Compass Diversified (NYSE:CODI) ("CODI" or the "Company"), an owner of leading middle market businesses, today announced that it has entered into a Ninth Amended and Restated Management Services Agreement (the "Amended MSA") with Compass Group Management LLC (the "Manager"), the Company’s external manager. The Amended MSA becomes effective upon execution, with the revised fee and incentive-award provisions taking effect on January 1, 2027. The Amended MSA follows a Board-led review that considered investor perspectives, market practices and pre-existing contractual requirements. In addition to reducing management fees, it is designed to further strengthen alignment with shareholder outcomes.
The Amended MSA reduces the base management fee rate from 2.00% to 1.25% of Adjusted Net Assets ("ANA") at the Company’s current ANA levels and caps 2027 base management fees at $30 million. It also replaces the existing incentive fee with a Share Alignment Award designed to build CODI share ownership by senior Manager personnel and a Performance-Based Award earned through shareholder-return and operating-performance results, each as described below. Based on current estimates, total 2027 management fees are expected to decline by approximately $19 million to $22 million compared to what the existing formula would have produced, depending on the Company’s ANA for 2027 and the level of payout under the Performance-Based Award.
"Following a thoughtful Board-led review and negotiations with the Manager, we reached a constructive agreement that reduces fees and further strengthens alignment with long-term shareholder outcomes," said Larry Enterline, Independent Board Chair of CODI. "We are not satisfied with CODI’s current market valuation, and we continue to take concrete steps to help better translate the underlying value of our businesses into shareholder value. The revised framework is expected to create meaningful economic value for shareholders and to support CODI's focus on accelerating deleveraging, strengthening financial flexibility and positioning the Company to efficiently return capital to shareholders."
"This is an important agreement for CODI," said Elias Sabo, Chief Executive Officer of CODI. "As CODI enters its next phase, the amended MSA better supports the Company’s priorities and further strengthens alignment with shareholders. The framework is lower-cost, more performance-based and more closely aligned with how CODI intends to create long-term value. With the agreement in place, we remain focused on advancing our strategic priorities, supporting our subsidiaries and delivering results."
Key Terms of the Amended MSA
- Lower base management fees: The base management fee declines from the 2.00% rate CODI currently pays to 1.25% on the first $3 billion of ANA, 1.125% on the next $2 billion of ANA, and 1.00% on the ANA above $5 billion. For 2027, base management fees are capped at $30 million.
- Greater alignment with shareholder outcomes: The Amended MSA replaces the existing incentive fee with two awards linking a greater portion of the Manager's economics to shareholder and operating performance:
- Share Alignment Award: 0.125% of average ANA, settled in cash and intended to help build meaningful CODI share ownership by senior Manager personnel under ownership guidelines the Manager will implement.
- Performance-Based Award: a cash-settled award with a target grant value equal to 0.125% of average ANA, weighted 70% to relative total shareholder return and 30% to EBITDA performance. The TSR component pays nothing if CODI's total shareholder return is negative, and, for 2027, pays nothing unless CODI's share price plus distributions reaches at least $17.25 at the end of 2027.
- Ownership alignment: The Amended MSA is designed to promote meaningful share ownership in CODI by the Manager and its senior leadership, through share ownership guidelines adopted and maintained by the Manager and certified annually to the Compensation Committee.
- Governance safeguards: The Amended MSA includes clawback and recoupment provisions and Compensation Committee authority to establish and certify performance objectives and payouts.
- Transition to an equity-based structure: CODI and the Manager intend to seek shareholder approval at CODI's 2027 annual meeting for an equity-based incentive structure which, if approved, would become the go-forward program beginning in 2028 and replace the cash-based Share Alignment Award and Performance-Based Award.
Collectively, CODI’s subsidiaries continue to perform well, and the Company is reaffirming its previously issued full-year 2026 outlook.