CompoSecure moves to single class structure with new majority owner

CompoSecure, Inc. (NASDAQ:CMPO), a finance services firm, announced on Monday, August 7, 2024, a significant change in ownership structure and governance. Investment firm Resolute Holdings I, LP, led by David Cote and Tom Knott, agreed to acquire a majority interest in CompoSecure through stock purchase agreements with Class B stockholders, leading to the elimination of the company’s dual-class stock structure.

The transaction involves Class B stockholders exchanging their holdings for Class A common stock, which will then be sold to Tungsten 2024 LLC, an entity affiliated with Resolute. Notably, the company itself is not a party to these stock purchase agreements.

The change in control is expected to trigger a “Fundamental Change” for the company’s exchangeable notes, per the terms of the Indenture dated December 27, 2021. A special committee of independent and disinterested directors was formed to assess the transaction’s impact on CompoSecure and its minority shareholders, leading to unanimous approval of the associated transactions.

As part of the transition, a Letter Agreement was executed on August 7, 2024, which establishes the terms for an orderly governance transition. This includes increasing the board size to eleven directors upon closing, the resignation of current board members Mitchell Hollin and Michele Logan, and the appointment of David Cote as Chairman of the Board, alongside other new directors.

The Letter Agreement also necessitates the termination of the existing Stockholders Agreement and the execution of a new Governance Agreement, which includes provisions for a twelve-month lock-up period and a standstill period for Resolute and its affiliates.

In addition, CompoSecure entered into an Amendment to the Tax Receivable Agreement, which amends the definition of “Change of Control” and adjusts the “Early Termination Rate,” potentially reducing future payments to TRA Parties in certain circumstances.

Concurrently, a new credit agreement was established, providing a $200 million senior secured term facility and a $130 million senior secured revolving credit facility, with an option to increase each by $100 million. The agreement comes with financial covenants and matures on August 7, 2029.

The transaction is subject to customary closing conditions, including regulatory approval. This announcement is based on a press release statement.

In other recent news, Resolute Holdings I, LP, has agreed to acquire a majority interest in CompoSecure, Inc., a transaction involving the purchase of 49.3 million Class A shares. The deal, expected to close by September 30, 2024, will simplify CompoSecure’s corporate structure and is anticipated to enhance shareholder value. The agreement will see David Cote’s investment firm become the principal shareholder and Cote himself taking up the role of executive chairman of CompoSecure’s board.

In other developments, CompoSecure has reported a Q1 increase of 9% in net sales, reaching a record $104 million. This growth was largely driven by the company’s expanding domestic business and the introduction of new metal card programs. The company also confirmed its full-year guidance, projecting net sales between $408 million and $428 million, and adjusted EBITDA from $147 million to $157 million.

CompoSecure has also announced a partnership with Robinhood (NASDAQ:) Markets, Inc., and Fiserv (NYSE:) to produce the Robinhood Gold Card. This innovative payment card combines the features of a starter card and a premium metal card, offering advanced rewards and enhanced security features.

Lastly, CompoSecure has disclosed the pricing of a secondary stock offering by certain shareholders, aiming to raise gross proceeds of $45.5 million. The offering includes 7 million shares of Class A common stock at $6.50 each and is scheduled to close in 2024.

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