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There’s a bull market in babywearing.

So says Joe Massoud, who runs the Compass Diversified Holdings investment company in Westport, Conn. Compass said Friday it bought ErgoBaby, a Hawaii-based maker of frontpacks that parents use to carry babies and toddlers.

Youth will be served

Compass, which typically buys and operates businesses for a multiyear period before selling them, said ErgoBaby is small, with $23 million in sales last year, but is growing fast. The sellers, led by ErgoBaby founder and CEO Karin Frost, could earn a $2 million payment if the company’s sales next year essentially double from 2009 levels.

While Massoud declines to wade far into the financial details – the company’s press release says hazily that the “total enterprise value in the transaction was $91 million” – he says the deal fits with Compass’ preference for niche companies that seem likely to prosper with the application of some additional management know-how and stronger financial backing, regardless of how the economy goes.

“We like companies that have passionately crazy customers,” said Massoud. “This product is all about the child’s comfort, and that’s not going to be the first place people skimp even if we do have another downturn.”

Massoud said the ErgoBaby competes to some degree with the better known Baby Bjorn, but he hopes to exploit the fact that some ErgoBaby products can accommodate much bigger kids. He also believes the company could grow substantially just by making better distribution arrangements in the middle of the United States and in Canada, for instance, where he says it isn’t well represented right now.

“The product has great penetration where it’s being sold,” he said. “We’ve really got to expand the distribution.”

He also notes that Frost and her management team will stay on, as is the custom at companies acquired by Compass. Massoud says the deal is the second recent one for Compass, but he stresses that he’s in no rush to go shopping again.

“The good news is we don’t buy too many things,” he said. “We can pick our spots.”

So far, the company’s shareholders seem to like this one. Compass shares rose 2% Friday to within a dollar of their 52-week high.