“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 orthopedic solutions market,” said Matt Trerotola, president and CEO of Colfax. “As a market leader in bracing and rehabilitation systems—with a track record of new products, recognized brands, and a diverse product portfolio— DJO is well-positioned to benefit from secular trends driven by changing demographics and increased preventive healthcare. This transaction reflects our strategic intent to diversify our portfolio and end-market exposure, reduce cyclicality, and increase profitability. We see significant opportunities to apply our Colfax Business System across DJO to create a continuous improvement culture, further improve productivity and margins, and accelerate innovation and new product development. We are committed to reducing leverage and restoring balance sheet flexibility near-term and will explore strategic options for our Air and Gas Handling business. Longer term, we see tremendous opportunities to build our new medical technology platform with additional investment. We are excited to welcome DJO’s management team and associates to the Colfax family.”
Upon closing of the transaction, DJO Global will operate as a new segment within Colfax and be led by President and CEO Brady Shirley, who will report directly to Trerotola.
With leadership positions in most product categories, DJO provides a broad range of orthopedic care solutions including bracing, reconstructive implants, rehabilitation devices, software and services. DJO’s portfolio of brands are trusted by patients, athletes, and healthcare professionals globally. Headquartered in Vista, Calif., DJO has approximately 5,000 employees across 18 locations around the world. DJO’s revenue was $1.2 billion and adjusted EBITDA was $269 million for the 12-month period ending September 2018.
“Joining Colfax is a win for our customers, and all DJO stakeholders,” said Shirley. “Colfax has the financial strength, experience, and proven business system to support our operational performance and growth. Importantly, they are 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 service to our customers.”
The transaction, which is expected to close in the first quarter of 2019, is expected to deliver adjusted earnings per share accretion in the first full year after closing. In addition, Colfax expects to realize future tax benefits from DJO’s approximately $800 million of net operating loss carryforwards.
Colfax expects to finance the transaction with approximately $100 million of cash from its balance sheet, proceeds from credit facilities and a contemplated debt offering, and $500 to $700 million from a contemplated offering of equity or equity-linked securities. J.P. Morgan and Credit Suisse have committed to provide bridge financing for the transaction. Colfax expects to maintain its existing debt ratings and will prioritize deleveraging to reduce its net leverage ratio to the mid-3x range by the end of calendar 2019. In connection with its deleveraging plans, Colfax is evaluating strategic options for its Air and Gas Handling business. Colfax does not intend to undertake any material acquisitions or share repurchases until its leverage metrics return to targeted levels.
The acquisition is subject to customary closing conditions, including receipt of applicable regulatory approvals.
J.P Morgan is serving as financial advisor and Kirkland & Ellis is serving as legal advisor to Colfax. Goldman, Sachs & Co. LLC, Credit Suisse, and Wells Fargo Securities LLC are serving as financial advisors and Simpson Thacher & Bartlett LLP is serving as legal advisor to DJO.
Colfax Corporation is a diversified technology company that provides air and gas handling and fabrication technology products and services worldwide principally under the Howden and ESAB brands. Colfax believes that its brands are among the most highly recognized in each of the markets that it serves. The company uses its Colfax Business System (CBS), a comprehensive set of tools, processes and values, to create superior value for customers, shareholders and associates. Colfax is traded on the NYSE under the ticker “CFX.”
DJO Global provides medical technologies designed to get and keep people moving. The company’s products address the continuum of patient care from injury prevention to rehabilitation, enabling people to regain or maintain their natural motion. Its products are used by orthopedic surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals. In addition, many of the company’s medical devices and related accessories are used by athletes and patients for injury prevention and at-home physical therapy treatment. The company’s product lines include rigid and soft orthopedic bracing, hot and cold therapy, bone growth stimulators, vascular therapy systems and compression garments, therapeutic shoes and inserts, electrical stimulators used for pain management and physical therapy products. The company’s surgical division offers a comprehensive suite of reconstructive joint products for the hip, knee and shoulder. DJO Global’s products are marketed under a portfolio of brands including Aircast, Chattanooga, CMF, Compex, DonJoy, ProCare, DJO Surgical, Dr. Comfort, and Exos.