Business Context and Reporting Period
This Form 8-K Current Report, dated February 16, 2018, covers events occurring on February 15, 2018. The registrants are Compass Diversified Holdings ("Holdings") and Compass Group Diversified Holdings LLC ("Company"), collectively referred to as CODI. CODI operates as a business development company that acquires and manages small to middle-market businesses.
Key Financial Metrics and Transaction Details
The filing details the closing of an acquisition transaction with the following financial specifics:
- Target Company: Foam Fabricators, Inc. ("Foam Fabricators").
- Purchase Price: Approximately $247.5 million (subject to working capital and other adjustments).
- Financing Method: The purchase price was funded through a draw on CODI's revolving credit facility.
- Acquisition Structure: CODI's subsidiary, FFI Compass, Inc., acquired 100% of the issued and outstanding capital stock of Foam Fabricators.
- Equity Ownership: CODI's initial equity ownership in the acquisition subsidiary is approximately 100% on a primary basis and 92% on a fully diluted basis.
- Debt Financing for Target: Concurrent with the closing, CODI provided a credit facility to Foam Fabricators and its subsidiary, Foam Fab, Inc. The initial amount outstanding under this facility was approximately $115.0 million.
Material Changes
The primary material change reported is the expansion of CODI's portfolio through the acquisition of Foam Fabricators. Foam Fabricators is now a wholly-owned subsidiary of FFI Compass, Inc., and an indirect subsidiary of the Company. The transaction significantly impacts CODI's debt profile due to the $247.5 million draw on its revolving credit facility and the $115.0 million in new loans extended to the acquired entity.
Outlook, Risks, and Contingencies
Management Commentary: The Company stated that the terms of the loans provided to Foam Fabricators are fair and reasonable given the leverage and risk profile of the business, noting they are similar to terms used for existing subsidiary businesses.
Financial Statements: Historical financial statements for Foam Fabricators and pro forma financial information relating to the transaction are not included in this filing. They are scheduled to be filed in an amendment to this Form 8-K no later than 71 calendar days after the report is due.
Risks: The loans to Foam Fabricators are secured by security interests in substantially all assets and properties of the guarantors, including equity pledges. The filing notes that the information is furnished and not deemed "filed" for purposes of Section 18 of the Exchange Act, limiting liability exposure for the press release content.
Investor Verification Checklist
- Verify the final purchase price after working capital and other adjustments are calculated.
- Review the upcoming amendment to this Form 8-K for historical financial statements of Foam Fabricators.
- Monitor the impact of the $247.5 million draw on CODI's remaining capacity under its revolving credit facility.
- Assess the leverage ratio of Foam Fabricators post-acquisition given the $115.0 million in new debt.
- Confirm the integration timeline and expected accretion to earnings once pro forma data is released.