John Yacoub knew he needed to do something different or Advanced Circuits, the Aurora company he managed, would join a long list of technology manufacturers crushed by overseas competition.
“I wanted to make sure these jobs didn’t move to China or anywhere else. I decided to go after the guys willing to invest,” he said.
Yacoub, the president and chief executive of Advanced Circuits, turned to Compass Diversified Holdings, which helped him stage a management buyout in 2005.
Compass’ investment has allowed Advanced Circuits to grow rapidly and keep 250 workers busy providing a quick turnaround on circuit-board prototypes in a way that Asian competitors can’t match.
Compass is a public company that combines its own equity with bank debt to purchase cash-producing, undervalued companies in a variety of industries.
Because Compass has a public stock, investors can get in and out as they please, giving it more flexibility to hold on to the companies it acquires.
Yacoub said the problem he ran into in his search for private-equity funding was investors with a set deadline for cashing out. They wanted to harvest, whether the time was right or not.
“With Compass, their time limit is open,” he said. “If it makes sense to keep it, they will keep it.”
Unlike leveraged-buyout firms, Compass borrows money at the holding-company level and doesn’t load down the companies it acquires with lots of debt, said Joseph Massoud, Compass’ chief executive.
Although public companies were created to fund private-equity investments during the dot-com era, the model failed because the companies that were funded carried more promises than profits.
Compass seeks to avoid that mistake by buying solid, stable businesses that spin off cash, similar to the approach billionaire investor Warren Buffett takes.
“It is hard to not overbid for a company,” Massoud said.
But Compass would rather let a good one get away than overpay.
Compass’ holdings include a furniture manufacturer in Mississippi, a maker of industrial drying and cooling equipment, a maker of health-care bedding and a temporary-employment firm.
None may appear to be particularly “sexy” to outside investors, but Compass hopes to redefine the term, Massoud said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
How Compass Diversified Holdings is different
• A public stock allows Compass investors to get in and out as they please, reducing the pressures private equity firms have to set a definite timeline to make a return on their investments.
• Compass borrows money on the holding company level to purchase companies rather than loading up its acquisitions with debt as leveraged buyout firms do. This gives acquired companies more flexibility to grow and respond to market conditions.
• Unlike venture capital firms that replace a company’s founding management, Compass often helps existing management buy a company out.
