Colfax IPO may lack Visa's appeal but promising

By Paritosh Bansal

NEW YORK, May 2 (Reuters) - Colfax Corp CFX.N, which makes pumps and other fluid handling products, may not have the appeal of Visa Inc (V.N: Quote, Profile, Research) for investors, but it could hold its own in a lackluster market for initial public offerings.

Colfax, which is expected to price its offering of 18.75 million shares next week, is geographically diverse and has been growing steadily, making it an attractive long-term investment, IPO experts say.

But they add that the business lacks the "sex appeal" for investors to sit up and take notice in a market undermined by the credit crisis.

The Richmond, Virginia-based company makes pumps, fluid handling systems and specialty valves that are used in sectors such as oil and gas and power generation.

It sells products under some of the oldest brands in a fragmented global fluid handling industry, which is populated by more than 10,000 companies. Its Allweiler brand dates back to 1860.

"It's a quiet, boring, fundamentally strong business," said Ben Holmes, publisher of Morningnotes.com, an independent research company. "These are equipment and parts and systems that most people will never encounter in their lifetime, but they make the world go round."

EXIT FOR SHAREHOLDERS

Colfax, which will list on the New York Stock Exchange under the symbol "CFX," expects its shares to price between $15 and $17 per share.

It will have 41.23 million shares outstanding and a market cap of roughly $660 million at the mid-point of the range, according to Dealogic.

"This is a deal that will probably open unchanged at this point," said David Menlow, president of IPOfinancial.com.

The company plans to sell 7.8 million shares, while stockholders will sell an additional 10.9 million shares, according to a U.S Securities and Exchange Commission filing.

Merrill Lynch, Lehman Brothers and UBS Securities are the lead managers for the IPO, Dealogic said.

Colfax expects net proceeds of $111.3 million from the sale of its 7.8 million shares. It plans to use the money to repay debt, pay dividends to preferred shareholders and for other corporate purposes.

"None of it goes to the company. And that's one of the things that doesn't excite investors," said Francis Gaskins, president of IPOdesktop.com. "It's clearly an exit for the shareholders."

Colfax has thought about going public before. In August 1998, it filed a preliminary prospectus with the SEC for an IPO but did not set any terms, and ultimately withdrew those plans in March 2003 without saying why.

The company declined to comment for this article.

Colfax posted net income of $64.9 million in 2007 compared with $94,000 in 2006, helped by higher sales and one-time items. Net sales increased to $506.3 million from $393.6 million.

"They are in the right sector," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald. "If I had to look, it is one of the more solid deals to come out in a while."

Colfax's clients include commercial, industrial, marine and governmental customers such as Siemens, General Dynamics and the U.S. Navy. Last year, about a quarter of its revenue came from aftermarket sales and services.

Among the potential risks for the company is exposure to asbestos-related liabilities. Two of its units are among defendants in a large number of personal injury lawsuits related to alleged asbestos exposure.

"Even though they have what you might call significant customer base, the company itself is just not going to put a big enough spark under the seats of investors to make them jump," Menlow said. "This is not a sector where investors trip over themselves to say I have to have this." (Editing by Dave Zimmerman)