Business Context and Reporting Period
Company: Compass Diversified Holdings (CODI) and Compass Group Diversified Holdings LLC.
Reporting Date: August 27, 2014 (Event Date: August 26, 2014).
Event: Completion of the acquisition of Clean Earth Holdings, Inc. ("Clean Earth"), a small-to-middle market business, by CEHI Acquisition Corporation, a subsidiary of CODI.
Key Financial Metrics
- Purchase Price: $252.9 million.
- Enterprise Value: $243 million.
- Working Capital/Cash Adjustments: $9.9 million included in purchase price.
- Acquisition Costs: Approximately $1.9 million.
- Financing: Funded via available cash on hand and a $95 million draw under CODI's revolving credit facility.
- Debt Incurred at Closing: $146.3 million initial outstanding amount under a new secured revolving loan and term loan facility provided to Clean Earth subsidiaries.
- Ownership Structure: CODI holds approximately 98% primary ownership and 86% fully diluted ownership in the acquisition vehicle. Sellers retain an approximate 2% non-controlling interest.
Material Changes
The primary material change is the expansion of CODI's portfolio through the acquisition of Clean Earth. The transaction structure was amended from the original August 7, 2014 agreement to include a "rollover" provision, where certain sellers contributed a portion of their shares ($1,936,485.25 value) in exchange for equity in the acquisition vehicle rather than a full cash exit. This resulted in a reduction of the cash purchase price relative to the enterprise value.
Guidance, Outlook, and Risks
- Management Commentary: CODI states that the terms of the new credit facility provided to Clean Earth are "fair and reasonable" given the leverage and risk profile of the acquired business.
- Financial Statements: Historical financial statements and pro forma financial information for the acquired business are not included in this filing. They are scheduled to be filed in an amendment within 71 calendar days.
- Risks/Contingencies: The transaction involves significant leverage ($146.3 million in new debt) secured by substantially all assets of the buyer and Clean Earth subsidiaries. The filing references specific letters of credit and supply agreements as existing contingencies.
Investor Verification Checklist
- Verify the upcoming filing of historical and pro forma financial statements for Clean Earth (due within 71 days).
- Review the impact of the $146.3 million new debt facility on CODI's consolidated leverage ratios.
- Confirm the specific terms of the "Rollover Contribution" and the resulting dilution to existing shareholders.
- Assess the integration risks associated with Clean Earth's environmental services operations.