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UPDATE TO HARVARD BUSINESS SCHOOL CASE

UPDATE TO HARVARD BUSINESS SCHOOL CASE
DANAHER CORPORATION
August 2020
In 2011 Danaher announced the $6.8B acquisition of Beckman Coulter, a leading player in clinical diagnostics and life sciences with a combined $4.5B of annual revenue today (upon acquisition Danaher established Beckman’s two main business segments as separate Danaher OpCos: Beckman Life Sciences and Beckman Diagnostics). At the time, this was the largest acquisition in Danaher’s history and many investors were skeptical about the merits of the deal given the magnitude of the transaction and the business’s limited near-term growth trajectory. Beckman was a terrific franchise with a well-renowned brand but was rapidly losing market share and customer confidence as a result of a series of critical regulatory, sales and service issues. At the time of acquisition Beckman’s core revenue growth was roughly flat, with 40% gross margins and 10% operating profit margins. In 2019 Beckman delivered mid-single digit core revenue growth and has meaningfully improved both gross and operating profit margin since acquisition. The addition of Beckman continued to evolve Danaher toward a science and technology company and increased the company’s consumables (or “recurring”) revenue stream.
In 2014, CEO Larry Culp announced his retirement and the Board appointed Tom Joyce as his successor. During Larry’s thirteen-year tenure as CEO, Danaher’s market capitalization grew from $10B to $50B, annual revenues increased five-fold to $20B and shareholder returns outpaced the S&P500 by a factor of five. Larry’s leadership was instrumental in reshaping the portfolio and positioning Danaher as a leading global science & technology company. Danaher greatly expanded its global reach with particular emphasis in the high growth markets, where revenue increased ten-fold to $5B. Larry also played a central role in enhancing the Danaher Business System and building a deep and talented management team.
At the time of the announcement, Tom was an Executive Vice President with responsibility for Danaher’s Water Quality, Life Sciences and Diagnostics platforms and had been at Danaher for twenty-five years. He emphasized the continuity and consistency that he would bring to the role, with a focus on executing Danaher’s strategic priorities to create significant long-term value for shareholders. Tom became the fourth CEO of Danaher in September 2014.
In late 2014 – shortly after Tom stepped into the CEO role – Danaher announced the $2.2B acquisition of Nobel Biocare, a global leader in implant-based dental restorations. Nobel was a meaningful addition to Danaher’s Dental platform, expanding the offering of higher-value consumables and increasing the platform’s percentage of direct sales (vs distribution). Nobel added capabilities in the attractive, fast-growing dental implant market which – prior to the acquisition – was considered to be a key strategic gap in Danaher’s Dental business.
In May 2015, Danaher announced two significant transactions: the $13.8B acquisition of Pall Corporation, and the intention to spin off $6B in revenues to create a new, diversified industrial growth company which was later named “Fortive.”
Pall is a global leader in filtration, separation and purification solutions and today has more than $3.2B of annual revenue. Pall had a strong position serving the fast-growing biologics market and meaningfully increased Danaher’s exposure to this attractive life sciences sector. While investors liked the business and its growth prospects, there was concern about the price paid and the ability to achieve the $300M of cost savings that Danaher outlined at the time of the acquisition. Within two years, Danaher increased the total expected synergies to $350M. Since acquisition, Pall’s core growth rate has increased from low-single digits to a consistent mid-to-high-single digit rate, with gross margins up 500 bps and operating profit margins up more than 1,000 bps.
In July 2016, Danaher completed the separation of Fortive which comprised $6B of revenue across what were formerly Danaher’s Test & Measurement, Retail/Commercial Petroleum and Industrial Technologies businesses, including brands like Fluke, Gilbarco Veeder-Root and Matco. As a smaller, standalone entity, Fortive was expected to have a strong margin profile and free cash flow generation, enabling it to accelerate its growth and earnings trajectory while providing greater flexibility for capital deployment toward M&A. Danaher Executive Vice President Jim Lico was appointed President & CEO, and Danaher co-founders Steve and Mitch Rales were appointed to the Board of Directors. “New” Danaher – excluding Fortive – would be a more focused science & technology growth company united by a common business model, including high recurring revenue and direct sales.
In 2016, Tom Joyce led the launch of Danaher’s Shared Purpose, Helping Realize Life’s Potential. This element formalized the notion of “why we do what we do” at Danaher . This was also an important step toward enhancing associate engagement. Despite Danaher’s relative outperformance over 30+ years, annual surveys measuring associate engagement were consistently average relative to industry comparisons. But with a greater emphasis on associate development and engagement, Danaher’s engagement scores improved each of the last five consecutive years, representing a cumulative improvement of more than 15 points from 2015 to 2020.
In September 2016, Danaher announced the acquisition of Cepheid for $4 billion. Cepheid is a leader in molecular diagnostics – one of the fastest growing parts of the diagnostics market. The business had a strong track record of double-digit revenue growth but struggled to become profitable. Many investors felt that the deal was “extremely expensive” and were skeptical about Danaher’s ability to help Cepheid turn a profit near-term. At the time of acquisition, Cepheid had $600M of annual revenue and flat-to-low-single-digit operating profit margins. By the end of 2019, Cepheid generated $1B of annual revenue and gross and operating profit margins had each increased by more than 1,000 bps to 60% and greater than 20%, respectively. Today, Cepheid is playing a critical role in the fight against COVID-19, providing best-in-class point-of-care molecular diagnostic testing. Demand for Cepheid’s instruments and COVID-19 test have driven a significant increase in the installed base which is now comprised of more than 26,000 instruments globally – double the number at acquisition – and Cepheid is expected to generate close to $2B in annual revenue in 2020.
In February 2019, Danaher announced an agreement to acquire GE’s Biopharma business for approximately $21B – the largest acquisition in Danaher’s history. The transaction closed in March 2020 and the business was renamed “Cytiva.” As a global leader in the fast-growing, highly-attractive bioprocessing market, Cytiva brought significant complementary scale to Danaher and increased the Life Sciences platform’s revenue to $10B, including more than doubling the company’s biologics exposure to approximately $5B in one of the fastest growing and most attractive markets in Life Sciences. Cytiva contributed a talented, innovative team and Danaher identified opportunities for DBS to help enhance an already high-performing business. Cytiva had $3.3B of annual revenue in 2019 and operating profit margins of approximately 35%.
In December 2019, the company split-off of its remaining interest in the Dental business after completing a partial IPO in September, establishing “Envista” as an independent publicly traded company with approximately $3B in annual revenue. Going forward, Danaher would operate with four strategic platforms: Life Sciences, Diagnostics, Water Quality and Product Identification.
In May 2020, CEO Tom Joyce announced his retirement and the Board named Rainer Blair as his successor effective September 1, 2020. During Tom’s tenure as CEO, Danaher shareholder returns were triple that of the S&P500 and the company’s market capitalization nearly tripled to $150B. Tom led Danaher through a multi-faceted strategic transformation which featured significant portfolio changes, an enhanced growth profile and trajectory, an emphasis on innovation and growth through DBS, and a greater focus on talent development.
At the time of the CEO announcement, Rainer was an Executive Vice President with responsibility for the Life Sciences platform. He joined Danaher in 2010 and was instrumental in several key acquisitions including Pall, IDT and Cytiva, and in establishing Danaher’s Life Sciences Innovation Centers which focus on early stage investments in breakthrough technologies. As such, Rainer was an integral leader of Danaher’s Life Sciences platform growth from $2.5B in annual revenue in 2015 to more than $10B today.

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