DO NOT COPY - Darden Business Publishingstore.darden.virginia.edu/SF-InspectionCopy/danaherthe...After joining Danaher Corporation (Danaher) in 1990, CEO H. Lawrence Culp helped transform

UVA-BP-0549 Rev. Dec. 9, 2013

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DANAHER—THE MAKING OF A CONGLOMERATE

After joining Danaher Corporation (Danaher) in 1990, CEO H. Lawrence Culp helped

transform the company from an $845 million industrial goods manufacturer to a $12.6 billion

global conglomerate. Danaher’s 25-year history of acquisition-driven expansion had produced

healthy stock prices as well as above average growth and profitability for more than 20 years

(Exhibits 1 and 2); however, Wall Street had questioned the scalability of the company’s

corporate strategy and its reliance on acquisitions since mid-2007. Prudential Equity Group had

downgraded Danaher to underweight status, citing concerns over its inadequate organic growth.

Company History (1984–91)

In 1984, Steven and Mitchell Rales had formed Danaher by investing in undervalued

manufacturing companies. The Rales brothers built Danaher by targeting family-owned or

privately held companies with established brands, proprietary technology, high market share, and

room for improvement in operating performance. Averaging 12 acquisitions per year (Exhibit

3), by 1986, Danaher was listed as a Fortune 500 company and held approximately 600 small

and midsize companies.

Acquisitions were concentrated in four areas: precision components (Craftsman hand

tools), automotive and transportation (mechanics’ tools, tire changers), instrumentation (retail

petrol pumps), and extruded products (vinyl siding). As these businesses grew and gained critical

mass, Danaher used the term business unit to define any collection of similar businesses. Exhibit

4 provides a brief history of each of the original four businesses.

Restructuring

George Sherman was brought from Black & Decker as Danaher’s CEO following the

crash of the LBO market in 1988. Sherman decided to fund acquisitions through cash from

operations rather than debt. To generate the extra cash, Sherman encouraged a variety of

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techniques, which Danaher subsequently applied across all holdings. Sherman also instituted

company-wide incentives to encourage managers at all levels to focus on cash.

The combination of Lean manufacturing and cash management policies were organized

as the Danaher Business System (DBS). By improving all of its processes, Danaher became a

cash-generating machine able to buy more companies.

From Business Units to Strategic Platforms (1992–2009)

By the mid-1990s, Danaher’s size and diversity exceeded its headquarters’ bandwidth, so

Danaher reorganized into four “market segments” and nine “strategic business platforms.”

Exhibit 5 shows Danaher’s market segments, strategic business platforms, and niche lines in

2009. From then on, Danaher acquired a business only if it served one of two purposes: (1) as a

platform-establishing transaction, where the target laid the foundation for Danaher to enter a new

industry; or (2) as a bolt-on transaction, where the target strengthened a preexisting line of

Danaher businesses.

Platform-establishing transactions were used to enter high-growth markets where

Danaher could gain competitive advantage through operational excellence. Within each platform,

Danaher used bolt-on transactions to make existing businesses more competitive, either by

expanding products or increasing market coverage. In cases where adjacent acquisition

opportunities were not available, Danaher also maintained highly profitable “focused niche”

business lines. By the late 1990s, headquarters no longer was the sole initiator of deals as

platforms and business units also began to identify targets.

Danaher’s nine platforms were grouped into four segments: industrial technology;

professional instrumentation; tools and components; and medical technologies (Exhibit 5).

Exhibit 6 provides segment-by-segment financials.

The following sections describe the evolution of the four segments and nine platforms.

Industrial Technologies Segment

Motion-control platform

Before platforms were established, in 1994 Danaher acquired Germany-based Hengstler

GmbH, a maker of counters and encoders. It then made acquisitions in instruments, switches,

controls, and test equipment for the telecommunications industry.

Danaher separated its motion-control business into a platform in 1998 with the

acquisition of Pacific Scientific for $420 million. In 2000, a series of bolt-on acquisitions added

robotics, wheelchairs, lift trucks, electric vehicles, and industrial motors.

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Product-identification platform

The product-identification platform, started in 2002, designed, manufactured, and sold

commercial printing equipment to the packaging industry. Typical customers were food and

beverage companies, pharmaceutical firms, retailers, package and parcel delivery companies, and

commercial printers.

Focused niches

By 2009, the industrial technologies segment also contained two focused niche

businesses: aerospace and defense, and sensors and controls for manufacturing.

The industrial technologies segment contributed 26% of Danaher’s revenues in 2008,

with 51% derived from outside the United States.1

Professional Instrument Segment

The professional instrument segment contained two strategic platforms: environmental

and test and measurement. The segment contributed 38% of Danaher’s revenues in 2008, with

57% generated internationally.

