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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.
Compass Diversified (NYSE: CODI) has announced a definitive agreement to sell its majority-owned subsidiary, Advanced Circuits, to APCT for an enterprise value of $220 million in cash. The transaction is expected to result in a pre-tax gain of $100 million to $110 million for CODI. The sale proceeds will be utilized to pay off outstanding borrowings. This strategic move is viewed as beneficial for CODI, as it aims to strengthen financial flexibility and create shareholder value. The deal is anticipated to close in February 2023, subject to regulatory approval.
Compass Diversified (NYSE: CODI) announced a quarterly cash distribution of $0.25 per common share, payable on January 26, 2023. The Board also declared distributions for its preferred shares: $0.453125 for Series A, $0.4921875 for Series B, and $0.4921875 for Series C, all payable on January 30, 2023. The distributions are expected to be classified as qualified dividends for U.S. federal income tax purposes. CODI anticipates cash distributions will exceed earnings and profits for the 2022 taxable year, benefiting certain retirement accounts.
Compass Diversified (NYSE: CODI) will host its Investor Day on January 19, 2023, at 11 am ET in New York City. The event will include presentations from CODI management and its subsidiary, PrimaLoft, along with Q&A sessions. The agenda features:
- 11:00am – 11:40am: Check-in and CODI’s consumer business walkthrough
- 11:40am – 12:00pm: PrimaLoft product experience
- 12:00pm – 12:30pm: Lunch
- 12:15pm – 12:45pm: PrimaLoft presentation
- 12:45pm – 1:30pm: Compass Diversified presentation
RSVP for in-person attendance or register for virtual attendance.
Compass Diversified (CODI) reported a 22% increase in net sales for Q3 2022, reaching $597.6 million, driven by strong performance in branded consumer and niche industrial segments. Operating income rose 16% to $48.7 million, while adjusted earnings increased 28% to $46.0 million. However, net income fell significantly to $2.6 million compared to $90.2 million in Q3 2021, due to a one-time gain last year. The company also raised its full-year outlook for adjusted EBITDA to $460-$470 million.
Kurt Roth has been appointed as Partner and Head of Healthcare at Compass Diversified (NYSE: CODI) as part of the company's expansion into a new healthcare vertical. CEO Elias Sabo emphasized the importance of leadership in launching this segment, identifying healthcare as a high-growth sector with strong barriers to entry. Roth, formerly of Sotera Health Company, brings 25 years of strategic planning and deal-making expertise. CODI aims to leverage healthcare's growth potential to enhance its existing subsidiary capabilities, aligning with its long-term value creation strategy.
Compass Diversified (CODI) plans to release its third-quarter financial results for the period ending September 30, 2022, on November 3, 2022, after market close. A conference call is scheduled for the same day at 5:00 p.m. ET, where management will discuss the results. Participants can join by calling either (888) 396-8049 or (416) 764-8646 and entering Conference ID 66435663. The call will also be available via live webcast. A replay will be accessible until November 10, 2022.
Compass Diversified (CODI) has announced a quarterly cash distribution of $0.25 per share for common shares, payable on October 27, 2022. The record date for this payment is October 20, 2022. Additional distributions for preferred shares are also declared, with $0.453125 for Series A, $0.4921875 for Series B, and $0.4921875 for Series C, all payable on October 30, 2022. These distributions generally qualify as “qualified dividends” for U.S. federal income tax, ensuring beneficial tax treatment for shareholders.
Sterno has launched the Bring the Heat campaign, recognizing the efforts of foodservice employees adapting to industry challenges. Nominations are open until October 28, 2022, for employees demonstrating leadership and customer service excellence. The winner will receive a $5,000 honorarium and a commemorative plaque. The foodservice sector is projected to rebound, reaching $898 billion in sales and adding 400,000 jobs in 2023. Craig Carnes, CEO of Sterno, emphasizes the resilience of these unsung heroes during recovery.
On September 15, 2022, 5.11 Tactical, a subsidiary of Compass Diversified (CODI), announced the grand opening of its 100th retail store in Oxnard, California, scheduled for September 17, 2022. CEO Francisco J. Morales highlighted the milestone as a significant achievement in their retail strategy, which has expanded their customer engagement. Since partnering with CODI in 2016, 5.11 has experienced substantial revenue growth, achieving a 9% CAGR in revenue and a 23% CAGR in adjusted EBITDA from 2018 to 2021, aided by over $70 million in growth capital investment.
Compass Diversified (CODI) reported a 19% increase in net sales to $515.6 million in Q2 2022, marking its sixth consecutive quarter of record performance. Gross profit surged 38% to $50.3 million, and net income climbed to $31.0 million, a significant turnaround from a $11.3 million loss a year earlier. The company announced its acquisition of PrimaLoft and raised its full-year Adjusted EBITDA outlook to between $445 million and $470 million. CODI also declared a cash distribution of $0.25 per share, reflecting strong shareholder returns amidst macroeconomic challenges.
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