Colfax strikes $3.15B buyout of orthopaedics player DJO

Dive Brief:

Colfax has struck a $3.15 billion all-cash deal to acquire DJO Global, a manufacturer of orthopaedic bracing and rehabilitation systems.
The acquisition moves industrial technology conglomerate Colfax into a new sector, medical devices, in a bid to increase its exposure to a market that has higher growth and margins than some of its existing areas of operation.
Colfax’s founders and CEO have experience in the medical sector from their time at Danaher, but investors nonetheless reacted negatively to the deal, sending the buyer’s stock down by 15%.

Dive Insight:

DJO is changing hands again. Having been acquired by Blackstone in 2007 — a very active year for private equity buyouts — DJO is now set to become a new business segment within Colfax. DJO will slot in alongside Colfax units that target the welding and air and gas handling sectors.

Colfax’s existing businesses generated $2.7 billion over the first nine months of the year, an increase of 10% over the comparable period of 2017. However, Colfax thinks it will benefit from moving into medical devices and, potentially, transitioning away from its air and gas handling focus. Colfax believes the same fundamentals that made DJO attractive to private equity will serve it well in the years to come.

“DJO is well-positioned to benefit from secular trends driven by changing demographics and increased preventive healthcare,” Colfax president and CEO Matt Trerotola said in a statement. “This transaction reflects our strategic intent to diversify our portfolio and end-market exposure, reduce cyclicality, and increase profitability.”

Colfax’s belief in the potential for DJO to further that strategic intent is underpinned by the nature of the acquired business. DJO started out as DonJay, a manufacturer of knee, ankle and elbow joints supports that exist to this day. With demand for devices that treat and prevent sporting injuries, osteoarthritis and other conditions less subject to volatility than Colfax’s existing business, Trerotola thinks DJO can drive the broader business to more consistent results.

Trerotola was group president for life sciences during his time at Danaher, which owns businesses such as Beckman Coulter and Pall. Colfax was set up by brothers Steven and Mitchell Rales, the founders of Danaher.

DJO currently employs 5,000 people at 18 locations and recorded revenues of $1.2 billion over the past 12 months.