UVA-BP-0549 Rev. Dec. 9, 2013

DANAHER—THE MAKING OF A

After joining (Danaher) in 1990, CEO H. Lawrence Culp helped transform the company from an $845 million industrial goods manufacturer to a $12.6 billion global conglomerate. Danaher’s 25-year history of acquisition-driven expansion had produced healthy stock prices as well as above average growth and profitability for more than 20 years (Exhibits 1 and 2); however, Wall Street had questioned the scalability of the company’s corporate strategy and its reliance on acquisitions since mid-2007. Prudential Equity Group had downgraded Danaher to underweight status, citing concerns over its inadequate organic growth.

Company History (1984–91)

In 1984, Steven and Mitchell Rales had formed Danaher by investing in undervalued companies. The Rales brothers built Danaher by targeting family-owned or privately held companies with established brands, proprietary technology, high market share, and room for improvement in operating performance. Averaging 12 acquisitions per year (Exhibit 3), by 1986, Danaher was listed as a Fortune 500 company and held approximately 600 small and midsize companies.

Acquisitions were concentrated in four areas: precision components ( hand tools), automotive and transportation (mechanics’ tools, tire changers), instrumentation (retail petrol pumps), and extruded products (vinyl siding). As these businesses grew and gained critical mass, Danaher used the term business unit to define any collection of similar businesses. Exhibit 4 provides a brief history of each of the original four businesses.

Restructuring

George Sherman was brought from Black & Decker as Danaher’s CEO following the crash of the LBO market in 1988. Sherman decided to fund acquisitions through cash from operations rather than debt. To generate the extra cash, Sherman encouraged a variety of experiments, DO one of which wasNOT the successful adoption COPY of ’s

This case was prepared by Sriram Nadathur (MBA ’09) and Professor L. J. Bourgeois III. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2010 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. -2- UVA-BP-0549 techniques, which Danaher subsequently applied across all holdings. Sherman also instituted company-wide incentives to encourage managers at all levels to focus on cash.

The combination of Lean manufacturing and cash management policies were organized as the Danaher Business System (DBS). By improving all of its processes, Danaher became a cash-generating machine able to buy more companies.

From Business Units to Strategic Platforms (1992–2009)

By the mid-1990s, Danaher’s size and diversity exceeded its headquarters’ bandwidth, so Danaher reorganized into four “market segments” and nine “strategic business platforms.” Exhibit 5 shows Danaher’s market segments, strategic business platforms, and niche lines in 2009. From then on, Danaher acquired a business only if it served one of two purposes: (1) as a platform-establishing transaction, where the target laid the foundation for Danaher to enter a new industry; or (2) as a bolt-on transaction, where the target strengthened a preexisting line of Danaher businesses.

Platform-establishing transactions were used to enter high-growth markets where Danaher could gain competitive advantage through operational excellence. Within each platform, Danaher used bolt-on transactions to make existing businesses more competitive, either by expanding products or increasing market coverage. In cases where adjacent acquisition opportunities were not available, Danaher also maintained highly profitable “focused niche” business lines. By the late 1990s, headquarters no longer was the sole initiator of deals as platforms and business units also began to identify targets.

Danaher’s nine platforms were grouped into four segments: industrial technology; professional instrumentation; tools and components; and medical technologies (Exhibit 5). Exhibit 6 provides segment-by-segment financials.

The following sections describe the evolution of the four segments and nine platforms.

Industrial Technologies Segment

Motion-control platform

BeforeDO platforms were NOTestablished, in 1994 Danaher COPY acquired Germany-based Hengstler GmbH, a maker of counters and encoders. It then made acquisitions in instruments, switches, controls, and test equipment for the telecommunications industry.

Danaher separated its motion-control business into a platform in 1998 with the acquisition of Pacific Scientific for $420 million. In 2000, a series of bolt-on acquisitions added robotics, wheelchairs, lift trucks, electric vehicles, and industrial motors. -3- UVA-BP-0549

Product-identification platform

The product-identification platform, started in 2002, designed, manufactured, and sold commercial printing equipment to the packaging industry. Typical customers were food and beverage companies, pharmaceutical firms, retailers, package and parcel delivery companies, and commercial printers.

Focused niches

By 2009, the industrial technologies segment also contained two focused niche businesses: aerospace and defense, and sensors and controls for manufacturing.

