Greenhaven Road Investment Management, LP on Compass Diversified

Compass Diversified became a special-situations investment after fraud at one subsidiary damaged confidence, complicated financial reporting and increased balance-sheet pressure. Greenhaven believes the seven underlying businesses are worth substantially more than the public equity price, with reasonable segment multiples implying more than $30 per share of asset value. The large discount exists partly because the external-management structure and board incentives can obstruct value realization. Asset sales, debt reduction, activist pressure, potential board changes and possible internalization of management provide several paths to close the gap. If those catalysts work, the fund believes the shares could produce a very large near-term return.