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BFD Expert Voices - Retail Deals

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Compass Diversified (NYSE: CODI) CEO Elias Sabo is bullish about 2024 after a sleepy couple of years in middle market M&A.

Why it matters: The holding company for middle market businesses is well-positioned from a cash standpoint and gearing up for acquisitions in the new year.

Why we chose the restaurant: As part of our 1 big meal series, we ate at Casa Lever, a frequent stop for Sabo when in New York.

What we ate: For breakfast, we both got an omelet (vegetarian for him, meat for me). He also ordered a cappuccino, and I ordered a cappuccino Viennese.

This interview was edited for clarity, style and length.

We have $600 million available [on our revolver], no borrowings against it. ... We then have what is now a $375 million term loan, mostly with the same banks that provide our line of credit.

We're sitting on over $300 million in cash.

Typically, we like to keep the whole revolver open to us, because that's our ability. That's a huge strategic advantage for us. Our banks don't have any approval rights on the deals that we do. So if we like a company and we want to go buy it, we don't have financing contingencies.

How are the financing markets affecting competition?

Our bondholders look at us and our financing partners a little bit differently than they would look at our private equity peers who are taking single asset risk, typically at higher leverage levels, in a market that is almost dead.

There are some deals that can trickle through the traditional private equity market. But leverage levels are going to be down 30% from where they were in 2021, and pricing is going to be up 400 or 500 basis points from where they were. That market isn't going to be financed in the traditional sources that we've used, like the bond market and the term loan market.

What are your expectations for the macroeconomic environment next year, and how will that affect dealmaking?

As a dealmaker, now's when you really want to be stepping into the market and increasing your activity because this is typically when the best opportunities are coming along.

Our peers aren't yet back in the market because the debt markets haven't fully opened up yet. Sellers might be starting to now, after two years, say, 'I need to do something, I can't just postpone forever capital-raising activities.'

We're seeing some companies finally come to market that are higher quality and meet our criteria. So I'm actually really bullish.

How has the macroeconomic environment affected your portfolio?

It's kind of funny. We all did the same thing simultaneously. We all were worried about supply-chain issues and lack of product availability, and every one of us ordered 20%–30% more than what we historically did. We clogged the ports even more, and then all the product came in and we're like, we all have too much product.

When you're sometimes in that forest, you can't really see the trees. You're just looking day to day.

We feel like the normalization, even in an economic recession, has huge tailwinds from selling starting to match sell-through.

We could expect to potentially see even accelerating results into 2024 as the destocking creates such a massive tailwind to our results.

If the job market rolls over, which we're seeing a slowdown in, that probably will be good for inflation receding, but that also could put pressure on a consumer that's already stretched.

Where do you see opportunities, especially going into the year?

We announced a health care vertical a little over a year ago, and we have yet to put an asset on the books. So if I had a magic wand, I would go out and I would buy a company that works in the health care industry.

1 fun thing: Sabo dedicates seven weekends a year to amateur pro racing, where he drives an Aston Martin and competes in the GT World Challenge, a professional race televised on CBS Sports.

1 big meal: Compass Diversified CEO Elias Sabo looks ahead

Fresh off its sale of Marucci Sports, the company is ramping up for acquisitions

Photo illustration of Elias Sabo on a picnic table print background.

Photo illustration: Axios Visuals. Photos: Courtesy of Compass Diversified.

Retail deals

Compass Diversified (NYSE: CODI) CEO Elias Sabo is bullish about 2024 after a sleepy couple of years in middle market M&amp;A.Why it matters: The holding company for middle market businesses is well-positioned from a cash standpoint and <a class="gtmContentClick" data-vars-link-text="gearing up" data-vars-click-url="https://www.axios.com/pro/retail-deals/2023/11/06/compass-diversified-marucci-sports-sale-acquisitions" data-vars-content-id="a0ba38e2-6114-4afa-a1fe-8fc1e971874b" data-vars-headline="1 big meal: Compass Diversified CEO Elias Sabo looks ahead" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/retail-deals/2023/11/06/compass-diversified-marucci-sports-sale-acquisitions" target="_self">gearing up</a> for acquisitions in the new year.

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1 big meal: Compass Diversified CEO Elias Sabo looks ahead

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