Environmental platform

The environmental platform focused on water-quality customers and petroleum retailers.

Danaher entered the water-quality arena in 1996 through the platform-establishing acquisition of

American Sigma. Forecasting a growing need for pure water for potable and industrial

applications, subsequent acquisitions manufactured a variety of instruments to analyze, disinfect,

and purify water. Customers included municipal drinking suppliers, wastewater treatment plants,

and third-party testing laboratories.2

Danaher already had a strong presence in the retail petroleum market with the Veeder-

Root acquisition in 1989 (Exhibit 3). With acquisitions in 2001 and 2002, Danaher built a

dominant position in the manufacturing and sale of fuel-dispensing technology. Its products

included leak detection, vapor recovery, retail automation, point-of-sale systems, and remote

monitoring services. Market penetration was so high that it was hard for anyone to fill a petrol

fuel tank without using a Danaher product.

Electronic test and measurement platform

The $625 million acquisition of Fluke Manufacturing in 1988, with its digital multimeters

and electronic test equipment, established a new platform. Danaher recognized Fluke’s

1 Danaher Corporation 10-K filing, 2008, 48. 2 Danaher Corporation 10-K filing, 2009, 5.

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exceptional business development and integration teams and quickly added 20 additional

acquisitions.

Culp’s goal with Fluke was to boost its single-digit margin through cost-cutting,

innovation, and quality. Fluke became proficient at developing new products, executing product

refreshes, and delivering new applications with existing instruments. In addition, Culp redirected

Fluke’s R&D through the acquisition of companies with nascent technologies and developing

new applications for them. By rationalizing product lines, speeding up inventory turns, and

reducing floor space, Fluke’s margins more than doubled.

In 2007, Danaher acquired Tektronix for $2.8 billion, doubling the size of the electronic

test and measurement platform. Tektronix made oscilloscopes and logic analyzers for measuring

the performance of electronic equipment used in semiconductor and electronics manufacturing.

Danaher improved profitability by downsizing, selling a subsidiary, cutting R&D, and scaling.

Tektronix headquarters in Beaverton, Oregon was converted into a lean and disciplined operation

with a strong bottom-line focus. For employees who had enjoyed Tektronix’s unique culture of

individual freedom, trust, and reliance on independent judgment, Danaher’s new management

philosophy came as a harsh change.

By 2008, the test and measurement platform was Danaher’s largest with four primary

businesses: Fluke, Fluke Networks, Tektronix Instruments, and Tektronix Communications.3

Tools and Components Segment

Mechanics’ hand tools platform

Tools and Components was Danaher’s core business. The acquisition of Armstrong

Brothers Tool Company and Delta Consolidated Industries in 1994 moved the company into

professional-grade tools, industrial tools, and tool storage equipment. With no significant

subsequent acquisitions, the hand tools platform shifted its emphasis to making existing

businesses more competitive.

While mechanics’ hand tools made up the single platform in the Tools and Components

segment, it also held four focused niche businesses: Delta Consolidated Industries, Hennessy

Industries, Jacobs Chuck Manufacturing Company, and Jacobs Vehicle Systems. Danaher

became the world’s largest producer of do-it-yourself hand tools and specialized auto-service

equipment, and all were category leaders.

The tools portfolio declined 6% through 2008 at $1.2 billion in revenue while

contributing 10% of total Danaher revenue, mostly in the United States.

3 Danaher Corporation 10-K filing, 2009, 6.

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Medical Technology Segment

Medical Technology, the newest segment, was Danaher’s response to saturation and low

growth rates in its traditional platforms. By 2009, it had four platforms: dental, acute care,

pathology, and life sciences.

Dental technology platform

In 2004, Danaher acquired a number of European dental companies and became the

second-largest dental products company in the world. It led in a number of markets, such as

orthodontic alignment brackets (braces), dental instruments, digital imaging, and restorative

materials. Because dental companies made custom products for individual patients, they

produced a lot of scrap. Danaher saw this as an opportunity for its factory-level kaizen method to

remove the scrap and improve fulfillment lead times. Danaher was not accustomed to the more

technologically-advanced dental companies, so it used its entry into dental technology as a

learning opportunity to expand DBS capabilities to include R&D and innovation management.

Acute care platform

Danaher established its acute care business in 2004 when it bought Denmark’s

Radiometer for $750 million. Radiometer produced blood-gas diagnostic instruments4 used in

hospital emergency rooms and was supplemented with two other acquisitions.

Pathology diagnostics platform

The pathology diagnostics platform came into being with the acquisition of Leica

Microsystems in 2005, and, with subsequent acquisitions, established Danaher as a leading

global supplier of microscopes used by medical and research professionals.5

Life sciences instrumentation platform

The acquisition of Leica led Danaher into the adjacent area of life-sciences

instrumentation. The addition of Vision Systems for $525 million in 2006 expanded Danaher’s

product offerings to automated specimen-preparation instruments for diagnostic/lab service

companies.

The medical-technologies segment represented 26% of Danaher’s 2008 revenues, 64% of

which was derived from international markets.

4 These instruments measured the concentration of oxygen and carbon dioxide in the arterial blood. 5 Danaher Corporation 10-K filing, 2009, 7.

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Organization

Danaher’s organization was flexible enough to allow integration of large and small

acquisitions, both at the corporate and business unit level (Exhibits 7 and 8). While strategic

platforms became the basic building blocks, Danaher also had a mix of centralized functions,

headquartered in Washington, DC, and decentralized functions shared within each platform.

Corporate teams

A small headquarters (HQ) team of approximately 50 included deal-making specialists

and finance and legal staff. The corporate office controlled Danaher’s corporate strategy,

deciding which companies to acquire and in which industries to invest. Corporate finance was

linked to the finance organization of each platform and these, in turn, were linked to the finance

teams for each business. The CFO also led a small corporate development team. Corporate

development worked with the general counsel and the legal team to identify and execute M&A

deals in addition to supporting, approving, or disapproving deals proposed by the finance and

business-development teams at the platform level. Corporate development also made the first

official offer to any approved target.

Human resources and leadership development at HQ facilitated identification, staffing,

training, and progression of executives across the entire company. After an acquisition, corporate

HR installed executives at various positions within a target’s business. They ranged from

division presidents, to newly hired MBAs with specific mandates, to line managers, plant

managers, business development managers, and marketing managers. Because Danaher preferred

to promote from within, freshly hired MBAs and internal candidates identified for leadership

tracks were carefully developed, increasing the pool of Danaher-trained leaders available to work

on future acquisitions. Each business unit had its own HR team.

There were two DBS-related functions at HQ: VP of training and VP of DBS. The VP of

training oversaw the training of new hires as well as personnel of acquired companies. All

employees, from intern to executive, were immersed in DBS for one to two weeks at the DBS

training center in Chicago before beginning their assignments. The VP of DBS was responsible

for improving the scope and applicability of management tools and systems within Danaher. This

team advised platforms, individual businesses, and the transition teams of new acquisitions.

While it was common practice in large organizations to use dedicated teams for Six Sigma

initiatives, Danaher expected every employee to internalize and work with DBS tools every day.

Emphasis was placed on a Lean mentality, which influenced the way employees interacted,

thought, and communicated within and across Danaher companies.

Corporate teams did not engage in running subsidiary companies; however, in order for

the DBS system to work efficiently, corporate teams had access to the operating metrics of each

platform and each subsidiary within the platform.

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Strategic business platforms

Platforms were self-sustaining entities within Danaher and formed the basic building

blocks of the company (Exhibit 8). Strategic platforms were headed by executive vice

presidents, referred to as the group executives (GEs), between whom there was very little formal

interaction. Each platform was further organized into business lines. For example, the EVP and

GE of the dental platform oversaw its three business lines: dental consumables, dental hardware,

and laboratory equipment. Each business line had a “headquarters business,” typically the

original platform-establishing business within that line.

Each headquarters business had its own business-development team, finance

organization, legal team, and other support functions. These resources empowered the business

senior VPs and presidents to propose acquisitions within their industries as well as make

operating decisions about their own subsidiaries. The business-development teams were staffed

with individuals experienced in acquisitions and finance as well as relatively inexperienced or

new MBAs. The subsidiary companies were tied to one of the headquarters businesses through a

president who had profit and loss responsibility for that subsidiary.

A cross-functional integration team was formed within a platform whenever an

acquisition closed. Consisting of a mix of line managers, DBS experts, and finance and

marketing executives, it focused on transitioning the acquired company to the Danaher modus

operandi within a defined period, usually 12 months.6 The integration team had clear goals based

on DBS principles and was empowered to make operational, people, and product decisions.

Danaher acquired 11 companies in 2006 for $2.7 billion, 12 in 2007 for $3.6 billion, and

17 in 2008 for $423 million.7

DBS and Operating Philosophy

DBS was the means by which dissimilar companies were assimilated, managed, and

evaluated. Starting as a factory-level Lean manufacturing system, DBS evolved into a

comprehensive management system that demanded rigorous, detail-oriented, and measurable

progress and accountability at every level, from the strategic decisions made at headquarters to

the day-to-day operating decisions made at the subsidiary level. The continuous-improvement

philosophy was applied across functions, from manufacturing to sales to product management to

human resources. The tools and training developed within the DBS rubric were versatile enough

to be deployed quickly at any newly acquired entity in any new industry.

