Colfax Corporation Business Information, Profile, and History

Company Perspectives:

Colfax Corporation is a leading marketer and world-class manufacturer of pump and power transmission products that command sustainable competitive advantage in their respective markets.

History of Colfax Corporation

Colfax Corporation is a privately held Richmond, Virginia-based manufacturing company with two operating groups. The Colfax Power Transmission Group, with its headquarters in Quincy, Massachusetts, is devoted to power transmission and component manufacturing. Subsidiaries include Warner Electric, Boston Gear, Delroyd Worm Gear Formsprag Clutch, Stieber Clutch, Ameridrives Couplings, Wichita Clutch, Nuttall Gear, Industrial Clutch, and Marland Clutch. The Colfax Pump Group, headquartered in Monroe, North Carolina, is comprised of four subsidiaries: Allweiler, Houttuin, Imo Pump, Imo AB, and Warren Pumps. Products include a broad range of rotary and centrifugal pumps. The Colfax business model, dubbed the Colfax Business System (CBS), is applied to all operations. CBS is an outgrowth of the much-respected Toyota Production System. It involves cutting costs in order to deliver a better value to customers, while also improving quality and service. These goals are primarily achieved by providing authority and incentives to Colfax associates, through what the company calls Total Associate Involvement. This business approach was refined by the principal owners of Colfax, Steven and Mitchell Rales, through their better known enterprise, Danaher Corporation.

Rales Brothers Pursue Their Own Legacy in 1979

Steven and Mitchell Rales grew up in a close-knit, entrepreneurial family in Bethesda, Maryland. Their father, Norman, lived a rags-to-riches story, growing up in New York, an orphan who lost the rest of his family in the Holocaust. He made his fortune in real estate in Washington, D.C., and was involved in a myriad of other ventures, buying and selling interests in such businesses as the Texas Rangers baseball team, a Maryland bank, and various home improvement and building materials companies.

In 1979, after working for their father, eldest son Steven along with brother Mitchell struck out on their own, forming an investment partnership that focused on less-than-glamorous manufacturing companies. The men were both still in their 20s. Among their early deals was the 1981 acquisition of their father's half-interest in Master Shield, which made vinyl building products, and the 1982 purchase of the Mohawk Rubber Co., a tire manufacturer. Then in 1983 they acquired a struggling Florida real estate investment trust, DMG Inc., and subsequently sold off the real estate holdings and bought their Master Shield and Mohawk Rubber interests. The Raleses renamed the company Danaher Corp, a tribute to a western Montana river where they enjoyed fishing. Steven served as chairman and chief executive, as well as the strategist and deal maker, while Mitchell became president, concentrating on the operational side of the business.

In the mid-1980s the Raleses quickly grew Danaher and made a name for themselves as young-gun corporate raiders. Unlike many raiders, content to turn a stock profit on their activities, they sought to gain control of businesses, then applied a management approach that would evolve into the system known as CBS. According to the Washington Post, "they try to reduce the company to its essentials by shedding headquarters staff, selling unprofitable subsidiaries and cutting costs and employment. In most of their acquisitions, the brother have left management in place and provided powerful incentives, in the form of stock and bonuses, to achieve improved performance." Within the first two years, Danaher acquired a dozen low-profile companies involved in the manufacture of tools, control, precision components, and plastics. The Raleses acknowledged that a great deal of credit for Danaher's growth was due to the financial backing provided by junk bonds engineered by Michael Milken and investment firm Drexel Burnham Lambert. At the start of its run in 1984 Danaher generated annual revenues of $300 million; by the end of 1986 it was a Fortune 500 company with sales of $456 million. A decade later, following numerous other acquisition, Danaher topped the $1.5 billion mark.

