Pump and valve maker Colfax (NYSE: CFX) is all set to buy Charter International in a cash and stock deal after winning a bidding war against British buyout company Melrose. The acquisition is part of Colfax's acquisition strategy for business growth and it's just the latest of several buyouts the company has made in the past five years. Here's what Foolish investors should be looking at.
The deal so far
Colfax has agreed to pay the equivalent of about $14.45 for each share of Charter, which includes about $11.60 in cash and 0.1241 shares of Colfax. The total value of the deal is estimated to be $2.4 billion. Colfax said it will use bank debt, new equity, and available cash resources to finance the deal. Colfax has already arranged for $2.1 billion in firm commitments from Deutsche Bank and HSBC.
Charter owns two international engineering businesses. The Howden business works with air and gas handling, while the ESAB segment includes welding, cutting, and automation services. This deal will help Colfax accelerate its growth strategy by complementing its existing fluid handling business and also providing a platform for growth in the fragmented welding and cutting industry.
Colfax cites industry data estimating sales in the worldwide fluid-handling market of roughly $130 billion as of 2009, with more than 9,000 players competing for a share of the pie. The company has a wide customer base, with three-quarters of its sales coming from outside the United States and less risk, with no single customer accounting for more than 6% of the total sales. In the second quarter, Colfax's revenue jumped more than 50% to $186 million, and its balance-sheet cash stood at $64 million, up 6% from a year ago. Colfax outperformed its competitors such as Tyco International (NYSE: TYC), Ampco-Pittsburgh (NYSE: AP), and Curtiss-Wright (NYSE: CW) in terms of revenue growth.
The Foolish bottom line
Colfax is a success story scripted by a solid growth strategy and strategic acquisitions. The only thing I'm a little apprehensive about is the decision of Charter's shareholders regarding the deal. I think this is a stock to watch out for in the near future.