DBS provided the tools to measure and guide key goals and activities relative to customer

goals concerning cost, quality, delivery, and innovation. At the operating level, foremen and

supervisors used DBS to track and measure the achievement of these goals at monthly, weekly,

6 Danaher Corporation 10-K filing, 2009, 79. 7 Danaher Corporation 10-K filing, 2009, 72–73.

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daily, and, in some cases, hourly intervals. In a culture where everyone was held accountable for

results, DBS encouraged employees to take immediate action to resolve problems and to call on

any resource, without regard to bureaucratic and hierarchical considerations. Daniel Even,

president of Sybron Dental Specialties, provided an illustration of how DBS helped transform his

company in Exhibit 9.

Danaher built a demanding and hard-charging culture that emphasized results and the

unequivocal adoption of DBS. Exhibit 10 shows Danaher corporate values. While setting

stringent targets from the top, headquarters delegated responsibility, decentralized operations,

and drove accountability to multiple levels of the organization. Alignment was assured on three

levels: The goals of the subsidiary were tied to platform and corporate goals; leadership teams

were well trained in core DBS philosophy; and executives with operating experience in other

Danaher businesses were put in leadership positions in new acquisitions.

Acquisition Process

Deal sourcing and due diligence

Acquisition ideas came from both platforms and headquarters. Typically, large

acquisitions such as Tektronix and platform-establishing acquisitions were initiated by HQ,

while bolt-on transactions were usually initiated by the business unit. In the latter case, the

platform or business unit would draft an initial proposal to HQ with a rough evaluation of

potential synergies. If the corporate development team approved the proposal, a five-member

M&A team with members from both the corporate and business unit M&A groups would make

the first offer to the target. If the offer was accepted, the deal moved to the due diligence phase.

Due diligence was performed by the business unit M&A team with input from proposing

managers. If sufficient synergistic opportunities were identified, the deal moved to valuation.

Following analysis and recommendations from business units, the corporate team decided on the

price. Corporate M&A had veto power over whether a proposal was pursued and could end the

process for a number of reasons such as lack of sufficient synergies or insufficient bandwidth

and resources to conduct due diligence. At times, businesses competed for time and attention

from the corporate development team, which occasionally created tension.

Criteria for acquisitions

Danaher made acquisitions based on both strategic and financial criteria (Exhibit 11),

screening companies for overall strategic fit, the likelihood that its DBS culture could be

successfully deployed, stable earnings, differentiated brands or technologies, and strong market

share of either bolt-on or platform-establishing transactions. Although bolt-on transactions were

expected to reach ROIC thresholds within three years, platform-establishing transactions were

allowed up to five years because of Danaher’s inexperience in new markets. It was not unusual

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for Danaher to bid against companies such as Honeywell, Cooper Industries, or GE, but, if

competitive bidding drove prices above Danaher’s limit, it would walk away.

Postmerger Integration

After a deal was valued, a business-unit integration team would take over from the five-

member business development team. The postmerger integration team was a mix of business

managers, DBS experts, up-and-coming-talent, and finance and marketing executives charged

with all decision making as well as execution of plans regarding the target. The team leader was

usually the individual most qualified and experienced in such integrations but not necessarily the

most senior. The integration team’s plans typically operated on multiple levels and across

multiple functions, including staff, product lines, manufacturing, and finance.

Executive staff

Decisions about who stayed and who was let go were made on a case-by-case basis, and

terminations and retentions were announced on the day the deal closed. If Danaher was uncertain

about its ability to successfully train a target’s leadership team in its operating principles, top and

middle management positions were filled by existing Danaher employees. The acquired

company’s desirable executives were offered new or related positions and encouraged to stay.

Professional development and performance management plans were realigned with the Danaher

system, and incentive structures were linked to the achievement of newly devised business

priorities.

Nonexecutive staff

The integration team moved in on the day of closing to brief new employees; typically, it

was the first time most heard about the purchase. Although input from the target might be used,

personnel decisions were usually made by the integration team. The process was either smooth

or rough depending on the goals of the seller (whether or not the CEO/owners wanted to retire

and cash out), Danaher’s goals, and the strength of the relationship between the integration team

and the subsidiary leaders. For nonexecutive staff, action was frequently drastic because support

functions were generally terminated. Engineers stayed, if a plant or site was retained, or given

the option to move if the product lines were integrated into a different business unit.

