CFX - Colfax Corporation

[Spekulatius]

In an interview from 2014 Chuck Akre mentions how CFX was their biggest position:

 

 

I was quite amazed to see how the stock had performed since then... Does anyone know when he sold out? I've been reviewing his compounding machine approach and portfolio and this seems to be the biggest failure.

 

In hindsight, what were the red flags on Colfax? It's concentration on oil and gas, shipping, and emerging markets after a small EM bull market following the GFC?

 

What went wrong:

 

1) CFX dependent on volatile end markets for growth. Those markets (Foremost O&G turned down and the direct and indirect impacted CFX)

2) CFX is a rollup. Once the stock price turns down, acquisition aren’t accreditive any more and hence stop. Same problem that KHC is facing.

[Guest longinvestor]

In an interview from 2014 Chuck Akre mentions how CFX was their biggest position:

 

 

I was quite amazed to see how the stock had performed since then... Does anyone know when he sold out? I've been reviewing his compounding machine approach and portfolio and this seems to be the biggest failure.

 

In hindsight, what were the red flags on Colfax? It's concentration on oil and gas, shipping, and emerging markets after a small EM bull market following the GFC?

 

What went wrong:

 

1) CFX dependent on volatile end markets for growth. Those markets (Foremost O&G turned down and the direct and indirect impacted CFX)

2) CFX is a rollup. Once the stock price turns down, acquisition aren’t accreditive any more and hence stop. Same problem that KHC is facing.

 

Indeed. Especially #2. Colfax's portfolio doomed it from the early stages. Knowing that the parentage of Colfax is the same as Danaher's, a big lesson here is knowing what should not be acquired at all. Price paid is secondary. I suppose permanent ownership of cigar butts.

 

As an example, it is likely no coincidence that Danaher has stayed away from unfixable businesses. For instance, anything auto industry related. If you follow Danaher from the 1990's they curated the portfolio by shedding old line industrials, tools for example.

[capitalg]

Anyone following this have thoughts on the recently announced stock offering? Press release indicates proceeds to be used for deleveraging and general corporate purposes - reads very vague. Perhaps they are looking at some acquisitions? Would they need capital to reduce debt in conjunction with the recently announced plan to split into two separate companies?

[Broeb22]

They are a little bit highly leveraged right now at about 3x EBITDA and I believe they want to aggressively grow the separate businesses (at least MedTech) after the spin-off. An additional kicker is the stock is at a relatively high price so I think they feel like this is a good deal for them to sell stock at ~20x EBITDA.

 

I did not expect them to do it this way but it’s not entirely surprising given how Danaher companies have emerged from spin-offs before. They often try to have investment grade balance sheets. Colfax has always struggled a little bit to fit in.

 

I do think it’s weird that Colfax went out and bought DJO and is now spinning it off. It’s kind of like Trerotola kind of said, I’m sick of restructuring slow growing industrial businesses and basically selected for himself an asset he wanted to grow in DJO.