The industrial technologies segment contributed 26% of Danaher’s revenues in 2008, with 51% derived from outside the United States.1

Professional Instrument Segment

The professional instrument segment contained two strategic platforms: environmental and test and measurement. The segment contributed 38% of Danaher’s revenues in 2008, with 57% generated internationally.

Environmental platform

The environmental platform focused on water-quality customers and petroleum retailers. Danaher entered the water-quality arena in 1996 through the platform-establishing acquisition of American Sigma. Forecasting a growing need for pure water for potable and industrial applications, subsequent acquisitions manufactured a variety of instruments to analyze, disinfect, and purify water. Customers included municipal drinking suppliers, wastewater treatment plants, and third-party testing laboratories.2

Danaher already had a strong presence in the retail petroleum market with the Veeder- Root acquisition in 1989 (Exhibit 3). With acquisitions in 2001 and 2002, Danaher built a dominant position in the manufacturing and sale of fuel-dispensing technology. Its products included leak detection, vapor recovery, retail automation, point-of-sale systems, and remote monitoring services. Market penetration was so high that it was hard for anyone to fill a petrol fuel tank without using a Danaher product. DO NOT COPY Electronic test and measurement platform

The $625 million acquisition of Fluke Manufacturing in 1988, with its digital multimeters and electronic test equipment, established a new platform. Danaher recognized Fluke’s

1 Danaher Corporation 10-K filing, 2008, 48. 2 Danaher Corporation 10-K filing, 2009, 5. -4- UVA-BP-0549 exceptional business development and integration teams and quickly added 20 additional acquisitions.

Culp’s goal with Fluke was to boost its single-digit margin through cost-cutting, innovation, and quality. Fluke became proficient at developing new products, executing product refreshes, and delivering new applications with existing instruments. In addition, Culp redirected Fluke’s R&D through the acquisition of companies with nascent technologies and developing new applications for them. By rationalizing product lines, speeding up turns, and reducing floor space, Fluke’s margins more than doubled.

In 2007, Danaher acquired for $2.8 billion, doubling the size of the electronic test and measurement platform. Tektronix made oscilloscopes and logic analyzers for measuring the performance of electronic equipment used in semiconductor and electronics manufacturing. Danaher improved profitability by downsizing, selling a subsidiary, cutting R&D, and scaling. Tektronix headquarters in Beaverton, Oregon was converted into a lean and disciplined operation with a strong bottom-line focus. For employees who had enjoyed Tektronix’s unique culture of individual freedom, trust, and reliance on independent judgment, Danaher’s new management philosophy came as a harsh change.

By 2008, the test and measurement platform was Danaher’s largest with four primary businesses: Fluke, Fluke Networks, Tektronix Instruments, and Tektronix Communications.3

Tools and Components Segment

Mechanics’ hand tools platform

Tools and Components was Danaher’s core business. The acquisition of Armstrong Brothers Tool Company and Delta Consolidated Industries in 1994 moved the company into professional-grade tools, industrial tools, and tool storage equipment. With no significant subsequent acquisitions, the hand tools platform shifted its emphasis to making existing businesses more competitive.

While mechanics’ hand tools made up the single platform in the Tools and Components segment, it also held four focused niche businesses: Delta Consolidated Industries, Hennessy Industries, Jacobs Chuck Manufacturing Company, and Jacobs Vehicle Systems. Danaher became the world’s largest producer of do-it-yourself hand tools and specialized auto-service equipment, andDO all were category NOT leaders. COPY

The tools portfolio declined 6% through 2008 at $1.2 billion in revenue while contributing 10% of total Danaher revenue, mostly in the United States.

3 Danaher Corporation 10-K filing, 2009, 6. -5- UVA-BP-0549

Medical Technology Segment

Medical Technology, the newest segment, was Danaher’s response to saturation and low growth rates in its traditional platforms. By 2009, it had four platforms: dental, acute care, pathology, and life sciences.

Dental technology platform

In 2004, Danaher acquired a number of European dental companies and became the second-largest dental products company in the world. It led in a number of markets, such as orthodontic alignment brackets (braces), dental instruments, digital imaging, and restorative materials. Because dental companies made custom products for individual patients, they produced a lot of scrap. Danaher saw this as an opportunity for its factory-level method to remove the scrap and improve fulfillment lead times. Danaher was not accustomed to the more technologically-advanced dental companies, so it used its entry into dental technology as a learning opportunity to expand DBS capabilities to include R&D and .

Acute care platform

Danaher established its acute care business in 2004 when it bought Denmark’s for $750 million. Radiometer produced blood-gas diagnostic instruments4 used in hospital emergency rooms and was supplemented with two other acquisitions.

