Serial Acquirer Case Study: Danaher Corporation

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
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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
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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
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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 Company’s
ability to maintain
low levels of Asset
Intensity
0.6x
0.4x
0.2x
0.0x
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Fortuna Advisors Analytics, using CapitalIQ Data
Note: Gross Business Returns is Gross Cash Earnings (EBITDA + Rent + R&D Less Taxes) Divided by Gross Operating Assets (NWC, Gross PP&E, Capitalized Rent and R&D)
Asset Intensity is Gross Operating Assets Divided by Revenue
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Danaher Tends to Acquire Lagging Companies in
Attractive Sectors
Sector Profitability and Competitive Landscape
Medical Technology:
PDCO
ROP
FSH
ROK
SXS
TEK
ESE
PNR
LIFF
PLL
15%
5%
5%
10%
15%
20%
25%
30%
23%
Motion:
20%
Environmental:
15%
Visual Networks (VNWK), Microtest
(MTST), Fluke (FLK), Mettler Toledo
(MTD), Ametek (AME), Fisher Scientific
(FSH), Roper Industries (ROP), Tektronix
(TEK).
Ionics (ION), Pall Corp (PLL), Hach
(HACH), Lifschultz (LIFF), Esco Tech
(ESE), Cuno (CUNO), Pentair (PNR).
Competitively
Advantaged
10%
0%
Electronic Test:
Kollmorgen (KOL), Pacific Scientific
(PSX), American Precision (APR), Joslyn
(JOSL), Baldor Elect. (BEZ), Spectris
(SXS), Parker-Hannifin (PH), Rockwell
Automation (ROK ).
CUNO
PH
BEZ
KOL
APR
PSX
HACH
20%
JOSL
FLK
MTST
25%
MTD
AME
VNWK
SYD
HSIC
XRAY
YDNT
30%
27%
Young Innovations (YDNT), Schein Henry
(HSIC), Sybron Dental (SYD), Patterson
(PDCO), Dentsply (XRAY).
Sector Median
Competitively
Disadvantaged
ION
LFY Sector Median Gross Business Return
35%
35%
40%
45%
50%
LFY Company Gross Business Return
Note: Danaher acquired Gendex from XRAY not the entire company
Source: Fortuna Advisors Analytics, using CapitalIQ data
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Danaher’s Public Targets Tend to have Higher Gross
Margins, SG&A and most Notably Asset Intensity
Danaher Acquired Companies Time Period
EBITDARR
Margin
Gross
Margin
SG&A % of
Sales
Asset
Intensity
Gross Business
Return
Enterprise Value
to Gross Asset
Residual Cash
Margin
Tektronix
2007
36%
60%
31%
1.56x
21%
1.12x
18%
Sybron Dental Specialties
2005
25%
56%
37%
0.81x
26%
3.63x
13%
Visual Networks
2004
28%
70%
48%
1.58x
18%
0.72x
12%
Lifschultz Industries
2000
18%
49%
34%
0.88x
22%
1.25x
11%
Kollmorgen Corporation
1999
12%
29%
22%
0.89x
14%
1.09x
3%
American Precision Industries
1998
14%
31%
22%
0.96x
12%
0.89x
3%
Hach Company
1998
26%
49%
28%
1.43x
14%
1.11x
7%
Fluke Corporation
1997
25%
54%
35%
1.39x
15%
0.72x
7%
Pacific Scientific Company
Acquired Target Median
1996
13%
25%
31%
49%
22%
31%
1.07x
1.07x
12%
15%
1.19x
1.11x
2%
7%
Danaher Peer Median
2009
18%
27%
20%
0.95x
19%
1.69x
8%
Danaher
2009
25%
48%
27%
0.54x
41%
3.68x
16%
Source: Fortuna Advisors Analytics, using CapitalIQ data
Danaher Peers includes Textron, Tyco, 3M, Ingersoll-Rand, Illinois Tool Works, Honeywell, and United Technologies
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Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.
Like an Astute Value Investor Danaher has Demonstrated
the Ability to Buy Companies Trading at a Discount
5.0x
Enterprise Value to Gross Assets
4.5x
4.0x
Post –Transaction Announcement
Pre–Transaction Announcement
Sybron
Dental
3.5x
“Long term market
norm”
3.0x
2.5x
Danaher
2.0x
1.5x
Joslyn
Kollmorgen
1.0x
Lifschultz
Pacific
Scientific
Hach
Tektronix
Visual
Networks
Fluke
0.5x
American
Precision
Microtest
Percent of Targets at a Discount
Pre-Announcement
91%
Median Target Premium/Discount
Pre-Announcement
-40%
Median Target Premium/Discount
Post-Announcement
-21%
0.0x
0%
5%
10%
15%
20%
25%
30%
35%
Gross Business Return
Source: Fortuna Advisors Analytics, using CapitalIQ data.
Note: “Long-Term Market Norm” based on the historical relationship between Gross Business Returns and Market Multiples for the 1,000 largest non-financial US Companies
8
Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.
40%
Appendix
Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.
Fortuna Advisors Partners
Experts in Strategy, Finance and Value Management
Gregory V. Milano
Managing Partner, Founder & CEO
•
25 years of experience including 17 years in value based management as
Partner and President of Stern Stewart & Co., and Managing Director and CoHead of the Strategic Finance Group at Credit Suisse
•
Industry thought leader and advisor to senior executives on business and
financial strategies designed to increase share prices, financial management
processes to support value based strategies and a strong focus on behavioral
economics to align the interests of managers with those of shareholders.
John R. Cryan
Partner & Co-Founder
•
10 years of experience including value management at Credit Suisse and
Accenture
•
Extensive experience in Enterprise Performance Management, developing and
implementing value-based strategies into financial management and decision
making processes
Steven C. Treadwell
Partner
•
15 years of experience including 9+ years of value management experience at
HOLT and Credit Suisse
•
Extensive work with some of the largest companies in the retail, consumer
products and industrial sectors incorporating shareholder insights into the client’s
strategic decision process
10
Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.
Focus and Discipline of Postmodern Corporate Finance
A View from the
Investors’ Shoes
Diagnostic
Strategic Advice
Internal Capitalism
Audit
Process Enhancement
Strategic Plan
Evaluation
Capital Deployment
Strategy
Value Based
Strategic Planning
Capital Allocation
Approvals
Business
Unit/Portfolio
Evaluation
Strategic M&A
Planning &
Valuation
Budgeting and
Forecasting
Performance
Measures & Key
Value Drivers
Strategy Alignment
Investor
Communication &
Targeting
Incentives to
Simulate
Ownership
Training &
Development
11
Copyright 2010 Fortuna Advisors LLC. All Rights Reserved.
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