Danaher Corporation Business Information, Profile, and History

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History of Danaher Corporation

Danaher Corporation owns a number of industrial and consumer product manufacturers. Originally a real estate investment trust (REIT), it became an aggressive consolidator in the 1980s under the direction of the Rales brothers. Three main qualities they sought in acquisition targets were strong brands, market leadership, and proprietary technology.

The company achieved the status of a Fortune 500 company barely two years after the Rales brothers took over in 1984. Revenues climbed from $300 million to $1 billion within a decade, and by 2004 the company was approaching $7 billion while averaging dozens of acquisitions a year. Of three business reporting segments, Professional Instrumentation and Industrial Technologies account for about 40 percent of sales each; Tools & Components provides the remainder.

Origins

Danaher had its origins in 1969 when its predecessor, DMG, Inc., was organized as a Massachusetts real estate investment trust (REIT). DMG restructured in 1978, becoming a Florida corporation under the name of Diversified Mortgage Investors, Inc. (DMI). In 1980 a new holding company was formed under the name DMG, Inc., of which DMI became a subsidiary.

Until 1984 all operations of DMG had been in real estate, but that year the holding company underwent a major transformation when it acquired two new subsidiaries. Continuing its real estate operations in the DMI subsidiary, DMG entered the business of tire manufacturing with its acquisition of Mohawk Rubber Company and entered into the manufacture and distribution of vinyl building products with its purchase of Master Shield Inc. In 1984 Steven and Mitchell Rales, the majority stockholders of DMG, Inc., named the reorganized holding company Danaher Corporation, after a favorite mountain stream in western Montana. Steven M. Rales, 33 years old at the time, became the chief executive officer and chair of the board of the new company. Danaher was reorganized as a Delaware corporation in 1986.

Danaher's founders developed a carefully considered strategy of acquisition that was centered around the purchase of companies that had "high performance potential" but were not, for a variety of reasons, performing their best at the time of purchase. They also sought to acquire companies with well-known trademarked brands, high market shares, a reputation for innovative technology, and extensive distribution channels on which to build. Once acquired, Danaher's subsidiaries were grouped according to product lines and potential markets. If a company did not perform well after acquisition, Danaher's directors divested it and used the resulting capital to invest in new technologies or industries.

In the Fortune 500 by 1986

Utilizing this strategy, Danaher acquired another 12 companies within two years of its founding. By then, Danaher was listed as a Fortune 500 company, and revenues had climbed from $300 million in 1984 to $456 million by 1986. The 14 subsidiaries were grouped into four business units: automotive/transportation, instrumentation, precision components, and extruded products. At least 12 of Danaher's products were market leaders.

The automotive/transportation unit produced and marketed tools for the professional auto mechanic as well as transportation parts. This unit consisted of well-known companies and leading market brands including Coats, a highly regarded trademark of wheel service products (such as tire changers and wheel balancers), Matco Tools, Jacobs Engine Brake, and Fayette Tubular Products, which was a leader in car air-conditioning parts.

The instrumentation unit of Danaher manufactured counting and sensing instruments, including devices that kept track of motion (magnetic encoders, electronic counters, and electronic voting machines), and instruments measuring and recording temperature. This unit boasted such prestigious companies as Veeder-Root, which supplied instruments for four out of five gas pumps worldwide, Dynapar, Partlow, and QualiTROL.

The precision components unit manufactured such diverse products as Swiss screw machine parts, the famous Allen wrench, and drill chucks. Finally, the extruded products unit, manufacturing vinyl siding and plastics, included Mohawk Rubber, Master Shield, and A. L. Hyde Company, a leading American plastics manufacturer. Most of these would be sold off in a few years. Among Danaher's biggest customers were petroleum, aerospace, telecommunications, electronics, and automotive firms, including Toyota and Honda.

Chairman and CEO Steven Rales and Executive Committee Chairman Mitchell Rales maintained that they were seeking the best, not just good, but superior products and service; not just to be a leading company, but a world leader. According to analysts, they had become skilled in aggressive competition, divestment of unprofitable businesses, consolidation of facilities, and debt and cost reduction. Each year the company grew by more than 8 percent and boasted record sales. In 1987 net sales increased 141 percent over 1986.

Restructured for the 1990s

During 1989 Danaher reassessed and restructured. George M. Sherman, an executive officer from Black & Decker, became president and chief executive officer, bringing to Danaher his own corporate vision, which included increasing the company's hitherto negligible international sales. Danaher's 14 subsidiaries were reduced to 12 (and shortly thereafter grew to 13), while its four business segments were reduced from four to three: tools, process/environmental controls, and transportation.

