Danaher Corporation – Case Solution

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Danaher Corporation Case Answers

1. What, other than Danaher Business System, account for the success of Danaher Corporation?

Danaher Corporation operates under a well-defined framework, in some aspects very close to a value investing approach. The company’s operations are driven by ROIC, rather than the traditional top-line or earnings growth targets. Moreover, M&A is central to Danaher’s strategy and having clear benchmarks for conducting acquisitions is at the core of Danaher’s success.

Contrary to most companies active in the M&A segment, Danaher has a top-down approach to the companies that fall on its M&A radar. The markets in which the company plans to operate are identified prior to assessing any player as a potential acquisition opportunity.

Once the target markets are identified, Danaher Corporation will look for platform companies with an edge in a particular niche, sometimes market leaders that are underperforming financially and that can benefit from Danaher’s operational expertise. The fact that Danaher keeps screening potential markets also provides them with an edge once opportunities arise as market due diligence is already completed.

Moreover, once Danaher enters a market, it will keep challenging the market on a continuous basis aiming for a full understanding of the customer population rather than only focusing on the existing customer base. Both the readiness to acquire in a certain market and the ability to fully test the business model of the acquired company has a significant impact on the time taken to fully integrate the acquisition under the DBS umbrella.

Furthermore, Danaher Corporation only enters markets with a growth plan within that segment that will comprise further bolt-on acquisitions that make strategic sense together with the platform companies and where synergies are likely to be realized.

Over the years, Danaher has developed extensive in-house M&A capabilities, which allows them to conduct successful acquisitions without giving in to external pressure from financial and legal advisors. This had kept the company under-the-radar and with limited coverage from equity analysts, hence also limited competition emerged throughout the years trying to copy its business model.

While the excellence of hand-picked operating executives has been very effective at boosting the performance of each segment, also the capable top management has taken key decisions that allowed Danaher to navigate economic downturns, e.g. sound market understanding led the company to de-lever before the high yield crisis in the 90s.

Management has also always had an important focus on HR policies and employee development, especially in newly acquired businesses. Top management was spending a considerable amount of time selecting the right people for key operational positions. Also, the Spartan approach to HR management kept a lean overhead across the corporate structure.

Financial flexibility has also contributed significantly to Danaher’s success. This flexibility arises not only from the company’s strong cash flows and the financial engineering capabilities dating back to the times Danaher Corporation was a REIT but also from the reduced cyclicality of having a diversified business mix. This has proven to be a strong advantage, as the ability to deploy capital in acquisitions during economic downturns allowed the company to complete acquisitions at times when competition from financial sponsors and other strategic buyers was very limited (e.g. during the liquidity dry-up in 2009, Danaher Corporation completed 18 acquisitions).

The company also enjoyed some…