Foundation of Colfax in 1995

In 1995 the Raleses decided to launch a new venture to replicate the success of Danaher in the fluid handling and industrial positioning industries, both highly fragmented and likely to benefit from the business model refined by Danaher. To head the enterprise they recruited Philip W. Knisely, who had some 15 years of experience in managing global industrial manufacturing operations. After graduating from the University of Virginia's graduate business program in 1978, Knisely launched his business career at Emerson Electric Company and quickly moved up the ranks, named president of the industrial automation equipment division in 1982 when he was just 28 years old and was soon also given responsibility over the power transmission division.

Although he was very much a candidate to eventually head Emerson, Knisely decided in 1988 to leave the company and take over AMF Bowling, which had recently been bought from corporate raider Irwin Jacobs. Over the next several years, by applying the principles he learned at Emerson, Knisely succeeded in turning around AMF. Those fundamental beliefs--know your competition and be cost-competitive--were in keeping with the Danaher approach. Working closely with him at AMF was John A. Young, who served as director of corporate development and was heavily involved in evaluating and completing mergers. When Knisely left to work with the Rales brothers, he brought along Young to become his Chief Financial Officer.

From the outset, the plan was to create a holding company that could be taken public. The first step in the creation of this entity came in 1996 with the formation of Ameridrives L.P., created to acquire the Mechanical Power Transmission Group of Zurn Industries Inc., makers of couplings, clutches, universal joints, spindles, and steel. Then, in May 1997, Ameridrives acquired Industrial Clutch Corporation, manufacturer of clutch and clutch/brake systems, followed a month later by the purchase of Nuttall Gear, which made enclosed gear drives.

Like Ameridrive, Colfax Corporation was formed, in July 1997, in order to house an acquisition, in this case the purchase of Imo Industries. Imo boasted a history that dated back to the 1901 origin of the De Laval Steam Turbine Company, which manufactured some of the inventions of Sweden's version of Thomas Edison, Dr. Carl Gustaf Patrick de Laval, including steam turbines, centrifugal pumps, gears, and compressors. Originally 30 percent-owned by American investors, the company came under complete American ownership in the early 1960s, purchased by Transamerica Corporation. In 1986, De Laval acquired Imo AB, a Swedish company, and changed its name to Imo DeLaval, Inc. Transamerica subsequently spun-off the business to shareholders, making it an independent company, which in 1989 changed its name to Imo Industries. By 1991 it ranked 373rd on the Fortune 500 with $929 million, but was suffering setbacks as the economy soured. Over the next few years Imo cut staff and divested some operations, leading to a major restructuring in 1996 and a 1997 merger with North Carolina-based United Dominion Industries Ltd. When Colfax acquired it, Imo was comprised of five business units: Boston Gear, Imo Pump, Morse Controls, Gems Sensors, and Roltra Morse. Combined, these units posted $469 million in annual revenues. As soon as it closed on the deal, Colfax sold Gems Sensors to its cousin corporation, Danaher, and then in February 1998 divested Roltra Morse. These transactions helped Colfax to maintain its focus on the fluid handling and industrial positioning segments.

The Rale Brothers created a third entity, Constellation Pumps, in February 1998. Then in July 1998 the company acquired virtually all of Allweiler, a German maker of screw, centrifugal, and progressive cavity pumps for the European market. The previous year, Allweiler posted sales of $154 million. The acquisition further enhanced the principal's position in the fluid handling segment. In 1998 Knisely and the Rales brothers were ready to combine their recently acquired interests into a publicly traded corporation. To achieve this end, Colfax became the parent company of all assets acquired by Ameridrives and Constellation Pumps. The combined assets of the reconstituted Colfax totaled $536 million in sales for 1997. The plan was to make an initial public offering (IPO) in August 1998, underwritten by Merril Lynch & Co., Schroder & Co. Inc., and Lehman Brothers, with the intent of raising as much as $250 million to pay down debt. But because of unfavorable market conditions the IPO was postponed and would remain on the back burner for the next few years. Instead, Colfax carried on as a private corporation, as Knisely and Young sought to apply the Rales strategic model and establish an efficient, profitable, and integrated company.

