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Compass Diversified primes for acquisitions after Wheelhouse sale

Illustration of a piggy bank whose round body resembles a baseball with red stitching

Illustration: Annelise Capossela/Axios

Compass Diversified (NYSE: CODI), a holding company for niche middle-market businesses, wants to position itself for acquisitions next year.

Driving the news: Last week, Compass Diversified agreed to sell Wheelhouse Holding to Fox Factory Holding (Nasdaq: FOXF) for an enterprise value of $572 million.

What they're saying: "We just brought about half a billion dollars back onto our balance sheet … and put ourselves in a position to be able to act swiftly against a great opportunity coming in 2024," CEO Elias Sabo tells Axios.

  • Compass Diversified says it will use the proceeds from the deal to pay down debt.
  • Wheelhouse is the parent company of Marucci Sports.

Flashback: Compass Diversified acquired Marucci for $200 million in April 2020 with about $14 million in EBITDA. It has sold Marucci with over $50 million in EBITDA, Sabo says.

  • Marucci, known for supplying the bats for Major League Baseball, expanded its business into new areas like fielding gloves and softball.
  • Marucci acquired Lizard Skins in 2021 and Baum Bat this year.

Details: "A lot of where the profit is made is in aluminum and composite bats," Sabo says. "That technology is creating a [need for a] lot of engineering resources. There's a lot of specialty work with composite materials that needs to happen. And that really aligns with what Fox is great at."

  • Fox is a maker of performance ride products for bicycles, and on-road and off-road vehicles.

Of note: "Every company does hit a point where it's either exhausted what we can do for it, or someone else believes they're gonna be able to have a better outcome than us," Sabo says.

  • This year the company sold Advanced Circuits, a manufacturer of printed circuit boards for an enterprise value of $220 million in cash.

Zoom in: "We always identify companies that have kind of a well-defined competitive position in their niche," Sabo says.

  • Last year the company acquired PrimaLoft, a provider of high-performance synthetic insulation and materials for consumer outerwear and accessories.
  • It acquired Boa, a maker of adjustable, precision-fit closures for shoes and helmets, in 2020.

Zoom out: The componentry business in apparel is a burgeoning area that some dealmakers are watching.

The intrigue: "These are the times when everybody's on the sidelines," Sabo says, referring to the M&A and macroeconomic environment. "This is when we want to have capital and be active."

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