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1. Company Snapshot

1.a. Company Description

Compass Diversified is a private equity firm specializing in add on acquisitions, buyouts, industry consolidation, recapitalization, late stage and middle market investments.It seeks to invest in niche industrial or branded consumer companies, manufacturing, distribution, consumer products, business services sector, safety & security, electronic components, food, foodservice.The firm prefers to invest in companies based in North America.


It seeks to invest between $100 million and $800 million in companies with an EBITDA between $15 million to $80 million.It seeks to acquire controlling ownership interests in its portfolio companies and can make additional platform acquisitions.The firm prefer to have majority stake in companies.


The firm invests through its balance sheet and typically holds investments between five to seven years.Compass Diversified was founded in 2005 and is based in Westport, Connecticut with an additional office in Costa Mesa, California.

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1.b. Last Insights on CODI

Negative drivers behind Compass Diversified's recent performance include the retirement of Director James Bottiglieri, which may lead to a loss of institutional knowledge and expertise. Additionally, the company's Q4 2024 earnings release did not provide a comprehensive view of its financial performance, as it only reported a 14% year-over-year sales growth and 25% adjusted EBITDA growth, without disclosing detailed revenue breakdowns.

1.c. Company Highlights

2. Compass Diversified's 2024 Earnings: Strong Financial Performance and Strategic Growth

Compass Diversified delivered a robust financial performance in 2024, highlighted by double-digit sales growth and a significant increase in adjusted EBITDA. For the full year, the company reported $620 million in sales, up 13.8% year-over-year, driven by strong contributions from its portfolio companies. Adjusted EBITDA surged 29% to $118 million, showcasing the effectiveness of its operational and strategic initiatives. The company also generated $60 million in cash and maintained a strong balance sheet with $490 million available on its revolving credit facility, ensuring flexibility for future growth opportunities. Elias Sabo, CEO, emphasized the success of the year, noting, "2024 was a year of significant achievements, including double-digit sales growth and over 30% increase in adjusted EBITDA."

Publication Date: Mar -09

📋 Highlights
  • Strong Financial Performance: - The company achieved double-digit sales growth and a 30% increase in adjusted EBITDA in 2024, with Q4 sales reaching $620M and adjusted EBITDA at $118M. The balance sheet remains strong, with $60M cash and $490M available on the revolver.
  • Active M&A and Capital Strategy: - The company completed key acquisitions (Honey Pot and Lifoam) and divestitures (Ergobaby and Crosman). They raised $115M in preferred equity and executed share buybacks, aligning capital strategies with long-term value creation.
  • Operational Enhancements and Tariff Readiness: - The company emphasized operational improvements, including centers of excellence in AI and sustainability. Tariff readiness was enhanced through diversified supply chains to mitigate risks.
  • Portfolio Strength and Growth Focus: - The portfolio is well-positioned for growth, with Lugano outperforming expectations and 5.11 showing resilience despite challenges. The company plans to deploy around $0.5 billion in acquisitions in 2024, focusing on innovative businesses.
  • Management and Financial Discipline: - Fee restructuring was implemented to align management interests with shareholder value. The company maintains a disciplined approach to capital deployment, with a leverage ratio of 3.4x, down from 4x a year ago.

Key Initiatives and Operational Enhancements

Compass Diversified continued to execute its strategic M&A pipeline, completing key acquisitions such as Honey Pot and Lifoam, while divesting non-core assets like Ergobaby and Crosman. These moves demonstrate the company's disciplined approach to portfolio optimization, focusing on businesses aligned with its long-term growth objectives. Additionally, the company raised $115 million in preferred equity and implemented a share buyback program, signaling confidence in its future prospects. On the operational front, the introduction of centers of excellence in AI and sustainability underscores Compass Diversified's commitment to innovation and long-term value creation. The company also highlighted its readiness to navigate potential tariff challenges through a diversified supply chain strategy.

Portfolio Performance

The performance of key portfolio companies如Lugano和5.11为Compass Diversified的财务成果做出了重要贡献。Lugano在2024年表现尤为突出，EBITDA增长超出预期，得益于强劲的需求和高效的运营。The company's plans to open three new salons, including one in Chicago, aim to further expand its reach, though this may temporarily impact margins as the new locations scale. On the other hand, 5.11 faced challenges in 2023, including a $11 million PFAS-related charge, but showed resilience with a test-and-learn retail strategy in 2024. Despite these headwinds, the company's ability to manage tariffs through supply chain diversification remains a key strength.