Training

To simplify postmerger work and allow Danaher to integrate the target company without

disrupting operations, the target’s senior and middle management spent time early on (sometimes

pre-merger) at the Chicago training center covering everything from kaizen events to policy

deployment, value-stream mapping, performance management, and ideas-to-innovation

(Danaher’s new organic growth initiative). DBS training would begin almost immediately for

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retained employees. For employees at newly acquired companies, the experience was sometimes

unforgiving (Exhibit 12).

The DBS training model ensured that every new line manager was assigned to kaizen

events across the family of businesses to drive hands-on improvements, and, in the process,

learned Danaher’s culture, tools, and mindset. Each kaizen event was staffed with employees,

leaders of the subsidiary, and new MBAs. The team focused on identifying a customer issue and

fixing it in less than a week. It was not uncommon to see Larry Culp moving equipment around

the factory floor in the middle of a kaizen event.

Product lines and brands

The subsidiary brands were usually tied to one of the headquarters’ businesses. Danaher

always left the target brand intact, but a complete integration into the Danaher culture was a

must. If the acquisition filled a gap in the product portfolio, Danaher adopted a fold-in strategy,

assimilating product lines into its own operation while shedding the support infrastructure.

Danaher frequently rationalized products and, sometimes retained only some product lines while

jettisoning the rest of a company.

Manufacturing

Before a deal closed, Danaher executives toured plants and searched for ways to improve

performance, and after closing, drove these improvements through kaizen events. Cross-

functional teams, including managers and shift workers, coordinated reorganizing the factory and

establishing new production and tracking methods. Even the smallest operation was scrutinized,

be it the act of picking up a tool, the organization of parts, or the distance a worker moved to get

the product to the next stage of production. Cellular manufacturing techniques were a common

feature within Danaher plants, whereby managers and workers together determined the most

efficient way to perform every operation and eliminate waste.

Finance and controls

Within 60 days of closing, Danaher’s own financial, personnel, and cost-accounting

systems were installed in the subsidiary, enabling the integration team to measure and track

synergies and carefully manage cash. Danaher set up reserves to cover anticipated closing costs

and rationalization opportunities, and, as a result, operating executives could focus on top-line

growth without worrying about profit and loss during integration.

The Path Forward

In March 2009, Culp wondered how to keep growing in the face of global economic

crises, new low-cost competitors, raw material price increases, and criticism from market

analysists.

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Exhibit 1


Danaher (NYSE: DHR) Stock Price Performance (Adjusted for Splits), 2000–2008

Data sources: Danaher 10-K filing, 2008, and shareholder meeting prospectus.

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Exhibit 2


Danaher Income Statement and Balance Sheets 10-Year Summary (year ended December 31)

Income Statement 10-Year Summary ($ in millions)

Sales Net Income EPS

2008 12,697.46 1,317.63 3.95

2007 11,025.92 1,214.00 3.72

2006 9,466.06 1,109.21 3.44

2005 7,871.50 885.61 2.73

2004 6,889.30 746.00 2.30

2003 5,293.88 536.83 1.69

2002 4,577.23 434.14 1.39

2001 3,782.44 297.67 1.00

2000 3,777.78 324.21 1.11

1999 3,197.24 261.62 0.90

Balance Sheet 10-Year Summary ($ in millions)

Current

Assets

Current

Liabilities

Long-Term

Debt

Shares

Outstanding

2008 17,458.03 7,649.47 2,553.17 318.4l

2007 17,471.94 8,386.25 3,395.76 318.0l

2006 12,864.1 6,219.49 2,422.86 308.2l

2005 9,163.11 4,082.76 857.77 305.6l

2004 8,493.89 3,874.21 925.54 308.9

2003 6,890.05 3,243.34 1,284.50 307.4

2002 6,029.15 3,019.55 1,197.42 305.1

2001 4,820.48 2,591.90 1,119.33 286.6

2000 4,031.68 2,089.35 713.56 284.0

1999 3,047.07 1,338.32 341.04 284.9

Data source: Danaher annual report, 2008.

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Exhibit 3


History of Acquisitions (partial list)

