ADW Capital issues letter to Compass Diversified shareholders

ADW Capital Management issued an open letter to the Company’s board of directors calling for the Company to immediately commence a strategic review process and orderly liquidation of the Company to preserve value for shareholders. “ADW Capital Partners is a substantial shareholder of Compass Diversified (CODI) beneficially owning approximately 7.65% of the shares outstanding through ownership of shares and stock options. After a comprehensive review of the Company’s financial /share price performance, governance structure, capital allocation record, heavily discounted valuation, and onerous management services agreement, we have reached a definitive and damning conclusion: We believe the structural misalignment embedded in the Company’s management services agreement with its external manager cannot be credibly repaired / rectified and the most recent failure to prevent fraudulent activity at its Lugano subsidiary only further highlights this… Under the Company’s current Management Services Agreement with its external manager, Compass Group Management LLC, the external manager receives 2.0% of “Adjusted Net Assets” at current asset levels, with potential incremental incentive compensation. This compensation is based on capital employed – not per-share value creation or stock price performance… The consequences of this are unavoidable and inexcusable: increasing capital increases fee potential and shrinking the balance sheet reduces fee potential. Repurchasing the Company’s discounted shares would reduce fees by reducing capital available to make new investments in fee generating assets and liquidating assets eliminates fees entirely. Share price underperformance does not reduce compensation in any way, shape, or form. This is not a temporary issue or one that can be fixed. It is a structural conflict of interest baked into the Management Services Agreement. No cosmetic governance adjustment can reconcile this economic divergence.”