Colfax entered into a definitive agreement to acquire DJO Global from private equity funds managed by Blackstone Group for US $3.15BB in cash. The transaction is expected to close in 1Q19. For 2017, DJO reported revenue of $1,186MM, +2.7% vs. 2016; for the trailing 12 months as of September 2018, DJO’s revenue was $1,203MM. After closing, DJO Global will be reported as a new segment within Colfax and will continue to be led by Brady Shirley, President and CEO.
Who is Colfax?
Colfax is a diversified technology company that provides air & gas handling and fabrication technology products and services to global customers under its Howden and ESAB brands. The public company reported 2017 revenue of $3.3 billion, +3.6% vs. 2016. The Colfax Business System (CBS) is a set of tools, processes and values implemented to yield value for all stakeholders.
To maintain its current credit rating, Colfax will prioritize asset sell-off to reduce its net leverage ratio to the mid-3x range by the end of 2019. As part of this plan, the company is evaluating strategic options for its Air and Gas Handling business and will not make any material acquisitions or share repurchases until leverage metrics return to targeted levels. “Longer term, we see tremendous opportunities to build our new medical technology platform with additional investment,” said Matt Trerotola, Colfax President and CEO.
Why DJO? And what does Colfax bring to the table for them?
“The acquisition of DJO is a compelling next step in the strategic evolution of Colfax that creates a new growth platform in the high-margin orthopaedic solutions market,” said Trerotola. He called out DJO’s steady, non-cyclical revenue growth of ~4% CAGR since 2013 and global market exposure with its offerings of devices, software and services that span rigid and soft bracing, thermal therapies, bone growth stimulators, vascular therapy systems, therapeutic shoes and inserts, electrical stimulators for pain management and physical therapy products. DJO’s Surgical Implant line comprises a suite of joint reconstruction devices for hip, knee and shoulder; shoulder revenue increased 20% CAGR from 2015 to 2018. In light of trends such as an aging population, the shift to U.S. outpatient procedures and increased global access to healthcare, Colfax deems DJO to be a strong acquisition choice.
Colfax targets companies that bring opportunities to improve and expand. The acquisition comes amid a multi-year transformation for DJO aimed at reducing costs and expanding margins. DJO’s EBITDA growth was bolstered in 2018 by reducing their real estate footprint and consolidating five distribution centers to one modernized center in Dallas Fort Worth. DJO has another wave of transformation initiatives scheduled for 2019 and is now well positioned to benefit from synergies with Colfax’s CBS.
Mr. Shirley commented, “[Colfax is] committed to our mission to get and keep people moving, and we are confident that the Colfax team’s operating expertise across a broad array of businesses makes them the ideal partner to help us build on our momentum, drive new levels of innovation and continue to deliver outstanding service to our customers.”