical-retail specialty, it was a chance to diversify and help build a Canadian e-commerce contender. “We do anticipate that more U.S. brands might be looking into the Canadian market, and that’s one of the reasons we want to be as competitive as we possibly can,” he said in an interview.

Endy also distributes mattresses to Canadian families in need, and says it has given more than 2,500 so far.

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