Year Key Acquisitions Platform Description Price Notes

1984 Dynapar Process and controls Encoders for motor motion control

1984 Mohawk Rubber Company Extruded products Automotive tire products Undisclosed

1984 Master Shield Inc. Vinyl products Building products Undisclosed

1985 Danaher Tool Group Tools and components Mechanic hand-tools Platform establishing

1986 QualiTROL Process and controls Pressure gauge, diverse control instruments

1986 Chicago Pneumatic Tools and components Tools, instruments $60 million

1986 Western Pacific Industries Tools and components Fasteners, screws, nuts, bolts

1987 Ammco Tools Inc. Automotive/transportation Wheel service equipment $52 million

1989 Easco Hand Tools, Inc. Tools and components Hand tools $170 million

1989 Veeder-Root Environmental—petroleum Gas pumps and dispensers, retail automation Platform establishing

1993 Anderson Instrument Co. Industrial control Instruments and controls for fluid processing Undisclosed

1994 Delta Consolidated Industries Tools and components Tool storage equipment for trucks $167 million

1994 Hengstler GmbH Industrial control Counter and encoder Platform establishing

1994 Armstrong Brothers Tool Co. Tools and components Industrial hand-tools

1994 Mark IV Industries Industrial control Controls and Instrumentation division

1995 Joslyn Corporation Industrial control Electrical apparatus and controls $245 million

1996 American Sigma Environmental—water Water quality monitors Undisclosed Platform establishing

1996 Acme-Cleveland Industrial control Industrial control and telecom test equipment $200 million

1997 Gems Sensors & Controls Industrial control Fluid sensors and controls $147 million

1998 Fluke Test and measurement Electrical and industrial testing meters $625 million Platform establishing

1998 Pacific Scientific Company Motion Aircraft safety equipment $420 million Platform establishing

1999 Atlast Copo Controls Motion Servomotor, drive and control Undisclosed

1999 Hach Environmental—water Water analysis kits/instruments $325 million

2000 American Precision Instruments Motion Motors and actuators $186 million

2000 Kollmorgen Corporation Motion Specialized servo and stepper motor systems $267 million

2000 Warner Electric Company Motion Linear positioning equipment $147 million

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Exhibit 3 (continued)


2000 5 small acquisitions in electronic and network test, aerospace, environmental controls, and water quality $109 million

2001 United Power Corporation (UPC) Power conditioning Uninterruptable power systems $108 million

2001 Red Jacket Environmental—petroleum Gas pumps and dispensers, retail automation Undisclosed

2001 11 small acquisitions in electronic and network test, aerospace, industrial controls, and water quality $343 million

2002 Thomson Industries Motion Linear motion-control products $147 million

2002 Marconi (Videojet) Product identification Noncontact marking equipment $400 million Platform establishing

2002 Viridor Instrumentation Environmental—water Water quality instrumentation $137 million

2002 Gilbarco Environmental—petroleum Gas pumps and dispensers, retail automation $309 million

2002 8 small acquisitions in process and environmental control segments $166 million

2003 Willett International Ltd. Product identification Packaging code products Platform establishing

2003 Accu-Sort Systems, Inc. Product identification Packaging code products Platform establishing

2003 10 small acquisitions in process and environmental segments $312 million

2004 Radiometer S/A Medical technology Critical care diagnostic instrumentation $684 million

2004 Gendex (Dentsply) Medical technology Dental treatment equipment

2004 Kaltenbach & Voigt GmbH (KaVo) Medical technology Dental diagnostic systems and lab equipment $412 million Platform establishing

2004 Trojan Technologies Environmental—water Water disinfection and wastewater treatment $185 million

2004 10 small acquisitions in medical technology, electronic test, motion, environmental, product identification,

sensors and controls, and aerospace and defense $311 million

2005 Leica Microsystems AG Medical technology Surgical microscopes $550 million Life sciences—potential

2005 Linx Printing Technology PLC Product identification High-speed printing applications $171 million

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2006 Sybron Dental Specialties Medical technology Diversified dental professional products $2 billion

2006 Vision Systems Ltd Medical technology Life sciences instrumentation $525 million To be paired with

Leica

2006

2007 ChemTreat Environmental—water Industrial water treatment products $425 million

2007 Techtronix Test and measurement Communication and signal-monitoring

devices

$2.8 billion

2007 10 small acquisitions in professional instrumentation, medical technologies, or industrial technologies

segments

$273 million

Source: Created by case writer from Danaher annual reports, 2000–08 and 10-K filings.

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Exhibit 4


Danaher’s Original Businesses

The precision components business unit, which later became the Danaher Tools and

Components segment, had its beginnings in 1986 when Danaher purchased Western Pacific

Industries, a manufacturer of fasteners and plastic products. In the first five years, the portfolio

was expanded through acquisitions, most significantly when Danaher was selected by Sears,

Roebuck & Co. to manufacture its Craftsman line of hand tools. Danaher also became the

leading supplier of tools to the National Automotive Parts Association (NAPA). The precision

and components subsidiaries came to manufacture such diverse products as Swiss screw machine

parts, the famous Allen wrench, and drill chucks. Precision components became Danaher’s

mainstay business and contributed up to 49% of overall revenues by 1991.