Pathology diagnostics platform

The pathology diagnostics platform came into being with the acquisition of in 2005, and, with subsequent acquisitions, established Danaher as a leading global supplier of microscopes used by medical and research professionals.5

Life sciences instrumentation platform

The acquisition of Leica led Danaher into the adjacent area of life-sciences instrumentation. The addition of Vision Systems for $525 million in 2006 expanded Danaher’s product offerings to automated specimen-preparation instruments for diagnostic/lab service companies.

The medical-technologies segment represented 26% of Danaher’s 2008 revenues, 64% of which was derivedDO from intern ationalNOT markets. COPY

4 These instruments measured the concentration of oxygen and carbon dioxide in the arterial blood. 5 Danaher Corporation 10-K filing, 2009, 7. -6- UVA-BP-0549

Organization

Danaher’s organization was flexible enough to allow integration of large and small acquisitions, both at the corporate and business unit level (Exhibits 7 and 8). While strategic platforms became the basic building blocks, Danaher also had a mix of centralized functions, headquartered in Washington, DC, and decentralized functions shared within each platform.

Corporate teams

A small headquarters (HQ) team of approximately 50 included deal-making specialists and finance and legal staff. The corporate office controlled Danaher’s corporate strategy, deciding which companies to acquire and in which industries to invest. was linked to the finance organization of each platform and these, in turn, were linked to the finance teams for each business. The CFO also led a small corporate development team. Corporate development worked with the general counsel and the legal team to identify and execute M&A deals in addition to supporting, approving, or disapproving deals proposed by the finance and business-development teams at the platform level. Corporate development also made the first official offer to any approved target.

Human resources and leadership development at HQ facilitated identification, staffing, training, and progression of executives across the entire company. After an acquisition, corporate HR installed executives at various positions within a target’s business. They ranged from division presidents, to newly hired MBAs with specific mandates, to line managers, plant managers, business development managers, and marketing managers. Because Danaher preferred to promote from within, freshly hired MBAs and internal candidates identified for leadership tracks were carefully developed, increasing the pool of Danaher-trained leaders available to work on future acquisitions. Each business unit had its own HR team.

There were two DBS-related functions at HQ: VP of training and VP of DBS. The VP of training oversaw the training of new hires as well as personnel of acquired companies. All employees, from intern to executive, were immersed in DBS for one to two weeks at the DBS training center in Chicago before beginning their assignments. The VP of DBS was responsible for improving the scope and applicability of management tools and systems within Danaher. This team advised platforms, individual businesses, and the transition teams of new acquisitions. While it was common practice in large organizations to use dedicated teams for initiatives, Danaher expected every employee to internalize and work with DBS tools every day. Emphasis was placed on a Lean mentality, which influenced the way employees interacted, thought, and DOcommunicated withinNOT and across Danaher COPYcompanies.

Corporate teams did not engage in running subsidiary companies; however, in order for the DBS system to work efficiently, corporate teams had access to the operating metrics of each platform and each subsidiary within the platform.

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Strategic business platforms

Platforms were self-sustaining entities within Danaher and formed the basic building blocks of the company (Exhibit 8). Strategic platforms were headed by executive vice presidents, referred to as the group executives (GEs), between whom there was very little formal interaction. Each platform was further organized into business lines. For example, the EVP and GE of the dental platform oversaw its three business lines: dental consumables, dental hardware, and laboratory equipment. Each business line had a “headquarters business,” typically the original platform-establishing business within that line.

Each headquarters business had its own business-development team, finance organization, legal team, and other support functions. These resources empowered the business senior VPs and presidents to propose acquisitions within their industries as well as make operating decisions about their own subsidiaries. The business-development teams were staffed with individuals experienced in acquisitions and finance as well as relatively inexperienced or new MBAs. The subsidiary companies were tied to one of the headquarters businesses through a president who had profit and loss responsibility for that subsidiary.

A cross-functional integration team was formed within a platform whenever an acquisition closed. Consisting of a mix of line managers, DBS experts, and finance and marketing executives, it focused on transitioning the acquired company to the Danaher modus operandi within a defined period, usually 12 months.6 The integration team had clear goals based on DBS principles and was empowered to make operational, people, and product decisions.

