Business Context and Reporting Period
Company: Compass Diversified Holdings (CODI) and Compass Group Diversified Holdings LLC.
Filing Type: Form 8-K (Current Report)
Date of Report: October 13, 2021
Business Overview: CODI acquires and manages small to middle-market businesses. This filing reports the entry into a definitive agreement to divest a majority-owned subsidiary, Advanced Circuits.
Key Financial Metrics and Transaction Details
This filing details a specific divestiture transaction rather than providing general period financial statements (e.g., revenue, EBITDA, or cash flow for the quarter). Key transaction metrics include:
- Total Consideration: $310 million (subject to working capital and other adjustments).
- Payment Structure: $240 million in cash and $70 million in common stock of a Special Purpose Acquisition Company (SPAC).
- Contingent Value: Sellers may receive up to 2.4 million additional SPAC shares within five years, subject to stock price performance.
- Company Ownership: CODI owns approximately 67% of Advanced Circuits on a fully diluted basis.
- Expected Proceeds to CODI: Approximately 77% of the gross consideration, covering outstanding loans and equity interests.
- Use of Proceeds: Repayment of outstanding debt under the revolving credit facility and general corporate purposes.
Material Changes and Transaction Status
The primary material change is the agreement to sell Advanced Circuits to Tempo Automation, Inc. (Buyer) via a merger with Aspen Acquisition Sub, Inc. (Merger Sub). The transaction is expected to close in the first quarter of 2022. The Buyer has also entered into a definitive merger agreement with ACE Convergence Acquisition Corp. (ACE), a SPAC, to facilitate the public listing of the combined entity.
Guidance, Risks, and Contingencies
Conditions to Closing: The transaction is subject to several conditions, including regulatory approvals (Hart-Scott-Rodino), equity holder approval, accuracy of representations, and the successful closing of the SPAC transaction with ACE. A "material adverse effect" clause applies to both parties.
Termination Rights: Either party may terminate the agreement after January 27, 2022, if the transaction has not closed by that date.
Risk Factors: Management highlights risks including the potential failure to complete the transaction or the SPAC merger in a timely manner, regulatory delays, antitrust proceedings, disruption to business operations, employee retention issues, and market volatility affecting the SPAC stock price.
Investor Verification Checklist
- Verify the final closing date of the Advanced Circuits sale, as it is currently projected for Q1 2022 but not guaranteed.
- Monitor the status of the proposed business combination between Tempo Automation and ACE Convergence Acquisition Corp., as the stock portion of the consideration depends on this.
- Review the definitive proxy statement/prospectus (Form S-4) to be filed by ACE for details on the SPAC transaction and voting requirements.
- Assess the impact of the $240 million cash proceeds on CODI's debt levels and liquidity once the transaction closes.
- Track the performance of the SPAC stock to evaluate the potential value of the 2.4 million contingent shares.