Top Picks 2017: Compass Diversified Holdings

01/13/2017 6:00 am EST


Jimmy Mengel

Editor, Outsider Club

Our Top Pick for conservative growth investors in 2017 is a private equity firm specializing in acquisitions, buyouts, and middle market investments, explains Jimmy Mengel, editor of The Crow's Nest.

Compass Diversified Holdings (CODI) seeks to invest in manufacturing, distribution, consumer products, and business services sectors.

One thing I like about Compass is its strict definitions of its acquisition strategy. They have a six-step process of identifying companies to acquire that reads simply, but has lead to astounding success.

An ideal acquisition candidate for Compass Diversified Holdings has the following characteristics:

  1. Established, U.S. based company
  2. Significant market share in a defensible niche
  3. Solid and proven management team with meaningful incentives
  4. Low technological and/or product obsolescence risk
  5. Diversified customer and supplier base
  6. Minimum EBITDA of $8 million

That seems like a quality approach to me –- and it has been working for them since they started in 2006.
They own companies as diverse as Arnold Magnetic Technologies, a leading global manufacturer of magnetic solutions for end-markets such as autos, energy, medical, aerospace and defense and Advanced Circuits, a maker of circuit boards.

Compass also owns ERGO Baby Carrier; Liberty Safe and Security Products, a premier manufacturer of home and gun safes in North America; and Sterno Products, which makes portable warming, butane, and catering products to the hospitality and retail markets.

As you can see, they have quite the diverse lineup of niche businesses. Compass also pays a more than generous dividend of 8%.

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