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Overview of Compass Diversified (CODI)
Compass Diversified (NYSE: CODI) is a publicly traded holding company that specializes in acquiring and managing a diverse portfolio of middle-market businesses. Founded in 1998 and headquartered in the United States, CODI operates with a unique and strategic approach to long-term value creation. The company’s business model is rooted in its ability to identify, acquire, and support companies that exhibit a clear "reason to exist" in their respective markets. CODI’s diversified portfolio is divided into two primary segments: branded consumer businesses and industrial businesses, each contributing to the company’s robust and balanced revenue streams.
Business Model and Revenue Generation
CODI’s business model is centered on acquiring controlling stakes in middle-market companies with strong growth potential and sustainable competitive advantages. Unlike traditional private equity firms, CODI employs a permanent capital structure, allowing it to take a patient and long-term approach to value creation. The company generates revenue through the operations of its subsidiaries, which span a wide range of industries and markets. By providing operational support, strategic guidance, and growth capital, CODI enables its portfolio companies to thrive while creating value for its shareholders.
Portfolio Segmentation
CODI’s portfolio is strategically segmented into two main categories:
- Branded Consumer Businesses: These subsidiaries leverage strong brand equity to dominate their respective markets. Examples include companies like 5.11, Ergobaby, Liberty Safe, and Velocity Outdoor, which cater to consumer needs ranging from tactical gear and baby products to home safes and outdoor equipment. These businesses are characterized by their ability to capitalize on brand loyalty and market differentiation.
- Industrial Businesses: This segment focuses on manufacturing and providing specialized products and services to niche markets. Subsidiaries in this category include companies involved in protective packaging solutions, engineered materials, and other industrial applications. By addressing specific market needs, these businesses maintain steady demand and operational resilience.
Strategic Approach
CODI’s strategy revolves around partnering with exceptional management teams and fostering growth through operational excellence and innovation. The company’s commitment to its "forever ownership" philosophy ensures that its subsidiaries receive the support needed to achieve long-term success. CODI embraces positive change as a catalyst for growth while maintaining a steadfast focus on its core values and operational principles. This strategic approach not only differentiates CODI from traditional investment firms but also positions it as a trusted partner for middle-market businesses.
Competitive Positioning
In the competitive landscape, CODI distinguishes itself through its permanent capital model, which eliminates the pressure of exit timelines commonly associated with private equity firms. This allows CODI to prioritize sustainable growth and operational improvements over short-term gains. Additionally, the company’s diversified portfolio mitigates risk by spreading exposure across multiple industries and markets. CODI’s ability to identify high-quality acquisitions and drive value creation within its subsidiaries further solidifies its position as a leading player in the middle-market segment.
Market Significance
CODI’s operations extend across the United States, Canada, Europe, Asia Pacific, and other international markets, reflecting its global reach and diversified revenue streams. The company’s focus on middle-market businesses fills a critical gap in the investment landscape, providing growth capital and strategic support to companies that might otherwise be overlooked by larger investment firms. This unique positioning underscores CODI’s importance in fostering innovation and economic growth within its target markets.
Conclusion
Compass Diversified (CODI) exemplifies a forward-thinking approach to business management and investment. Through its diversified portfolio, permanent capital structure, and commitment to long-term value creation, CODI has established itself as a trusted partner for middle-market businesses and a compelling entity within the investment community. By balancing branded consumer and industrial businesses, CODI ensures a resilient and adaptable business model capable of weathering market fluctuations and delivering consistent results.
On October 2, 2020, Compass Diversified (NYSE: CODI) announced the retirement of Don Hinshaw as CEO of its subsidiary, The Sterno Group, effective December 31, 2020. Craig Carnes, previously the President of Sterno’s Foodservice Group, will take over as CEO on January 1, 2021. Hinshaw, who has led Sterno for 12 years, will remain on the Board of Directors. His leadership saw significant growth and acquisitions for Sterno. The company positions itself as a leader in portable food warming and lighting solutions, continuing to adapt to consumer needs under Carnes' leadership.
