Colfax shares in need of care as company moves into medical sphere with $3bn deal

Shares in Colfax crashed after the company said it was expanding into the orthopedics sector in a $3.15bn (£2.45bn) cash deal.

The US maker of industrial equipment said today it has agreed to buy DJO Global from private equity firm Blackstone.

Colfax’s step away from its focus on pumps and valves towards shoulder implants and knee braces, was not welcomed by investors.

The New York listed company’s shares plummeted on the news, falling by as much as 16 per cent to $23.27.

It also said it is mulling over options for its air and gas handling (A&G) business Howden, a major part of its portfolio.

Chief executive Matt Trerotola said the company was working to reduce its leverage and sees long-term opportunities to build in the new sector.

“This transaction reflects our strategic intent to diversify our portfolio and end-market exposure, reduce cyclicality, and increase profitability,” Trerotola said.

“We see significant opportunities to apply our proven Colfax business system across DJO to create a continuous improvement culture, further improve productivity and margins, and accelerate innovation and new product development.”

Analysts at Cowen said that whereas the size and timing of the acquisition was unexpected, it will leave a lot more potential for add-on buys than in air and gas.

They added: “Management expects A&G handling margins to exit the year firmly in double digits and has recently commented at investor conferences that orders have improved.

“We think there will be buyers of a business that clearly has room to improve, but it's not a fire sale.”