The tool unit was greatly expanded by Danaher's 1989 merger with Easco Hand Tools, Inc., and by 1991 tools made up 49 percent of Danaher's sales.

The entirely new process/environment unit reflected a new emphasis on environmental instruments and machines, which included Veeder-Root's underground fuel storage sensors, Dynapar's motion control devices, and QualiTROL's instruments for measuring pressure and temperature, used widely by the electrical transformer industry. The A.L. Hyde Company belonged to the "process/environment" category by virtue of its extruded plastics production. This business segment was by far Danaher's fastest growing.

Transportation, accounting for 29 percent of Danaher's sales in 1991, included such leading brand names as Hennessy/Ammco (producing wheel balancers, tire changers, brake repair lathes), Jacobs Braker (producing engine retarders for heavy diesel trucks), and Fayette Tubular Products for car air-conditioning components.

Danaher's reorganization and streamlining contributed to its continued record sales, growth, and development of new products. In 1991 Sears, Roebuck & Co. selected Danaher as its only source for the manufacture of the Craftsman brand of mechanic's hand tools. Danaher was already marketing the Jacob Engine Brake diesel engine retarders in Japan, and, in 1991, Danaher acquired Normond/CMS, the leading manufacturer and marketer in Great Britain of environmental products. Danaher was already the leading supplier of hand tools to the National Automotive Parts Association.

The recession of the late 1980s and early 1990s affected Danaher, though not severely. Facilities were consolidated and some restructuring occurred (the firms Dynapar and Veeder-Root were combined into Danaher Controls, for instance, to eliminate duplicate services), but net sales of $832 million in 1991 were only 1 percent below the previous year, and in 1992, sales increased significantly to $897 million, the best year in the company's history for per share earnings. CEO George Sherman attributed the relatively mild effects of the recession to the company's investment in capital spending and in research and development at a time when most other firms practiced a timid "wait and see" policy.

With the worst of the recession over by 1993, Danaher's fortunes seemed secure. In part this was because of increasingly stringent environmental regulations and the growing demand for such environmental products as underground storage tank monitoring devices and fuel pump computers. This was already Danaher's fastest growing segment of business. Medical technology was another increasingly important area. International markets also continued to grow in importance. Under the presidency of George Sherman, Danaher's international sales were rising significantly, to just over 10 percent of total sales, and market analysts predicted that the percentage would double by the year 2000.

A Billion-Dollar Company in 1995

The acquisitions continued in the mid-1990s. German industrial timer manufacturer Hengstler GmbH was one of a half-dozen controls businesses acquired in 1994. The next year, Danaher divested its Fayette auto parts business for $155 million, but bought two more tool companies, Delta Consolidated Industries Inc. and Armstrong Brothers Tool Co. By 1995, Danaher had total sales of about $1.3 billion and 10,000 employees. Joslyn Corporation, a venerable Chicago maker of switches and controls, was acquired in 1995 for roughly $250 million. Acme-Cleveland Corp., a manufacturer of industrial controls and test equipment such as used in the telecommunications industry, was acquired for $200 million in 1996.

A number of motion control brands were added in the late 1990s. Danaher bought Pacific Scientific for $460 million in 1998, beating out a hostile bid by Kollmorgen Corp., which was itself acquired by Danaher two years later for $240 million. An even larger purchase in 1998 was that of Fluke Corp., which produced electronic test tools. The $625 million Danaher paid for the acquisition was a company record. Anther motion control company was acquired in 2000: American Precision Industries Inc., for $185 million.

Still Growing by Acquisition After 2000

Revenues were $3.8 billion in 2000, with net earnings of $324 million. While Danaher continued its acquisition strategy, it made headlines for one enormous deal that got away. Hand tools manufacturer Cooper Industries rejected a massive $5.5 billion takeover bid in August 2001.

COO Lawrence Culp was promoted to president and CEO in 2001. The company cut 1,100 jobs in 2002 as it restructured in a slow economy.

From 2002 through 2004, Danaher made several major acquisitions and picked up dozens of smaller companies. It also sold off some assets.

