Compass owns Fox Factory Holding Corp. of California, which makes high-end suspension products for mountain bikes and power sports. The Westport company bought Fox in January 2008 for $80.4 million. Its other companies are: Compass AC Holding Inc., a Colorado-based maker of circuit boards that specializes in quick-turn prototyping; AFM Holdings Corp., a Mississippi-based maker of furniture; CBS Personnel Holdings Inc., a staffing services company based in Ohio; Anodyne Medical Devices of Florida; and HALO Lee Wayne LLC, a marketing and promotional products and management company headquartered in Illinois.
Compass looks for businesses that are well-managed but could use some help expanding into new areas or developing new strategies, Massoud said. Compass also is not looking for troubled companies being sold at fire-sale prices.
"We're not turn-around guys," he said. "We walk away from them if all they really want is the capital."
A key reason for Compass to get involved with a firm is that the company has a reason to exist, he said. That means it produces something that's not easily replicated and is in a strong position in its market. Compass focuses on U.S. companies.
Massoud said management sits down with the ownership and asks them if they want to buy themselves out from under a large corporate parent, find new markets, cut costs and work on plans to keep the company going after the founder retires.
The biggest challenge is finding companies that are worth buying, he said. Compass has ready access to several credit lines, including a $300 million acquisition revolver that will be available until 2013.
The company also has $119.4 million in cash on hand and additional borrowing options.
Massoud would like to make an acquisition or two within the next 12 months, but he said it's difficult. Old family businesses, which might have been good targets a year or two ago, aren't being sold because the families aren't seeing the value in a sale, he said.
"The sellers we're seeing fall into three buckets," he said. Each presents opportunities for the seller and for Compass.
"¢ There is the large corporation selling non-core subsidiaries or trying to settle debt.
"¢ The private equity funds, selling businesses to pay off debts and preserve a profit on aging deals
"¢ And there are companies such as Fox, which Compass bought to create a succession plan to keep the company alive after the founder retires.
Massoud was excited about Fox, which is a well-known brand in the mountain biking community. Since the acquisition, Fox has been moving into new areas, including military equipment, where it's providing shocks absorbers for vehicles.
Joseph Tatusko, chief financial officer for the investment advisory firm Westport Resources, said he sees the economy as the main hurdle for Compass.
"Their operating companies seem especially susceptible to the downturn: furniture, bike parts, promotional do-dads, employment staffing services and circuit boards. All will see revenue declines this year," Tatusko said. But on the flip side, Compass seems well managed, he said.