I didn’t have this one in my portfolio, but I remember looking at Roots (TSX: ROOT) in late 2024 in my “tax loss selling discards” pile. The stock at the time was trading in the low 2’s.
Today they announced they received a takeover offer from a private firm for $4.10/share cash. It is very likely to be successful.
Note that Roots was already majority controlled by Searchlight Capital Partners, who decided on a liquidation outlet.
Despite being involved in retail fashion (which is a volatile industry that shareholders of Lululemon, Aritzia, etc. can attest to) and having zero growth in top-line revenues, they were quite good at carving out free cash flow annually out of the business. Perhaps I should have been a little more appreciative a couple years ago at management’s efforts at chipping away the debt in the business and staying in their lane.
With an average of $29 million a year in free cash flow for the past 3 fiscal years, the company was trading at an EV/FCF ratio of about 13-14% and you just had to make the assumption they were going to hold the line (I was a little more pessimistic at their prospects and decided to pass). C’est la vie!