Compass Diversified (NYSE: CODI) announced a quarterly cash distribution of $0.36 per share on its common shares, marking the 39th consecutive quarter of such distributions. This payment is due on October 22, 2020, for shareholders recorded by October 15, 2020. Additionally, the company declared distributions of $0.453125 per Series A Preferred Share, and $0.4921875 per Series B and C Preferred Shares, all payable on October 30, 2020. CEO Elias Sabo highlighted the company's resilience amidst the COVID-19 pandemic and its successful business model.
On September 22, 2020, Compass Diversified (CODI) announced its acquisition of BOA Technology for $454 million. BOA is renowned for its award-winning BOA Fit System, utilized in various athletic and medical products. This acquisition aims to enhance CODI's portfolio of niche market brands and support BOA's continued innovation and growth. CODI's CEO stated that BOA's focus on excellence and innovation aligns well with their strategic vision. The deal is projected to close within 45 days, pending customary conditions, allowing BOA to maintain its leadership under CEO Shawn Neville following the acquisition.
Foam Fabricators, a leader in custom protective packaging, has announced a strategic investment in Rational Packaging, enhancing its capabilities in recyclable structural packaging. Following a partnership established in July 2020, this move aims to provide innovative and sustainable solutions to a diverse customer base. Foam Fabricators, backed by CODI, is transforming into a complete packaging solutions provider. Both companies are focused on expanding their market presence while prioritizing customer satisfaction and sustainability.
Sterno Home Inc., a leader in flameless candles, announced that the International Trade Commission (ITC) has launched an investigation against L&L Candle Company and its affiliates, alleging patent infringements on four patents. Sterno Home is pursuing an Exclusion Order to block L&L's importation of infringing products, including Wick to Flame and Push Flame candles. This marks Sterno Home's second legal action against L&L this year after a federal lawsuit filed in May. Sterno Home aims to protect its patent rights and seeks damages and an injunction against L&L.
Compass Diversified (NYSE: CODI) reported Q2 2020 net sales of $333.6 million, down slightly from $336.1 million in Q2 2019. The company experienced a net loss of $7.4 million vs. a net income of $218.2 million in the prior year, primarily due to a one-time gain in 2019. Adjusted EBITDA was $49.5 million, down from $52.1 million. The firm generated $54.3 million in cash from operations, benefiting from a strategic capital raise of $290 million. CODI paid a cash distribution of $0.36 per common share, maintaining its commitment to shareholders amidst COVID-19 uncertainties.
Compass Diversified Holdings (CODI) plans to release its financial results for the second quarter ending June 30, 2020, on July 29, 2020, following the market close. A conference call to discuss these results is scheduled for the same day at 5:00 p.m. ET, featuring executives from the company.
CODI focuses on owning and managing a diverse portfolio of established middle market businesses, emphasizing long-term cash flow generation. The company maintains controlling interests in its subsidiaries, which span various sectors including apparel, manufacturing, and consumer products.
Compass Diversified Holdings (CODI) announced a quarterly cash distribution of $0.36 per share on common shares for the period ending June 30, 2020, payable on July 23, 2020. Additionally, quarterly distributions were declared for Series A, B, and C Preferred Shares, ranging from $0.453125 to $0.4921875 per share, payable on July 30, 2020. CEO Elias Sabo emphasized the company's commitment to shareholder value and adaptability to market conditions, supported by cash flows from its nine subsidiaries, which span various industries.
Sterno Products has rebranded as Sterno, unveiling a new logo and company identity. CEO Don Hinshaw emphasized the brand's century-long reputation for quality and innovation, extending beyond portable food warming products. The rebranding coincides with the company's strategic plans for growth, including its response to the COVID-19 pandemic by producing hand sanitizer and face masks at scale. This new identity aims to instill consumer confidence and support future product expansions in both foodservice and retail sectors.
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