ADW Capital demands Compass Diversified liquidation, sees $26 per share

ADW Capital Management, which owns approximately 7.65% of Compass Diversified (NYSE: CODI), sent a letter to the company's board calling for an immediate strategic review and orderly liquidation of the company.

The investment firm stated it believes Compass Diversified's structural discount to net asset value cannot be repaired due to misalignment between the external manager and common shareholders. ADW Capital estimates liquidation could yield over $26.00 per share compared to the current share price of $7.79.

According to the letter, Compass Diversified has traded at a persistent discount to net asset value since its initial public offering. ADW Capital attributes this to the company's management services agreement with Compass Group Management LLC, which receives approximately 2.0% of adjusted net assets regardless of stock price performance.

The firm highlighted that Compass Diversified's share count increased from approximately 19.5 million at its IPO to roughly 75.2 million currently, while the share price declined from $15.00 to $7.79. ADW Capital calculated this represents an annualized return of approximately 4% for original shareholders, compared to roughly 9.5% for the S&P 500 with dividends reinvested.

ADW Capital cited what it described as fraudulent activity at Compass Diversified's Lugano subsidiary as evidence of management oversight failures. The firm estimated this investment cost common shareholders approximately $10.00 of net asset value.

The company has $923 million of inter-company debt at the subsidiary level and $894 million of additional net debt at the parent company level, according to ADW Capital's analysis. The firm also noted management fees of $74.8 million in 2024, bringing total corporate costs to approximately $90-95 million annually.

Adam Wyden, managing member of ADW Capital Partners, signed the letter demanding the board fulfill its fiduciary duties. ADW Capital Management is a concentrated investment partnership founded in 2010.

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