Compass Diversified Completes Simplification of Tax Structure

Rhea-AI Summary

Compass Diversified (NYSE: CODI) has completed a tax reclassification to be treated as a corporation for U.S. federal income tax purposes, effective September 1, 2021. This strategic move aims to simplify the tax structure, enhance liquidity, lower capital costs, and expand the shareholder base. Alongside this, CODI has announced a special cash distribution of $0.88 per share, payable on September 7, 2021. The reclassification is expected to create more opportunities for growth and improve the company's standing with ratings agencies, potentially leading to inclusion in stock indices.

Positive

• Enhanced liquidity through a broader investor base.
• Reduced weighted average cost of capital, positioning CODI competitively.
• Greater flexibility in investment decisions.
• Increased likelihood of inclusion in stock indices.
• Improved company profile with ratings agencies.
• Lower administrative costs.

Negative

• None.

Reclassification as Corporation for Tax Purposes Designed to Unlock Shareholder Value

WESTPORT, Conn., Sept. 01, 2021 (GLOBE NEWSWIRE) -- Compass Diversified (NYSE: CODI) (“CODI” or the “Company”), an owner of leading middle market businesses, today announced that it has completed its planned tax reclassification. Effective today, Compass Diversified Holdings (the “Trust”) will be treated as a corporation for U.S. federal income tax purposes.

“Simplifying our tax structure is an important milestone for our company that we believe will position CODI for continued success and new opportunities,” said Elias Sabo, CEO of CODI. “We expect that being treated as a corporation will unlock substantial value for our shareholders due to several key benefits. In particular, we expect the removal of certain administrative requirements for our shareholders will allow us to expand our shareholder base and improve the likelihood of our stock’s inclusion within stock indices. We also anticipate having a significantly lower cost of capital moving forward. With the lowest cost of capital among our peers, we have built a competitive advantage in the marketplace that we believe will be a key differentiator as we continue to seek opportunistic acquisitions and to manage leading businesses. Our Board and talented management team are excited to continue leveraging our permanent capital structure to drive long term shareholder value and reach an even larger group of investors.”

CODI expects that being treated as a corporation for U.S. federal income tax purposes will:

• Increase share liquidity with broadened pool of investors;
• Reduce weighted average cost of capital;
• Create more flexibility in investment decisions;
• Improve the likelihood of CODI’s stock’s inclusion within stock indices;
• Improve the Company’s profile with ratings agencies; and
• Reduce administrative cost.

As previously announced, in order to offset a portion of the tax liability to the shareholders as result of the election to cause the Trust to be treated as a corporation for U.S. federal income tax purposes, the Board declared a special cash distribution of $0.88 per share on the Trust’s common shares (the “Common Shares”). The distribution on the Common Shares is payable on September 7, 2021 to all holders of record of Common Shares as of the close of business on August 31, 2021.

About Compass Diversified (“CODI”)

CODI owns and manages a diverse set of highly defensible North American middle market businesses. Each of its current subsidiaries is a leader in its niche market.

Leveraging its permanent capital base, long-term disciplined approach and actionable expertise, CODI maintains controlling ownership interests in each of its subsidiaries, maximizing its ability to impact long-term cash flow generation and value creation. CODI provides both debt and equity capital for its subsidiaries, contributing to their financial and operating flexibility. CODI utilizes the cash flows generated by its subsidiaries to invest in its long-term growth and has consistently generated strong returns through its culture of transparency, alignment and accountability.

Our nine majority-owned subsidiaries are engaged in the following lines of business:

• The design and marketing of purpose-built technical apparel and gear serving a wide range of global customers (5.11);
  
  
• The manufacture of quick-turn, small-run and production rigid printed circuit boards (Advanced Circuits);
  
  
• The design and manufacture of custom packaging, insulation and componentry (Altor Solutions);
  
  
• The manufacture of engineered magnetic solutions for a wide range of specialty applications and end-markets (Arnold Magnetic Technologies);
  
  
• The design and marketing of dial-based closure systems that deliver performance fit across footwear, headwear and medical bracing products (BOA Technology);
  
  
• The design and marketing of wearable baby carriers, strollers and related products (Ergobaby);
  
  
• The design and manufacture of baseball and softball equipment and apparel (Marucci Sports);
  
  
• The manufacture and marketing of portable food warming systems used in the foodservice industry, creative indoor and outdoor lighting, and home fragrance solutions for the consumer markets (Sterno); and
  
  
• The design, manufacture and marketing of airguns, archery products, optics and related accessories (Velocity Outdoor).
  

Forward Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements with regard to the expectations related to the anticipated impact of the tax election. Words such as "believes," "expects," “anticipates,” “intends,” "projects," “assuming,” and "future" or similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, including, but not limited to, the factors enumerated in the Form 10-K filed by CODI with the SEC for the year ended December 31, 2020, the proxy statement filed by CODI with the SEC on June 23, 2021 and other filings with the SEC. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Investor Relations: The IGB Group Leon Berman 212-477-8438 lberman@igbir.com

Media Contact: Joele Frank, Wilkinson Brimmer Katcher Jon Keehner / Kate Thompson / Lyle Weston 212-355-4449

FAQ

What is the recent tax reclassification for CODI?

Compass Diversified has reclassified to be treated as a corporation for U.S. federal income tax purposes, effective September 1, 2021.

How will the tax reclassification benefit CODI shareholders?

The reclassification is expected to enhance liquidity, lower capital costs, and create more investment opportunities for shareholders.

What is the special cash distribution announced by CODI?

CODI declared a special cash distribution of $0.88 per share, payable on September 7, 2021.

When will the cash distribution for CODI shareholders be paid?

The cash distribution will be paid on September 7, 2021, to shareholders on record as of August 31, 2021.

What future opportunities does CODI expect from the tax reclassification?

CODI anticipates improved shareholder value, expanded acquisition opportunities, and a strengthened competitive advantage.