Danaher

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Danaher was form by two brothers Steven and Mitchell Rales in 1985. In 1980, Rales brothers created an Equity Group holding, an investing firm with an objective to acquire niche business with understandable operations, positive cash flow from predictable earning and experienced management with entrepreneurial mindset.  In 1985, they merged their two initial profitable acquisitions of Master Shield, Inc and Mohawk Rubber Company into newly acquired publically traded DMG to take advantage of its 130 million in tax-loss carry forwards.  By following the principals of debt financing and using Danaher as an acquisition vehicle, they were able to take over 12 companies in next two years. Their focus was on cost cutting and paying debt through the divestiture of underperforming assets.  By 1986, Danaher was listed under Fortune 500 company with 14 subsidiaries under four business units with revenues of $456million. Following their philosophy of not only acquiring the companies but also staying in touch with operations, Rales brothers shifted their tack in three noteworthy areas. They implemented lean manufacturing process throughout the company.

In Feb 1990, Danaher appointed George M. Sherman as president and chief executive offers. Under his leadership, Danaher invested in platforms that focused on achieving economies of scales not only in production but also distributions.  He focused on fewer but larger acquisitions of firms with good products and respectable market share but underperforming financially. As time and economic landscape changed from one industry to another, Danaher source of major revenue changed from tire and rubber goods in 1985, tools and automotive in 1991 Environmental, Electronic Test and Motion Control Systems  by 2001.  Danaher emerged from midcap to large cap company with sales increasing from 750mil to 3.8 billion.

Since inception to 2001, Danaher generated compound annual stock return of over 25%. Larry Culp become CEO of Danaher in 2001. He started at Danaher in 1990 after graduating from Harvard Business School. Culp was wary of the term “conglomerate,” instead referring to Danaher as a family of strategic growth platforms. In the beginning years under Culp, Danaher acquired over 50 companies, revenues and net income doubled while stock price continued its upward momentum with impressive margins.  

Danaher’s proclivity towards lean manufacturing was based on a core kaizen philosophy which was tightly integrated as Danaher Business Systems (DBS). DBS played a crucial role into the operating model and acquisition strategy for Danaher.  Office of DBS (DBSO) was one of the integral part of Danaher’s culture. DBSO’s responsibility was to train senior executives from newly acquired as well as existing company of the DBS.  As an organization, by 2010 Danaher operated with 45-55 separate business units but only. Danaher’s proven business model was built on economies of scope and precision and success of its core competencies of DBS.

Larry Culp and his senior executive team faces three main challenges in early April 2010 while they were getting ready for another round of performance reviews of Danaher’s distinct operating businesses. First, could it sustain its business model of ongoing acquisition of value-added companies for continued organic growth? Second, with rapidly changing industry and technology landscapes, can it successfully apply its principles and culture of DBS to recent and potential acquisition? Third, can it sustain DBS mantra of  “continues improvement” indefinitely?

Danaher’s portfolio was organized in four business units in 1986: automotive/transportation, instrumentation, precision components, and extruded products.

2010 -- Dental, Life Sciences & Diagnostics, Environmental, Test & Measurement and Industrial Technologies.

In early April 2010, Danaher Corporation’s Chief Executive Officer Larry Culp and his senior executive team were getting ready for another round of performance reviews of the firm’s diverse operating businesses. As usual at Danaher, this process was likely to involve not only conference room presentations but visits to the factory floor and conversations with customers.

Chief Executive Officer Larry Culp – Joined in 1990 after graduating from Harvard Business School. Became CEO in 2001.

Since the inception to take over by Larry Culp – company had generated compound annual stock return of over 25%. Between 2001 and 2006,  revenues and net income more than doubled. 50 acquisitions.

Culp was wary of the term “conglomerate,” instead referring to Danaher as a family of strategic growth platforms.

In 2010, Danaher’s portfolio comprised five such platforms, representing over 80% of its total revenue. In addition, the firm operated in seven focused niche businesses.

The company’s portfolio had evolved over the years. Once a cyclical industrial company, Danaher had in recent years become a scientific and technical instrumentation company that competed in less cyclical markets. Ex. Dental and Life Sciences &  Diagnostic platforms.

Culp had earned widespread praise for being a “hands-on” CEO. Culp believed that “the role of the CEO is to ensure the company has a clear and well-articulated strategy coupled with the right people to execute that strategy.”

However, despite its tremendous success, Danaher still faced a number of challenges. First, as the company grew to over $13 billion in revenues with strong cash flow, could it continue to identify and execute attractive, value-added acquisitions, as well as drive organic growth within its current businesses? Second, what challenges might arise as it applied DBS to some of the higher technology, science-based industries that Danaher had expanded into in recent years? Last, some observers wondered how long “continuous improvement” could continue.

1986 -- business units: automotive/transportation, instrumentation, precision components, and extruded products.

2010 -- Dental, Life Sciences & Diagnostics, Environmental, Test & Measurement and Industrial Technologies.

Each team assigned a case has the following responsibilities for that case: 1) Write a CASE REPORT. The Case Report must be emailed to me before the start of the

class during which the case is to be discussed. (See schedule below for schedule of cases.) It should be 8-11 pages in length (single-space, 12-point font). This report is relatively short, so precision of thought and crispness of argument are essential. The Case Report must include the following 4 parts: