The successful listing of Fox Factory on the Nasdaq stock exchange at the end of last week is encouraging the management of its 7-year-old parent company, Compass Diversified Holdings Inc. (CODI), to look for other acquisition opportunities. Compass bought a large majority stake in Camelbak Products two years ago for $257.5 million, or nearly two times its annual turnover. CODI owns four other firms including ErgoBaby and Liberty Safe.
Fox Factory is the first company from which CODI is partially cashing out, retaining a controlling stake. Commenting on possible acquisitions, Alan Offenberg, chief executive of CODI, reportedly said that valuation criteria for high-quality companies are being pushed up by the abundance of cash-rich potential buyers and of low-interest debt.
Priced at $18.25 a share, the initial public offering started off at a 20 percent premium from the price negotiated with institutional investors, valuing Fox Factory at more than $600 million, or over two times annual sales and ten times projected adjusted earnings before amortization (Ebitda). Shareholders sold first 8.57 million shares, of which 5.71 million came from CODI and most of the others from the company's founder, Robert C. Fox. Yesterday, they sold an additional 1,285,714 shares at the initial IPO price of $15 each, raising an additional €19 million by exercising an overallotment option.
CODI bought majority control of Fox Factory in 2008 for $80 million. It plans to reinvest the total proceeds of around $142 million on debt repayment and on the other companies in its portfolio.
Fox Factory, which specializes in the manufacture of suspensions and other components for bicycles and motor vehicles, raised its sales by 15.8 percent to $70.3 million in the second quarter ended June 30, as compared to the same period a year ago. Its operating income grew by 54 percent to $10.1 million.
In contrast, Camelbak, which remains CODI's biggest property, suffered a 56.2 percent decrease in operating income to $3.9 million on 22.1 percent lower revenues of $34.5 million. Adjusted Ebitda fell by 29 percent.
According to the group, Camelbak was mainly affected by the termination, in the first quarter, of a major contract with the U.S. Marines, which caused military sales to drop to 27 percent of sales from 38 percent in the quarter a year ago. Rainy spring weather in the U.S. also led some customers to postpone their purchases of recreational hydration products and accessories. At $6.7 million, Camelbak's sales outside the U.S. rose to represent 19 percent of total revenues, up from 15 percent in the same period a year ago.
In terms of product lines, hydration systems and bottles rose to 86 percent of the total turnover from 84 percent. Sales of bottles advanced by $1.5 million in the quarter, while sales dropped by $9.1 million for hydration systems, by $1.3 million for accessories and by $1.4 million for gloves. The less favorable product mix in hydration pushed Camelbak's gross margin down by 3.9 percentage points to 43.4 percent.