After making a big capital gain on its sale of Camelbak to Vista Outdoor, Compass Diversified Holding (Codi) has signed an agreement to acquire 5.11 Tactical for $400 million, at the end of July. The management will retain a stake of 2.5 percent. One of Codi's goals is to expand the company's rapidly growing sales of military-inspired apparel, footwear, backpacks and accessories to end consumers.
Founded in 2003, 5.11 Tactical designs and markets purpose-built tactical apparel and gear for a wide range of customers globally including firefighters, law enforcement officials, people involved in special military operations, but also outdoor enthusiasts. The FBI adopted its tactical pants in 1992.
The company has its own web store as well as ten physical stores in the U.S. Five of them are in California, including a flagship store near its head office in Riverside, California. Codi wants to expand consumer awareness of the brand through digital marketing and other methods, as it has already done with some of its other properties.
Presumably, Codi will also want to develop the company's business outside the U.S. 5.11 Tactical already has offices in Mexico, Sweden, Australia, China and the United Arab Emirates.
The acquisition price being paid for 5.11 Tactical represents a multiple of about 10.5 times its operating profit before amortization (Ebitda) for the last 12 months. For the financial year ended on April 30, the company generated Ebitda of around $38 million, equal to a margin of 13 percent on sales of $293 million. Its sales have been growing at a high single-digit rate in the past four years, while profits have been going up at a double-digit rate.
Codi, which is also known as The Compass Group, bought Camelbak for $260 million and sold it to Vista for $413 million. To help finance its new purchase, Codi has raised around $63 million in total net proceeds following the sale of 3.5 million shares in Fox Factory Holding Corp., the maker of high-performance suspension systems for mountain bikes and off-road vehicles that it has been spinning off gradually.
In this secondary offering, which also involved other shareholders, BofA Merrill Lynch, the investment division of Bank of America, has acquired a stake of nearly 10 percent in Fox by purchasing around four million shares. Codi remains with a 23 percent shareholding in Fox.
Besides Ergobaby, Codi's other major remaining asset is Liberty Safe, whose revenues fell by 12 percent in the second quarter, compared with a year ago, mainly because of the planned shutdown of a manufacturing line for improvements. The group's total revenues increased by 15 percent to $229.4 million. The Ebitda margin expanded by 1.2 percentage points to 15.6 percent, but net earnings dropped by 21 percent to $19.2 million.