Financial Strategy and Valuation

Compass Diversified's financial strategy remains centered on leveraging permanent capital to drive growth, with a current leverage ratio of 3.4x, down from 4x a year ago, reflecting improved balance sheet management. The company's strong cash flow generation and disciplined capital allocation strategies position it well to execute its growth plans. From a valuation perspective, the company's EV/EBITDA ratio of 10.17 suggests a premium valuation relative to its peers, reflecting the market's confidence in its growth prospects. Additionally, the company's free cash flow yield of -6.84% indicates that it is reinvesting cash flows into growth initiatives, which is a positive sign for long-term value creation.

Outlook and Analyst Consensus

Looking ahead, Compass Diversified has set ambitious targets for 2025, guiding adjusted EBITDA between $480 million and $520 million. Analysts are cautiously optimistic, with consensus estimates projecting a 7.4% revenue growth rate for next year. The company's focus on innovation, disciplined M&A, and balance sheet strength positions it well to navigate an uncertain macroeconomic environment and continue delivering value for shareholders.

3. NewsRoom

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USA Rare Earth Subsidiary LCM Partners with Arnold Magnetic Technologies to Secure Rare Earth Metals Supply

Dec -04

Source: globenewswire.com

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Compass Diversified Announces Conference Call to Discuss the Restatement of Financial Results

Nov -26

Source: globenewswire.com

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Berkshire Hathaway-Like Company Is Starting To Heat Up: Surge In Momentum Score

Nov -25

Source: feeds.benzinga.com

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Compass Diversified Holdings (NYSE:CODI) Receives $26.00 Consensus PT from Analysts

Nov -25

Source: defenseworld.net

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Compass Diversified Holdings $CODI Shares Purchased by Allworth Financial LP

Nov -19

Source: defenseworld.net

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Compass Diversified Announces Update on Lugano Subsidiary

Nov -17

Source: globenewswire.com

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Compass Diversified Announces Extension of Credit Agreement Forbearance

Nov -03

Source: globenewswire.com

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COMPASS INVESTIGATION REMINDER: Bragar Eagel & Squire, P.C. Reminds Long-term Stockholders of Compass Diversified to Inquire About Their Rights

Oct -29

Source: globenewswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.60%)

6. Segments

5.11

Expected Growth: 7.5%

Compass Diversified's 7.5% growth, driven by 5.11's strong brand recognition, increasing demand for outdoor gear, and strategic acquisitions. The company's diversified product portfolio, including firearms, camping equipment, and cutlery, also contributes to its growth. Additionally, 5.11's focus on innovation, quality, and customer loyalty has enabled it to maintain a strong market position and drive sales growth.

Sterno

Expected Growth: 7.2%

Sterno's 7.2% growth is driven by increasing demand for outdoor cooking and recreational products, expansion into e-commerce and online marketplaces, and strategic acquisitions. Additionally, the company's focus on innovation, quality, and customer service has led to market share gains and pricing power.

Lugano

Expected Growth: 7.8%

Lugano's 7.8% growth is driven by increasing demand for premium outdoor furniture, expansion into new distribution channels, and strategic partnerships. Additionally, the company's focus on product innovation, quality, and customer service has led to strong brand loyalty and repeat business. Furthermore, Compass Diversified's operational expertise and resources have enabled Lugano to optimize its supply chain and improve margins.

Altor Solutions

Expected Growth: 7.9%

Altor Solutions' 7.9% growth is driven by increasing demand for cybersecurity services, expansion into new markets, and strategic acquisitions. The company's expertise in threat detection and incident response, coupled with Compass Diversified's resources, has enabled Altor to capitalize on the growing need for robust cybersecurity solutions.

Velocity Outdoor

Expected Growth: 8.1%

Velocity Outdoor's 8.1% growth is driven by increasing demand for outdoor recreational products, strategic acquisitions, and expansion into new markets. The company's diversified portfolio of brands, including Crosman and Ravin, has enabled it to capitalize on trends in camping, hunting, and outdoor activities. Additionally, investments in e-commerce and digital marketing have enhanced customer engagement and driven sales growth.

