Colfax is a fast-growing industrial conglomerate owned and run by brothers Mitchell and Steven Rales, founders of extraordinarily successful Danaher Corporation. Other noticeable shareholders include Byron Trott – known as Warren Buffett’s favorite banker – and Tom Gayner from Markel.
Not your typical, opaque and overleveraged roll-up, Colfax grows via bolt-on and prudently financed acquisitions. New purchases are restructured and decapitalized, before they get integrated to a global marketing platform. In short, it’s a perfect remake of Danaher’s margin expansion playbook – deja vu all over again.
A disciplined acquirer and opportunistic seller of both legacy businesses and its own stock, i.e the transformative acquisition of Charter in 2012, this former market darling – now a fallen angel – defends a conservative balance sheet and stable earning power.
Yet, it trades at 0.5x revenue and less than 10x cash earnings, unduly punished by distress in oil market despite limited exposure to energy and a portfolio of industrial assets –ESAB, Howden, etc. – sporting attractive economics, especially in emerging markets.
Colfax should do well over all seasons, even in chilly ones, when valuations wane and offer shrewd acquirers the kind of accretive deals they look for. Adventurous investors should also pay attention to Howden Africa, an unconsolidated subsidiary listed in Johannesburg and trading at 6x cash earnings.
(Long CFX at an average price of $18 a share.)