Compass Diversified restructures management fees

WESTPORT, Conn. - Compass Diversified Holdings (NYSE: NYSE:CODI), an owner of leading middle market businesses with a current market capitalization of $1.64 billion, announced today a restructuring of its management fees under a new agreement with Compass Group (LON:CPG) Management LLC. According to InvestingPro data, the company maintains a "FAIR" overall financial health score, with particularly strong marks in relative value and growth metrics. The amended agreement introduces a tiered fee structure based on the company's adjusted net assets and is effective as of the first quarter of 2025.

The new fee arrangement sets a base management fee of 2.0% for adjusted net assets up to $3.5 billion. For assets exceeding this threshold but remaining below $10 billion, the fee includes the initial 2.0% on the first $3.5 billion plus an additional 1.25% on the excess. When adjusted net assets reach $10 billion or more, the base management fee reduces to 1.5%. The company's current revenue stands at $2.22 billion, with a notable 16.7% growth in the last twelve months.

An incentive management fee of 0.25% also comes into play for adjusted net assets over $3.5 billion but under $10 billion. However, this fee is contingent upon the company achieving an annualized internal rate of return on equity above 12% over the trailing three years. Additionally, the Compensation Committee of the Company's Board of Directors must approve the incentive fee.

The agreement also makes changes to the calculation of the company's adjusted net assets, including the elimination of the integration services fee paid by subsidiaries to the Manager and the exclusion of excess cash from the adjusted net assets calculation, subject to certain conditions.

Compass Diversified Holdings has been known since its IPO in 2006 for its strategy of owning and managing a diverse portfolio of middle-market companies across various sectors, including industrial, consumer brands, and healthcare. The company aims to influence long-term cash flow and value creation through its controlling interests in its subsidiaries.

This restructuring of management fees is part of Compass Diversified's ongoing efforts to align its cost structure with its assets and performance. The company maintains a focus on transparency, alignment, and accountability, which has been key to its consistent returns, including an impressive 20-year streak of maintaining dividend payments. InvestingPro analysis reveals several more key insights about CODI's performance and prospects, with additional ProTips available to subscribers.

The details of this amended agreement are outlined in the Form 8-K filed by the company. The forward-looking statements in the press release are subject to various risks and uncertainties, and actual results could differ materially from those projected. Notably, analysts maintain a positive outlook, with price targets ranging from $23 to $36, though four analysts have recently revised their earnings expectations downward. For comprehensive analysis and detailed insights, investors can access CODI's full Pro Research Report, available exclusively on InvestingPro.

This article is based on a press release statement from Compass Diversified Holdings.

In other recent news, Compass Diversified announced robust financial performance in the third quarter of 2024, with a 25% increase in adjusted EBITDA to $114 million and an 11.8% year-over-year increase in consolidated net sales to $582.6 million. Net income also improved significantly to $31.5 million, a stark contrast to a net loss of $3.8 million in the same quarter the previous year. These results led the company to raise its full-year adjusted EBITDA guidance to between $510 million and $525 million.

In terms of corporate governance, Compass Diversified announced changes in its board committee leadership. Director Gordon M. Burns will not stand for re-election at the 2025 annual shareholders meeting and Nancy B. Mahon has been appointed to succeed Burns as the Chair of the Nominating Committee.

Compass Diversified also secured an additional $300 million credit facility through an amendment to its existing Credit Agreement with Bank of America, N.A. This financial move is aimed at bolstering the company's acquisition capabilities and general corporate functions.

These are recent developments that reflect Compass Diversified's strong performance and positive outlook for the future. The company's board is also evaluating potential locations for new Lugano stores, including international markets, with preliminary estimates of two new stores next year. It's worth noting that these prognostications come from the company's management and are subject to change based on a variety of factors.

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