Business Breakdowns
· Matt Reustle
[00:00:00] S0: This is Matt Reustle, and today we are breaking down CompoSecure. If you have a premium metal credit card in your pocket, CompoSecure likely manufactured it. And my guest for this episode is Parsa Kiai, Founder and CIO of Steamboat Capital. Now, in the spirit of integrity and full disclosure, this is my first time breaking down a company where I actually own the stock. And while we get into the risks in this discussion and you'll hear the disclaimers, to be very clear, this is not investment advice. I was first introduced to Parsa by Andrew Peters of Revelare Partners. I saw Andrew posting some notes from an investor about Compo, and I was curious to hear more. And what really made him the ideal guest is that he has history in CompoSecure before the Dave Cote era, which started sometime in 2024. We get into all of this: the niche market of premium metal credit cards, how Compo has such a dominant position in that industry, whether there's an opportunity in digital storage, and then perhaps most importantly, what Dave Cote's involvement, his M&A track record that he brings, and the unique corporate structure that they've created all mean for Compo. Please enjoy my conversation with Parsa on CompoSecure. Parsa, I am excited to have you here to talk CompoSecure. You were a very specific guest that I had interest in talking about this name, and we'll get to that. But I don't think it's in any way a well-known name, and it's been coming on the radar. But I think just starting us off with a simple introduction to the underlying company and what they do will be the perfect place to start, and then we can get rolling from there.
· Parsa Kiai
[00:00:00] S1: CompoSecure is interesting in the sense that it's certainly not a household name, but I would say probably almost all of your listeners have it in their wallet. It is a fascinating little company that manufactures the premium heavy metal credit cards that most of us have in our wallets. So if you look at the back of your American Express or Chase Sapphire card and you look in the bottom right corner, underneath the little NFC beam logo, you'll see a serial number, and in between it with the letters CS for CompoSecure. So a very niche business, but in a very interesting industry and market where they manufacture, design, and distribute these cards for most of the large premium credit card companies that we think about: American Express Black, Platinum, Gold, Chase Sapphire, Capital One Venture, and a lot of these new fintech cards like the Coinbase card or the Robinhood Gold card or even crypto cards. Very fascinating and interesting history that goes beyond just the breakdown of the business and the journey along the way from humble family origin to a SPAC, becoming a broken IPO, and then all the way along with its evolution.
· Matt Reustle
[00:00:00] S0: I still have one of those old plastic credit cards, a Capital One that sits in my wallet and has to come out every now and then. It drives me nuts. The rest of my cards, which I prefer to use, are those premium metal cards. They happen to be CompoSecure cards. It is this interesting niche business. The reason I wanted to have you on was because it came on my radar after Dave Cote was involved in the business sometime in 2024, sometime last year. And that added a unique dynamic. You have some experience with this business well before that. Maybe we could just start with Cote and what he represents to the story and how it's changed, and we'll get into the backstory to the business after that. But I do think it's important to bring him into the conversation quite early.
· Parsa Kiai
[00:00:00] S1: He's probably the main figure in the story right now. You're right, it was August 2024 that he came in. It was a watershed moment for the company. He became the controlling shareholder by buying out the private equity sponsors and the co-founder, a lady named Michele Herslow. And for many of your listeners, Dave Cote needs no introduction. He, along with another industrial CEO who's been talked about on your podcast a lot, Brad Jacobs, are probably the two best-known industrial CEO entrepreneurs that we have in our market right now. And their track records are both incredible. Dave Cote was the star CEO of Honeywell for many years and then became the chairman of Vertiv and has led the growth in that company. He's written two books on the operating system. It was the Honeywell Operating System at first. It is a focus on operational excellence. It is a focus on capital allocation, and a large part of that is exceptionally astute M&A, which comes from deal origination, integration, and paying the right price for the right business. His involvement is critical, and we honestly look at our investment in the company in kind of two parts. There's CompoSecure 1.0, which was before Mr. Cote's involvement when it was a broken IPO with a hidden gem of a business that was trading at a fraction of its core value. And then CompoSecure 2.0, which is a more respected business with attractive near-term tailwinds and a much longer-term potential under the CompoSecure Operating System.
· Matt Reustle
[00:00:00] S0: Let's get back in time to some of that Compo 1.0 era. It's not quite the 100-plus-year-old business like we just covered with Amphenol. It has a little bit of a shorter history, though it's still decades old. Bring us back in time in terms of the origin story and how they got to this position in the marketplace where they are so prominent.
· Parsa Kiai
[00:00:00] S1: Very fascinating story. Does not have the length of history of some other companies, but it was a family-started business, and there was a gentleman named John Herslow and his daughter Michele Herslow. They worked for their family's plastic business that the grandparents had started in the '50s. And through that business, they eventually founded CompoSecure in 2000. By happenstance, they worked with American Express in 2003 in introducing the first-ever metal credit card. And up until then, credit cards were always plastic, and they worked with American Express to make the first metal credit card. And I think there's a rich history of innovation and growth that we'll get through, and it's important that American Express today, 22 years later, is still a key partner and customer. And I think it just shows you a lot about the innovation and organic growth that the company has throughout the years. They pioneered a lot of what we see in a physical premium credit card today. After working with Amex, they helped Chase launch their first metal card, which was the predecessor to the Chase Sapphire card. It was called Chase Palladium in 2009, and again, Chase today, many, many years later, is still a premier customer. And you've seen that relationship has grown. Throughout the years, so much of the innovation that we see in a card today was helped and pioneered by them. They were the first ones to put an EMV chip in a credit card. And your listeners will know, those who listened to the Visa and Mastercard podcast will know EMV is Europay, Mastercard, and Visa, which is the security protocol for payment cards that puts a microprocessor embedded into a chip so that it works with an EMV-enabled payment terminal to authenticate transactions with much higher security. So they were the first ones to do that. They were also the first ones to put large-scale NFC, or near-field communications, integrated dual interface mailer cards. This is a protocol in a card that allows for radio frequency identification between the payment card and the terminal. So a lot of this innovation was done by them, and even up until now, including biometric security dynamics, CVV codes, and a lot of other things. Rich history. And then along the way, a private equity company called LLR invested in the company. They paid $100 million for a 60% stake in the business.