Arnold

Expected Growth: 7.6%

Arnold's 7.6% growth is driven by increasing demand for outdoor recreation, strategic acquisitions, and expansion into adjacent markets. The company's diversified portfolio, including camping, water sports, and outdoor gear, benefits from rising consumer spending on experiences. Additionally, Arnold's focus on e-commerce and digital marketing enhances its online presence, further fueling growth.

BOA

Expected Growth: 7.4%

BOA's 7.4% growth is driven by increasing demand for outdoor recreation, strategic acquisitions, and expansion into adjacent markets. Compass Diversified's diversified portfolio and operational expertise have enabled BOA to capitalize on trends in camping, hiking, and outdoor enthusiasts, resulting in sustained revenue growth.

Ergobaby

Expected Growth: 7.7%

Ergobaby's 7.7% growth is driven by increasing demand for baby carriers, expansion into new markets, and strategic product innovation. The brand's focus on comfort, ergonomics, and style resonates with parents seeking convenient and healthy babywearing solutions. Additionally, Compass Diversified's operational expertise and resources have enabled Ergobaby to optimize its supply chain and improve distribution, further fueling growth.

PrimaLoft

Expected Growth: 7.3%

PrimaLoft's 7.3% growth is driven by increasing demand for high-performance outdoor gear, strategic partnerships with key brands, and expansion into new markets such as athleisure and workwear. Additionally, the company's focus on sustainability and eco-friendly products resonates with environmentally conscious consumers, contributing to its growth momentum.

7. Detailed Products

5.11 Tactical

Manufacturer of tactical gear and apparel for law enforcement, first responders, and outdoor enthusiasts

BAUER

Manufacturer of hockey gear and equipment

Crosman

Manufacturer of airguns, ammunition, and accessories

Sterno

Manufacturer of portable food warming products and butane-powered appliances

Liberty Safe

Manufacturer of home and gun safes

Velocity Outdoor

Manufacturer of archery and outdoor gear

8. Compass Diversified's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Compass Diversified is moderate due to the availability of alternative products and services in the market.

Bargaining Power Of Customers

The bargaining power of customers is low due to the diversified nature of Compass Diversified's business, making it difficult for customers to negotiate prices.

Bargaining Power Of Suppliers

The bargaining power of suppliers is moderate due to the presence of multiple suppliers in the market, but Compass Diversified's diversified business reduces its dependence on any one supplier.

Threat Of New Entrants

The threat of new entrants is high due to the relatively low barriers to entry in the industries in which Compass Diversified operates.

Intensity Of Rivalry

The intensity of rivalry is moderate due to the presence of several competitors in the market, but Compass Diversified's diversified business and strong brand presence help to mitigate the impact of rivalry.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 55.75%
Debt Cost 3.95%
Equity Weight 44.25%
Equity Cost 12.41%
WACC 7.69%
Leverage 126.01%

11. Quality Control: Compass Diversified passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Steel Partners

A-Score: 6.1/10

Value: 9.3

Growth: 8.8

Quality: 7.2

Yield: 0.0

Momentum: 6.0

Volatility: 5.3

1-Year Total Return ->

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RCM Technologies

A-Score: 5.5/10

Value: 5.1

Growth: 8.4

Quality: 5.3

Yield: 0.0

Momentum: 9.0

Volatility: 5.0

1-Year Total Return ->

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Tejon Ranch

A-Score: 4.5/10

Value: 7.8

Growth: 2.9

Quality: 3.6

Yield: 0.0

Momentum: 4.0

Volatility: 8.7

1-Year Total Return ->

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Compass Diversified

A-Score: 4.4/10

Value: 7.4

Growth: 2.3

Quality: 4.5

Yield: 10.0

Momentum: 0.0

Volatility: 2.0

1-Year Total Return ->

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FTAI Infrastructure

A-Score: 3.5/10

Value: 7.2

Growth: 4.2

Quality: 2.4

Yield: 4.0

Momentum: 1.0

Volatility: 2.3

1-Year Total Return ->

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NN

A-Score: 2.4/10

Value: 7.7

Growth: 1.6

Quality: 2.1

Yield: 0.0

Momentum: 1.0

Volatility: 2.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

5.73$

Current Price

5.73$

Potential

-0.00%

Expected Cash-Flows