Business Context and Reporting Period
This Form 8-K Current Report, dated June 5, 2017, covers events occurring on June 2, 2017. Compass Diversified Holdings (CODI) and its operating subsidiary, Compass Group Diversified Holdings LLC, announced the acquisition of Crosman Corp., a leading designer, manufacturer, and marketer of airguns and archery products.
Key Financial Metrics and Transaction Details
- Purchase Price: Approximately $152 million (excluding working capital and customary adjustments).
- Ownership Stake: CODI acquired approximately 98.9% of Crosman; management retained a minority interest.
- Funding Sources: Available cash on balance sheet and a draw on CODI's revolving credit facility.
- Target Financials (TTM ended April 30, 2017):
- Net Revenue: Approximately $118 million.
- Adjusted EBITDA: Approximately $20 million.
- Capital Expenditures: Approximately $2.7 million.
- New Debt Facility: A $107 million credit facility (secured revolving loan and term loans) was established for Crosman, guaranteed by the Buyer and secured by substantially all assets of the Loan Parties.
Material Changes
The primary material change is the expansion of CODI's portfolio through the acquisition of Crosman Corp. This transaction adds a branded product business with over 425 global customers and well-known brands including Crosman, Benjamin, and CenterPoint. The transaction was funded through a combination of existing liquidity and new debt specific to the acquired entity.
Outlook, Risks, and Contingencies
Management Commentary: The Company views the agreed loan terms as fair and reasonable given the leverage and risk profile of the acquired entity. The transaction includes customary representations, warranties, and indemnification provisions.
Risk Mitigation: CODI obtained "representation and warranty" insurance at closing to cover breaches of certain representations and warranties, subject to deductibles and terms.
Contingencies: The purchase price is subject to working capital and other customary adjustments. The new credit facility is secured by a pledge of 100% of equity interests in subsidiaries (except Crosman) and 65% of Crosman's equity in its sole subsidiary, Crosman Europe ApS.
Investor Verification Checklist
- Verify the final purchase price after working capital and customary adjustments.
- Review the full Equity Purchase Agreement (Exhibit 99.1) for specific covenants and indemnification limits.
- Assess the impact of the $107 million new debt facility on CODI's overall leverage ratios.
- Confirm the integration timeline and expected synergies for the Crosman brand portfolio.
- Examine the terms of the "representation and warranty" insurance policy for coverage exclusions.