Platinum Equity recently made headlines when it announced a creative exit for portfolio company Husky Technologies: a $7.4 billion merger with CompoSecure (NYSE: CMPO) in partnership with Resolute Holdings, a firm backed by former Honeywell CEO David Cote.

Platinum had acquired Husky for $3.85 billion and spent the last several years transforming the company’s operational and commercial model and improving its financial profile.

When it came time to divest, the market for IPOs was open but Platinum chose a different path. The firm believed that partnering with Cote and Resolute would provide a better combination of short and long-term value.  The bespoke structure they engineered is designed provide the “best of both worlds” – an immediate return of capital for Platinum with meaningful upside via a meaningful stake in the newly combined public company.

 Two of the key architects of the transaction, Platinum Equity Co-President Louis Samson and Managing Director Delara Zarrabi, will join the CompoSecure Board of Directors.

In this Q&A, Samson and Zarrabi share the story behind the deal.

It’s a very interesting deal. Can you walk me through the structure?

Zarrabi: Husky will merge with CompoSecure in a transaction that values Husky at an enterprise value of $5 billion. The combined company, valued at $7.4 billion, will remain public, with both businesses operating independently.

A $2 billion PIPE was raised to ensure an appropriately levered pro forma balance sheet (~3.5x) and provide cash proceeds to Husky shareholders. Platinum will roll approximately $1 billion of our equity in Husky, giving us about 19% ownership in the combined business.

The fundamental idea is to create an industrial technology compounder by combining two market leaders with exceptional financial profiles, including stellar margins, free cash flow conversion and aftermarket exposure. Those attributes, when contrasted with comparable companies, suggest significant re-rating potential exists, which is a foundational pillar of our thesis.

The response to the PIPE raising process, which was significantly oversubscribed and attracted a lot of interest from marquee institutional investors, only strengthened our conviction in the prospect of meaningful valuation upside.  

Can you expand a bit on the architecture of the transaction?

Samson: One of our guiding principles for the transaction was to create an entity that could deliver value appreciation in both the short and long term.

To that end, we made sure to create the combined entity at an attractive multiple (11.6x 2026E Pro Forma Net Adjusted EBITDA), in which all shareholders invest at $18.50 per share, creating a built-in discount at closing and the prospect for significant appreciation as the new company is compared to its public peers that have historically traded at much higher multiples.

Said another way, we wanted the appeal of a short-term gain to be combined with meaningful long-term value.

Another fundamental principle was to ensure alignment of interest among the partners. We will all have meaningful investments in the venture: over $1.1 billion from David Cote and the Resolute team, approximately $1 billion from Platinum, and $2 billion from PIPE investors.

By Platinum owning a sizeable yet not overly large ownership stake we’ll be in position to influence the business operationally without our stake creating an overhang on the stock price. That will give us the flexibility to eventually exit our investment without unintended consequences. In many ways, it’s like getting to the mature stage after an IPO without the teenage years.

Platinum has history with David Cote. How did that play into this deal?

We know Dave very well from the Vertiv deal, a portfolio company we exited in 2020 that is one of the top performing SPAC deals of all time (ranked #2 according to SPAC analytics). We’re aligned with Dave on many levels with respect to operating philosophies, sense of urgency and values.

We’re excited to join forces with Dave and his team again. Dave has created a lot of value on multiple deals and has earned a huge following in the equity market. He and [Resolute CEO] Tom Knott bring a sizeable investor base to the table on the back of tangible and measurable success.   

How is this different from an IPO and what are the pros and cons?

Zarrabi: Unlike a traditional sponsor-backed IPO, the pro forma business will have a broad, diverse group of long-term investors right out of the gate. It will have lower private equity ownership overhang and better float compared to a standalone listing.

The PIPE allows the company to de-lever to a level that’s appropriate for a public company on day one without having to grow into it. The transaction structure also delivers material cash proceeds at close, which would not be possible in most traditional IPOs.

Dave’s involvement provides Husky some instant credibility in the public markets – investors know Dave and his playbook and Husky will benefit from both of those things.

The process of raising the $2 billion PIPE allowed us to get a good sense of how public investors would react to our structure and gave us full visibility before we had to make a final decision, which was unique.

Would you pursue similar exit opportunities for other portfolio companies?

Samson: Across the industry, it’s well known there are a lot of portfolio companies out there for sale. The challenge is finding a way to put a deal together. And that’s not necessarily being done as much in the traditional way these days. We’re seeing a lot more relationship-orientated, more bespoke approaches. That’s an area we’re very comfortable because, philosophically, our firm is very relationship orientated and comfortable being quite deliberate and tactical.

A lot of what we’ve done this year has been more structured, more creative. The Husky deal is a great example of that and it’s certainly generated a lot of buzz in M&A circles. We’ve had a lot of inbound calls and interest from people who want to know how we structured this deal and talk about ways we might approach new opportunities.