Company: CODI-PB
Filing Date: 2025-02-27
Form Type: 10-K
Source: 0001345126-25-000015
Chunk: 95

Company: Compass Diversified Holdings
Filing Date: 2025-02-27
Form: 10-K
Item: Item 1
Chunk 95
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 of adjusted net assets exceeding $3.5 billion only when the adjusted net assets are more than $3.5 billion but less than $10 billion and only if the Company’s annualized internal rate of return on equity for the trailing three-years, exceeds 12%. Any incentive management fee paid to the Manager may only be distributed by the Manager among the then-current Employees (as defined in the MSA) of the Manager. Such incentive management fee is subject to approval by the Compensation Committee of the Company’s Board. The MSA Amendment also eliminates the payment of integration services fees by the Company’s subsidiaries to the Manager and excludes excess cash held by the Company and the Company’s subsidiaries, subject to certain exceptions, from the calculation of the adjusted net assets of the Company, along with certain other changes. 

See Part III, Item 13, “Certain Relationships and Related Party Transactions, and Director Independence.”

Market Opportunity

We acquire and actively manage small and middle market businesses. We characterize small to middle market businesses as those that generate annual cash flows of up to $100 million per year. We believe that the acquisition market for these businesses is highly fragmented and often provides opportunities to purchase at more attractive prices and achieve better outcomes for our shareholders. We believe this is driven by the following factors:

•third-party financing for these acquisitions is often less available or terms are less favorable for the borrower;

•sellers of these businesses frequently consider non-economic factors, such as legacy or the effect of the sale on their employees;

•these businesses are more likely to be sold outside of an auction process or as part of a limited process; and

•"add-on" acquisitions can often be completed at attractive multiples of cash flow.

Frequently, opportunities exist to support and augment existing management at such businesses and improve the performance of these businesses upon their acquisition through active management. We are business builders 

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rather than asset traders. In the past, our management team has acquired businesses that were owned by entrepreneurs or large corporate parents.  In these cases, our management team has frequently found opportunities to profitably invest in areas of the acquired businesses beyond levels that existed at the time of acquisition. In addition, our management team has frequently found that processes such as financial reporting and management information systems of acquired businesses may be improved, leading to improvements in reporting and operations and ultimately earnings and cash flow. Finally, our management team often acts as a business development arm for our businesses to pursue organic or external growth strategies that may not have been pursued by their previous owners.

Our Strategy