Two businesses were acquired from Marconi plc in February 2002. Marconi Commerce Systems, formerly Gilbarco, was picked up for $309 million. It was a leading global provider of retail gasoline dispensers, automation equipment, and environmental products and services. Danaher paid $400 million for Marconi Data Systems, formerly Videojet Technologies. The company made two other deals that month. It bought the Pennon Group plc's Viridor Instrumentation Limited for $137 million. Viridor made instruments for analyzing water and other fluids and materials. Danaher also completed the sale of its API Heat Transfer, Inc. unit to Madison Capital Partners for $63 million. In October 2002, Thomson Industries Inc., a leading U.S. manufacturer of linear motion control products, was obtained for $147 million.

Danaher spent $312 million in 2003 to acquire a dozen smaller businesses. A similar amount was spent on ten smaller companies and product lines in 2004. All of these were incorporated into Danaher's Professional Instrumentation and Industrial Technologies units.

There were three major acquisitions in 2004. Denmark's Radiometer A/S, bought in January for $750 million, including assumed debt, produced blood gas diagnostic instruments for use in hospitals. Kaltenbach & Voigt GmbH (KaVo) was purchased in May 2004 for about EUR 350 million ($412 million). KaVo was a leading dental equipment manufacturer. Trojan Technologies, Inc., based in Canada, made ultraviolet water disinfection equipment. It was obtained in the fourth quarter for $185 million.

The company had 35,000 employees; about 17,000 were located in the United States. International sales accounted for more than a third of the company's 2004 revenues of $6.9 billion. Most of this was from acquisitions, noted Forbes; since 2001, Danaher had acquired a total of 47 companies for $3.4 billion. The company's net earnings were up to $746 million.

The acquisition of Linx Printing Technologies plc, a publicly traded U.K. specialist in product identification, was completed in January 2005. Linx had sales of about $93 million a year. The buy cost Danaher about $171 million. In the middle of the year, Danaher paid $85 million to buy Pelton & Crane, a maker of equipment for dentists' offices.

Leica Microsystems, a German producer of surgical microscopes and other professional instruments, was acquired in the summer of 2005. The cost was about $550 million. Leica Microsystems also made equipment for the semiconductor industry, but antitrust regulators compelled Danaher to divest this. Danaher made a $1 billion bid to buy another spinoff of the famous Leica optics firm called Leica Geosystems, but lost out to Hexagon AB of Sweden.

The company remained an enthusiastic practitioner of the lean manufacturing practices it had been using since the 1980s. Implementing such systems at newly acquired companies was one way it made them more efficient.

Principal Subsidiaries

Acme-Cleveland Corp.; American Precision Industries Inc.; Armstrong Tools Inc.; Danaher Tool Group LP; Fluke Corp.; Delta Consolidated Industries Inc.; Easco Hand Tools Inc.; Gems Sensors Inc.; Gilbarco SpA (Italy); Hengstler GmbH (Germany); Hennessy Industries, Inc.; Holo-Krome Company; Jacobs Vehicle Systems Inc.; Kaltenbach & Voigt GmbH (Germany); Kollmorgen Corporation; Leica Microsystems (Germany); Linx Printing Technologies plc (UK); Matco Tools Corporation; OECO LLC; Pacific Scientific Company; Qualitrol Corporation; Radiometer S/A (Denmark); Thomson Industries Inc.; Trojan Technologies, Inc. (Canada); Veeder-Root Company; Videojet Technologies; Warner Electric Gmbh (Germany).

Principal Divisions

Professional Instrumentation (Environmental, Medical Technology, Electronic Test), Industrial Technologies (Motion, Product ID); Tools & Components (Mechanic's Hand Tools).

Principal Competitors

3M Precision Optics, Inc.; Cooper Industries Inc.; Johnson Controls, Inc.; The Stanley Works.

Chronology

• Key Dates
• 1969 DMG, Inc. REIT is established.
• 1978 DMG becomes Diversified Mortgage Investors, Inc. (DMI).
• 1980 New holding company is formed under DMG name.
• 1984 DMG acquires Mohawk Rubber Company and Master Shield Inc.; holding company is renamed Danaher Corporation.
• 1986 After two-year acquisition spree, 14 subsidiaries are regrouped into four business units.
• 1989 Four business units are cut to three; Easco Hand Tools is acquired.
• 1995 Total revenues exceed $1 billion.
• 1998 Fluke Corp. is acquired for $625 million.
• 2001 A $5.5 billion takeover attempt of Cooper Industries is unsuccessful.
• 2003 Revenues exceed $5 billion.
• 2004 The $750 million acquisition of Denmark's Radiometer A/S is Danaher's most expensive to date.