UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 16, 2010
COMPASS DIVERSIFIED HOLDINGS
(Exact name of registrant as specified in its charter)
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| Delaware
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0-51937
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57-6218917 |
(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification No.) |
COMPASS GROUP DIVERSIFIED HOLDINGS LLC
(Exact name of registrant as specified in its charter)
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| Delaware
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0-51938
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20-3812051 |
(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification No.) |
Sixty One Wilton Road
Second Floor
Westport, CT 06880
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (203) 221-1703
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing
obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Compass Group Diversified Holdings LLC (the “Company”) and Compass Diversified Holdings
(“Holdings” and, together with the Company, collectively “CODI,” “us” or “we”) acquires and manages
small to middle market businesses in the ordinary course of its business. The following
description relates to the recent acquisition of one such business.
The ERGO Baby Carrier, Inc.
On September 16, 2010, ERGO Baby Intermediate Holding Corporation (the “Buyer”), a wholly
owned subsidiary of ERGO Baby Holding Corporation (the “Buyer Parent”), a subsidiary of the
Company, entered into a stock purchase agreement (the “ERGObaby Purchase Agreement”) with The ERGO
Baby Carrier, Inc. (“ERGObaby”), Karin A. Frost (“Frost”), in her individual capacity and as
trustee of the Revocable Trust of Karin A. Frost dated February 22, 2008 (the “Revocable Trust”)
and as trustee of the Karin A. Frost 2009 Qualified Annuity Trust u/a/d 12/21/2009 (collectively
with Frost and the Revocable Trust, the “Sellers”) pursuant to which Buyer acquired all of the
issued and outstanding capital stock of ERGObaby.
Based in Pukalani, Hawaii (Maui) and founded in 2003, ERGObaby is a premier designer, marketer
and distributor of babywearing products and accessories. ERGObaby’s reputation for product
innovation, reliability and safety has led to numerous awards and accolades from consumer surveys
and publications, including Parenting Magazine, Pregnancy Magazine and Wired Magazine. ERGObaby
offers a broad range of wearable baby carriers and related products that are sold through more than
700 retailers and web shops in the United States and internationally in approximately 20 countries.
For the year ended December 31, 2009, ERGObaby reported revenue of $22.8 million and had minimal
capital expenditures.
Under the terms of the transaction, CODI’s acquisition of ERGObaby is based on a total
enterprise value of $91.0 million, representing approximately seven times ERGObaby’s expected
earnings before interest, taxes, depreciation and amortization for fiscal 2010. In addition, an
Internal Revenue Code Section 338(h)(10) election will be made with respect to the transaction,
which will allow the company to amortize a substantial portion of the purchase price for tax
purposes. In the event ERGObaby’s net sales, as determined on a consolidated basis in accordance
with United States generally accepted accounting principles, for the fiscal year ending 2011 are
equal to or greater than $45,957,000, the Sellers would be entitled to an additional cash payment
of $2.0 million. Transaction expenses were approximately $1.9 million. The cash consideration and
transaction expenses were funded by CODI through drawings under CODI’s revolving credit facility.
CODI’s initial ownership position in Buyer Parent is approximately 84% on a primary and fully
diluted basis. Certain of the Sellers received shares of capital stock in Buyer Parent as part of
the purchase price and another investor invested in the transaction alongside CODI collectively
representing approximately a 16% initial minority interest.
The purchase price is subject to adjustment for certain changes in the working capital of
ERGObaby. The ERGObaby Purchase Agreement contains customary representations, warranties,
covenants and indemnification provisions.
Concurrent with the closing of the Buyer’s acquisition of ERGObaby, the Company provided a
credit facility to Buyer, as co-borrower and ERGObaby, as borrower, which funded, in part, the
Buyer’s purchase of the ERGObaby capital stock from the Sellers and made available to ERGObaby a
secured revolving loan commitment and secured term loans. The initial amount outstanding under
these facilities at the close of this transaction was approximately $48.5 million. The loans to
ERGObaby are secured by security interests in substantially all of the assets of Buyer and ERGObaby
and the pledge of the equity interests in Buyer and ERGObaby. In addition to being similar to the
terms and conditions of the credit facilities in place with our existing businesses, the Company
believes that the terms of the loans are fair and reasonable given the leverage and risk profile of
ERGObaby.
Compass Group Management LLC, our manager, acted as an advisor to the Company in the
transaction for which it received fees and expense payments totaling $0.91 million.
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