Warner Electric Assets Acquired in 2000

Colfax added to its holdings in 2000, closing on a deal made in October 1999 with Dana Corporation, best known for making axles used in pickup trucks, sport utility vehicles, and minivans. As part of an effort to shed noncore assets, Dana sold all of its Warner Electric Industrial Products Group, which manufactured industrial clutches and brakes, linear actuators, and precision ball screws used in a variety of applications. In addition, Colfax picked up most of Warner Electric Industrial Motors and Controls Group, makers of precision electric motors and controls, electronic adjustable speed drives, power conditioning equipment, and voltage and lighting controls. The Warner assets, with some 3,000 employees and 22 manufacturing and assembly facilities located around the world, combined for $360 million in revenues for 1998. A few weeks after completing the Warner Electric acquisition, Colfax sold Warner's linear products, motors, and precision specialist lines to Danaher for $144 million. According to both companies the Warner motion control product lines would benefit under the ownership of Danaher, which was a global leader in motion control products.

Another transfer of sorts also took place between Colfax and Danaher in 2000, when only weeks after the Warner motion control product sale, Knisely left Colfax to take a major position at Danaher. He was named executive vice-president and a corporate officer, in charge of Danaher's Industrial Controls, Power Quality & Reliability and Motion Control businesses. In addition, Knisely became part of Danaher's Office of the Chief Executive, an upper ring of nine executives responsible for the management of the company's performance, corporate strategy, and organizational evolution. He filled a vacancy created when another Danaher executive vice-president left to pursue other interests.

In just five years, Knisely had established a start-up enterprise that at the time of his departure was generating more than $500 million in annual sales. He left the business in capable hands; longtime colleague John Young was named as Knisely's replacement as president and chief executive officer. Young carried on Knisely's work, as the Rales brothers continued to look for the right time to take the business public. As the economy slipped into a recession in the early years of the new century, that opportune moment did not appear. With uncertainty likely to prevail in the foreseeable future, Colfax finally made a concession to reality in March 2003. Some four-and-a-half years after filing a preliminary prospectus, management withdrew the offering.

Colfax experienced another type of aborted effort in 2003. It announced in April of that year that it had agreed to buy Netzsch Group, a family-owned German company that manufactured progressive cavity pumps, grinding and dispersing equipment, filtration systems, and analyzing and testing equipment for industrial uses. The acquisition would have added some $225 million in annual sales and brought with it facilities located in North America, South America, Europe, and Asia. The deal was expected to close in a matter of weeks, but the matter lingered until mid-August when Colfax announced it had called off the deal because it was unable to "meet the parameters of the acquisition finance facility." The future of Colfax appeared uncertain. With no near-term possibility of fulfilling its original goal of becoming a public company and using the proceeds of an offering to pay down debt, it also appeared to be unable to put into place the necessary financing to complete any more major acquisitions. Clearly the addition of Netzsch would have been beneficial to the company, yet it lacked the resources to complete the deal. Because the company remained privately owned and was not required to make its finances known, there was no way to determine how well Colfax was actually performing and what debt burden it carried. Unlike its cousin, Danaher, which enjoyed continued growth, Colfax was in effect treading water and waiting for better business conditions to emerge.

Principal Divisions: Ameridrive Couplings; Boston Gear; Industrial Clutch; Nuttall Gear; Warner Electric; Imo Pump; Allweiler; Warren Pumps.

Principal Operating Units: Colfax Power Transmission Group; Colfax Pump Group.

Principal Competitors: Flowserve Corporation; Parker Hannifin Corporation; The Gorman Rupp Company; Robbins & Myers, Inc.

Chronology

• Key Dates:
• 1995: Phillip Knisely and Steven and Mitchell Rales launch a new venture to acquire industrial assets.
• 1997: Colfax Corporation is formed to acquire Imo Industries.
• 1998: Other Rales' assets are merged with Colfax and a public offering is planned.
• 2000: Knisely takes a position with Danaher, another Rales-controlled business.
• 2003: Colfax withdraws its initial public offering.