Danaher Case Study

Topics: Fluke Corporation, Danaher Corporation, Copyright Pages: 12 (1524 words) Published: December 6, 2014
Serial Acquirer Case Study:
Danaher Corporation

August 2010

New York
One Penn Plaza, 36th Floor
New York, NY 10119
Preliminary and subject to further review and change. See final page for important information about this document. Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.

Overview
• Despite the claim that acquisitions destroy value certain companies excel as acquirers and deliver outstanding value
for shareholders.
• We studied the relationship between long term total
shareholder returns (TSR) and different acquisition strategies and a variety of deal characteristics.
– The only trait that consistently has a strong positive
relationship with long term TSR across each industry is
acquisition frequency.


We call them Serial Acquirers and many generate
outstanding results by being better at planning, executing
and integrating acquisitions than their peers.

• Danaher Corporation is one of the world’s best serial acquirers 2

Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.

Danaher’s M&A Strategy Emphasizes Returns
Danaher's Fundamental Performance
$1,600

16%

$1,200

12%

Acquisition Residual Cash Earnings

2009

2008

2007

2006

2005

2004

2003

2002

2001

0%
2000

$0

1999

4%

1998

$400

1997

8%

1996

$800

Acquisition Residual Cash Margin

Source: Fortuna Advisors Analytics, using CapitalIQ Data
Note: Acquisition Residual Cash Earnings (ARCE) is EBITDA + Rent + R&D Less Taxes Less Capital Charge Including Goodwill & Intangibles Acquisitions Residual Cash Margin (ARCM) is ARCE as a % of Revenue

3

Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.

• Even during the
downturn in 2008 and
2009 Danaher
delivered Cash Flow in
excess of the required
return on all capital
• This strategy creates
value for shareholders
and demonstrates the
benefits of
continuously
redeploying capital
into positive returns

Danaher Creates Value Through Superior Returns and
Growth
Residual Cash Margin
25%

Residual Cash Margin

• Danaher’s M&A
strategy relies on
being able to operate
the target company in
a more efficient way

Acquistion Residual Cash Margin

20%
15%

10%
5%
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Revenue Growth

60%
40%
20%

0%
-20%

• The Company’s
Residual Cash Margin
(with and without
intangibles) has been
consistently positive
and relatively stable

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1,400%
1,200%
1,000%
800%
600%
400%
200%
0%
-200%

Danaher
S&P 500
S&P 500 Machinery

Tektronix

MDS Analytical
Technologies

ChemTreat
Sybron Dental

American Precision
Fluke

Pacific Scientific

Hach

Maconi Data Systems

Kollmorgen

Kavo Dental

Molecular
Devices

Applied
Biosystems

Radiometer

• When a business is
run this efficiently,
growth is
tremendously
valuable

Source: Fortuna Advisors Analytics, using CapitalIQ Data
Note: Residual Cash Margin (RCM) is EBITDA + Rent + R&D Less Taxes Less Capital Charge (Acquisition RCM includes Goodwill and Intangibles in the Capital Charge

4

Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.

The Danaher Business System (DBS) Focuses
Management on the Relentless Pursuit of Efficiency
Gross Business Return
70%
60%
50%
40%
30%
20%
10%
0%

Gross Business Return

Acquisition Gross Business Return

Required Return

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

30%
25%
20%
15%
10%
5%
0%

EBITDAR Margins

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.8x

Asset Intensity

• DBS is a culture
where every
employee from CEO
to the shop floor is
responsible for
findings ways to
improve the way
work gets done
• Danaher has held
margins stable
despite the recent
downturn
• More remarkable is
the...
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