Compass Diversified Holdings (CODI)

A. Company Overview

Compass Diversified Holdings (CODI) is a Delaware statutory trust established on November 18, 2005, that specializes in acquiring and managing a diversified portfolio of small to middle-market businesses primarily operating in North America. The structure of the company consists of two main entities: the Trust and Compass Group Diversified Holdings, LLC, the operating arm that provides management oversight. The Trust is the sole owner of Trust Interests in the LLC, which operates with a board of directors tasked with corporate governance akin to that of a Delaware corporation.

The Trust transformed its tax status from a partnership to a corporation effective September 1, 2021, aiming to streamline tax obligations for shareholders. The operational focus of CODI involves strategically acquiring controlling interests in businesses that demonstrate potential for long-term growth, stable cash flows, and minimized risks of obsolescence.

B. Business Model and Strategy

CODI’s investment approach emphasizes the acquisition and active management of companies within sectors showing robust macroeconomic growth prospects. The portfolio is divided into two main categories: branded consumer businesses and industrial businesses. There is a significant emphasis on businesses that possess strong management teams, defensible market positions, and opportunities for growth through both organic expansion and add-on acquisitions.

The company employs a disciplined acquisition process, acquiring businesses with favorable valuations and offering substantial liquidity. This allows CODI to execute purchases without reliance on cumbersome third-party financing, facilitating swift acquisitions during volatile market conditions. This model positions CODI as an appealing buyer for private companies looking to sell, as it provides ongoing support for strategic growth while alleviating concerns related to multiple sale processes.

C. Portfolio Overview

As of December 31, 2023, CODI holds controlling interests in several businesses categorized under branded consumer and industrial sectors, with a potential expansion into the healthcare sector announced in 2022.

Branded Consumer Businesses

1. 5.11 ABR Corp.

- Description: A leading provider of tactical apparel and gear known for innovation and authenticity, catering to law enforcement, military, and outdoor enthusiasts.

- Acquisition Date: August 31, 2016

- Ownership: 97.2% (primary), 88.9% (fully diluted)

1. BOA Holdings Inc.

- Description: Creator of the BOA Fit System, which offers highly effective fit solutions for footwear across various sports and industries.

- Acquisition Date: October 16, 2020

- Ownership: 91.8% (primary), 83.2% (fully diluted)

1. Ergobaby Carrier, Inc.

- Description: A designer and distributor of baby carriers and accessories that prioritize ergonomic and comfortable design.

- Acquisition Date: September 16, 2010

- Ownership: 81.6% (primary), 72.8% (fully diluted)

1. Lugano Holdings, Inc.

- Description: A high-end jewelry designer and retailer known for its unique, one-of-a-kind pieces designed around rare gemstones.

- Acquisition Date: September 3, 2021

- Ownership: 59.9% (primary), 55.5% (fully diluted)

1. PrimaLoft Technologies Holdings, Inc.

- Description: A provider of high-performance synthetic insulation and materials used in outerwear and home furnishings.

- Acquisition Date: July 12, 2022

- Ownership: 90.7% (primary), 83.1% (fully diluted)

1. Velocity Outdoor Inc.

- Description: A manufacturer and marketer of airguns, archery products, and associated accessories known for high-quality, innovative products.

- Acquisition Date: June 2, 2017

- Ownership: 99.4% (primary), 87.7% (fully diluted)

Industrial Businesses

1. FFI Compass, Inc.

- Description: A designer and manufacturer of custom molded protective foam solutions serving various end-markets including automotive and appliances.

- Acquisition Date: February 15, 2018

- Ownership: 99.3% (primary), 89.8% (fully diluted)

1. AMT Acquisition Corp. (Arnold)

- Description: Capable of producing high-performance magnets, motors, and precision foil products critical for diverse applications.

- Acquisition Date: March 5, 2012

- Ownership: 98.0% (primary), 85.5% (fully diluted)

1. SternoCandleLamp Holdings, Inc.

- Description: Leading manufacturer of portable food warming products and indoor and outdoor lighting solutions.

- Acquisition Date: October 10, 2014

- Ownership: 99.4% (primary), 87.6% (fully diluted)

D. Financial Performance

In the fiscal year 2023, CODI declared distributions of $1.00 per common share, alongside varying distributions for preferred shares. The company operates on a well-defined financial strategy, utilizing a capital structure that combines debt and equity financing. Funding for acquisitions relies on existing credit facilities and equity resources, enabling efficient capital management without dependence on third-party financing for each transaction.

E. Management and Governance

The day-to-day operations of CODI are overseen by Compass Group Management LLC (CGM), which has extensive experience in managing small to middle-market businesses. The management team plays a critical role not only in operational oversight but also in execution of the overall investment strategy. This includes identifying strategic acquisition opportunities, ongoing management of portfolio companies, and enhancing financial performance.