Automotive and transportation holdings focused on professional auto mechanic tools and

transportation parts, considered to be a natural adjacency to the tools and precision products

business by virtue of similar production methods and selling processes. As with precision

components, this business unit continued to expand through several acquisitions including Coats,

Jacobs, Fayette, Ammco Tools Inc., and Hennessy, which added wheel serving products, engine

braking systems, tubular products, wheel balancers, tire changers, and brake repair components

to the automotive portfolio.

The instrumentation business unit was created in 1984 with the acquisition of Dynapar

Corporation, a leading supplier of controllers to the industrial motor market. Danaher took the

lead in speed control and sensor products for electric motors and drives, and by 1986, three

additional acquisitions added pressure gauges, equipment protection devices, instruments, and

communication devices for transmission and distribution systems for the electric, water, and oil

and gas industries. Once expertise had been established in industrial controls, Danaher entered a

market using similar products—retail gas dispensing—by acquiring Veeder-Root in 1985. The

company supplied underground fuel storage sensors and instrumentation products to four out of

every five gas pumps worldwide. Subsequently, the instrumentation unit began to branch into

instrumentation and environmental controls. During the economic recession of 1989–93, the

environmental controls business became Danaher’s fastest-growing business, aided by stringent

regulation and increased demand for environmental products.

Danaher’s extruded products division began in such areas as plastics manufacturing,

rubber, and vinyl sidings; however, by the end of the 1980s, Danaher divested most of these

holdings.

Source: Created by case writer from Danaher 10-K filings.

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Exhibit 5


Strategic Platforms and Niche Lines

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Exhibit 6


Danaher Segment Financials, Year Ended December 31

(dollars in millions)

Professional Instrumentation 2007 2006 2005

Sales $ 3,537.9 $ 2,906.5 $ 2,600.6

Operating profit 709.5 625.6 538.3

Depreciation and amortization 64.8 48.8 47.8

Operating profit as a % of sales 20.1 21.5 20.7

Depreciation and amortization as a % of sales 1.8 1.7 1.8

Medical Technologies 2007 2006 2005

Sales $ 2,998.0 $ 2,220.0 $ 1,181.5



Operating profit as a % of sales 13.1 11.8% 11.7


Industrial Technologies 2007 2006 2005

Sales $ 3,153.4 $ 2,988.8 $ 2,794.9





Tools & Components Selected Financial Data 2007 2006 2005

Sales 1,336.6 1,350.8 1,294.5





Percentage of Total Sales

Segment 2007 2006 2005

Professional instrumentation 32 31 33

Medical technologies 27 23 15

Industrial technologies 29 32 36

Tools and components 12 14 16

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Percentage of Total Sales

Identifiable Assets: 2007 2006 2005

Professional instrumentation $ 6,692.0 $ 2,691.0 $ 2,589.0

Medical technologies 6,160.6 5,534.1 2,408.6

Industrial technologies 3,536.2 3,623.7 3,158.9

Tools and components 801.1 824.4 785.8

Other 282.1 190.8 220.8

$ 17,471.9 $ 12,864.2 $ 9,163.1

Liabilities:

Professional instrumentation $ 1,286.7 $ 784.2 $ 794.9

Medical technologies 1,489.7 1,482.3 855.2

Industrial technologies 829.0 832.5 897.3


Other 4,566.0 2,881.8 1,294.4

$ 8,386.2 $ 6,219.5 $ 4,082.8

Depreciation and Amortization:

Professional instrumentation $ 64.8 $ 48.8 $ 47.8

Medical technologies 119.7 84.3 44.2



$ 268.5 $ 215.7 $ 175.2

Capital Expenditures, Gross

Professional instrumentation $ 39.0 $ 34.5 $ 32.3

Medical technologies 47.6 31.6 16.1



Other 6.5 — —

$ 162.1 $ 136.4 $ 119.7


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Exhibit 7


Danaher Corporate Organization Structure

Source: Created by case writer.

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Exhibit 8


Danaher Platform Organization Structure

EVP and group executive

SVP Headquarter

Business A

SVP Headquarter

Business B

President Business 1



VP Operations

Line Managers

Factory Managers

VP Marketing

Product managers

VP Sales

FinanceOther support

functions

SVP Headquarter

Business C

Business Development

Legal

Integration team

Finance Marketing

Operations HR & Legal

DBS Experts New MBA’s

Source: Created by case writer.

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Exhibit 9


DBS/Kaizen Case Study

Daniel Even, president of Sybron Dental Specialties, reflected on his experience

postacquisition to the editor of Dental Economics:

Our first kaizen was on the factory floor. We have a product, the clear ceramic

ortho bracket, which is very difficult to make. Any slight variation in the

manufacturing process causes the material to chip or fracture, and we end up with

a lot of scrap. Even though the materials to build this product are very expensive

and the time to build it is lengthy, it’s a very important product for us because

patients want braces that don’t show. This product is ground out of a block of

crystal; the crystal itself is actually grown. On top of that, it has to cure for a long

time. The entire process takes almost 24 days and takes up a lot of floor space.

