Compass Diversified Holdings is betting on more brisk activity in healthcare services, in an exception to what’s shaping up to be a lackluster environment for deal making in 2023.
Compass CODI owns a portfolio of 11 companies in the consumer and industrial sectors, and its CEO Elias Sabo is always keeping an eye out for middle-market companies to buy. “The M&A market is extremely weak,” Sabo told MarketWatch in an interview at the company’s annual shareholder day on Thursday. “Capital markets have been disrupted by Fed policy, and multiples in public markets have gone way down. Private sellers don’t want to sell.”
Former portfolio companies include Camelbak water holders, Manitoba Harvest hemp and Advanced Circuits Inc., which Compass sold earlier this month for $220 million, including a roughly $105 million pretax gain on the deal. Analysts who cover Compass also cover specialty finance companies such as Sixth Street Specialty Lending Inc. TSLX , Ellington Financial Inc. EFC , Ares Capital Corp. ARCC and Blue Owl Capital Inc. OWL , but Compass Diversified Holdings argues that its business is unique among these players.
Since Compass invests off its own balance sheet and not out of a fund, it’s able to hold onto its portfolio companies much longer and realize more gains, Sabo said. Its recent sale of Advanced Circuits came after 16 years of ownership, for example.