Business Context and Reporting Period
This Form 8-K was filed by Compass Diversified Holdings (CODI) and Compass Group Diversified Holdings LLC on February 28, 2019. CODI acquires and manages small to middle-market businesses. The report details the completion of the divestiture of Manitoba Harvest, a business acquired by CODI in July 2015.
Key Financial Metrics and Transaction Details
The transaction involved the sale of all issued and outstanding securities of Manitoba Harvest to Tilray, Inc. Key financial terms include:
- Total Enterprise Value: Up to C$419 million, subject to cash and working capital adjustments.
- Closing Consideration (Total Shareholders): C$277.5 million (C$150 million cash and C$127.5 million in Tilray Class 2 Common Stock).
- CODI's Closing Proceeds: Approximately C$234 million (cash and Tilray Shares) after allocation to non-controlling interests and transaction expenses.
- Deferred Consideration: C$92.5 million payable six months post-closing (C$50 million cash and C$42.5 million in Tilray Shares).
- Contingent Consideration: Up to C$49 million in Tilray Shares based on 2019 performance milestones.
- Expected Gain: CODI anticipates a gain on the sale between $100 million and $120 million USD.
Material Changes and Liquidity Impact
The primary material change is the exit from the Manitoba Harvest investment. CODI intends to use the net proceeds from the transaction to repay outstanding debt under its revolving credit facility. The filing does not provide specific pre-transaction debt balances or current liquidity ratios, only the intended use of proceeds.
Outlook, Risks, and Management Commentary
Management expects to realize a significant gain on the sale, estimated between $100 million and $120 million USD. The transaction includes performance-based milestones for 2019, meaning the final consideration is subject to reduction if targets are not met. Pro forma financial information regarding the transaction is not included in this filing but will be submitted in an amendment within 71 calendar days.
Investor Verification Checklist
- Verify the final USD value of the C$234 million closing proceeds and C$92.5 million deferred payment based on exchange rates at the time of settlement.
- Confirm the specific amount of debt repaid from the revolving credit facility using the net proceeds.
- Monitor the achievement of 2019 performance milestones to determine the final value of the C$49 million contingent consideration.
- Review the upcoming amendment to this 8-K for pro forma financial information to assess the impact on CODI's balance sheet.