During this kaizen, we literally reduced floor space by 30%, and we significantly

decreased the number of days it takes to build the part to six days. So, we ended

up with the same quality product but with less floor space and a faster delivery

time to the customer.

Data source: Dental Economics, February 16, 2007.

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Exhibit 10


Danaher Corporate Values

The Best Team Wins

Associates are our most valued assets.

We’re passionate about retaining, developing and recruiting the best talent available.

Danaher and its associates win because:

We are team-oriented with involvement by all.

We seek fact-based, root cause solutions; not blame.

We are accountable for results, and we deliver.

We are nonpolitical and not bureaucratic.

We have high integrity and respect for others.

Winning is fun!

Customers Talk, We Listen

Quality First, ALWAYS!

We base our strategic plan on the voice-of-the-customer.

Robust, repeatable processes yield superior quality, delivery, and cost that satisfy our customers

beyond their expectations.

Continuous Improvement (Kaizen) Is Our Way of Life

The Danaher Business System IS our culture.

We aggressively and continuously eliminate waste in every facet of our business processes.

Leading Edge Innovation Defines Our Future1

We continuously apply our creativity to the technologies of products, services, and processes.

Out-of-the box ideas, both large and small, add value to our enterprise.

We accomplish breakthroughs through the policy deployment process.

We Compete for Shareholders

Profits are important because they attract and retain loyal shareholders.

1 Danaher began to emphasize innovation in 2000.

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Danaher’s Corporate Mission

We strive to create shareholder value through:

delivering sales growth, excluding the impact of acquired businesses, in excess of the

overall market growth for our products and services;

upper quartile financial performance compared to our peer companies; and

upper quartile cash flow generation from operations compared to our peer companies.

To accomplish these goals, we use a set of tools and processes, known as the DANAHER

BUSINESS SYSTEM (DBS), designed to continuously improve business performance in the

critical areas of quality, delivery, cost, and innovation.


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Exhibit 11


Danaher Acquisition Guidelines

Strategic Considerations Financial Considerations

Industry fit (manufacturing, tools)

Cultural fit

Adoption of DBS

Bolt-on, platform-enhancing

Quality, delivery, and innovation

Market share leadership

Brand strength (goodwill)

Counter-cyclicality

ROIC: 10% after tax within three years

EPS accretion

Free cash flows in excess of earnings

Assessment of cost structure

Price

Source: Created by case writer from public sources.

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Exhibit 12


Reactions at Danaher

Group/platform

executive

Our organization has embraced DBS. At the first kaizen, we became

believers at what we could accomplish through this methodology. The

experience is incredibly exciting because of the impact we see within the first

couple of hours of a kaizen. We actually move things on the floor and see

results very quickly, which builds an incredible amount of momentum. As

people see the results, they become more engaged. We end up working long

hours because we’re so eager to get to the finish line and implement the tools

to their fullest extent. It’s very energizing and exciting and high impact.

Current

employee

It has become impossible for management within Danaher company to make

any decisions or “run” their company on their own. The corporate

management is micromanaging everything! The spread of funds over ALL

companies makes it difficult to do anything when you could be doing better

on your own.

MBA on

leadership

development

track

Danaher provides a place to grow and improve as the company is all about

growth and continuous improvement. The company relies on self-motivated

leaders to define their own path and forge ahead smartly to achieve whatever

they want. Danaher provides tools and frameworks for you to achieve, but if

you need structure, this is not the place for you. If you want to create/find

opportunity and develop it into a profitable growth business, look here. The

growth of your responsibility is only limited by your ability to produce

results.

Current

employee

They took over our private company preaching their DBS culture with no

respect for people. New managers took over and laid off the managers left at

the company. The rest left voluntarily. I would say, Danaher is a good

company, just look at the outstanding financial results, but their corporate

managers have gone too far, and they have not paid attention to the local

management.

Manager Danaher corporate has a lot of good ideas and really tries to incorporate the

companies they purchase into the DBS; however, old management has a hard

time correctly adapting the DBS concepts and quickly delegates blame to

cover up its own mistakes.

Manager Danaher must become more customer focused and less focused on monthly

revenue. Place more emphasis on new product development and stop trying

to suck more income out of old products.

Data source: http://www.glassdoor.com/Reviews/Danaher-Reviews-E193.htm.

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Documents

DO NOT COPY - Darden Business Publishingstore.darden.virginia.edu/SF-InspectionCopy/danaherthe...After joining Danaher Corporation (Danaher) in 1990, CEO H. Lawrence Culp helped transform