Danaher acquired 11 companies in 2006 for $2.7 billion, 12 in 2007 for $3.6 billion, and 17 in 2008 for $423 million.7

DBS and Operating Philosophy

DBS was the means by which dissimilar companies were assimilated, managed, and evaluated. Starting as a factory-level Lean manufacturing system, DBS evolved into a comprehensive management system that demanded rigorous, detail-oriented, and measurable progress and accountability at every level, from the strategic decisions made at headquarters to the day-to-day operating decisions made at the subsidiary level. The continuous-improvement philosophy was applied across functions, from manufacturing to sales to product management to human resources. The tools and training developed within the DBS rubric were versatile enough to be deployedDO quickly at any newlyNOT acquired entity in anyCOPY new industry.

DBS provided the tools to measure and guide key goals and activities relative to customer goals concerning cost, quality, delivery, and innovation. At the operating level, foremen and supervisors used DBS to track and measure the achievement of these goals at monthly, weekly,

6 Danaher Corporation 10-K filing, 2009, 79. 7 Danaher Corporation 10-K filing, 2009, 72–73. -8- UVA-BP-0549 daily, and, in some cases, hourly intervals. In a culture where everyone was held accountable for results, DBS encouraged employees to take immediate action to resolve problems and to call on any resource, without regard to bureaucratic and hierarchical considerations. Daniel Even, president of Sybron Dental Specialties, provided an illustration of how DBS helped transform his company in Exhibit 9.

Danaher built a demanding and hard-charging culture that emphasized results and the unequivocal adoption of DBS. Exhibit 10 shows Danaher corporate values. While setting stringent targets from the top, headquarters delegated responsibility, decentralized operations, and drove accountability to multiple levels of the organization. Alignment was assured on three levels: The goals of the subsidiary were tied to platform and corporate goals; leadership teams were well trained in core DBS philosophy; and executives with operating experience in other Danaher businesses were put in leadership positions in new acquisitions.

Acquisition Process

Deal sourcing and due diligence

Acquisition ideas came from both platforms and headquarters. Typically, large acquisitions such as Tektronix and platform-establishing acquisitions were initiated by HQ, while bolt-on transactions were usually initiated by the business unit. In the latter case, the platform or business unit would draft an initial proposal to HQ with a rough evaluation of potential synergies. If the corporate development team approved the proposal, a five-member M&A team with members from both the corporate and business unit M&A groups would make the first offer to the target. If the offer was accepted, the deal moved to the due diligence phase.

Due diligence was performed by the business unit M&A team with input from proposing managers. If sufficient synergistic opportunities were identified, the deal moved to valuation. Following analysis and recommendations from business units, the corporate team decided on the price. Corporate M&A had veto power over whether a proposal was pursued and could end the process for a number of reasons such as lack of sufficient synergies or insufficient bandwidth and resources to conduct due diligence. At times, businesses competed for time and attention from the corporate development team, which occasionally created tension.

Criteria for acquisitions DO NOT COPY Danaher made acquisitions based on both strategic and financial criteria (Exhibit 11), screening companies for overall strategic fit, the likelihood that its DBS culture could be successfully deployed, stable earnings, differentiated brands or technologies, and strong market share of either bolt-on or platform-establishing transactions. Although bolt-on transactions were expected to reach ROIC thresholds within three years, platform-establishing transactions were allowed up to five years because of Danaher’s inexperience in new markets. It was not unusual -9- UVA-BP-0549 for Danaher to bid against companies such as Honeywell, Cooper Industries, or GE, but, if competitive bidding drove prices above Danaher’s limit, it would walk away.

Postmerger Integration

After a deal was valued, a business-unit integration team would take over from the five- member business development team. The postmerger integration team was a mix of business managers, DBS experts, up-and-coming-talent, and finance and marketing executives charged with all decision making as well as execution of plans regarding the target. The team leader was usually the individual most qualified and experienced in such integrations but not necessarily the most senior. The integration team’s plans typically operated on multiple levels and across multiple functions, including staff, product lines, manufacturing, and finance.

Executive staff

Decisions about who stayed and who was let go were made on a case-by-case basis, and terminations and retentions were announced on the day the deal closed. If Danaher was uncertain about its ability to successfully train a target’s leadership team in its operating principles, top and middle management positions were filled by existing Danaher employees. The acquired company’s desirable executives were offered new or related positions and encouraged to stay. Professional development and performance management plans were realigned with the Danaher system, and incentive structures were linked to the achievement of newly devised business priorities.

Nonexecutive staff

The integration team moved in on the day of closing to brief new employees; typically, it was the first time most heard about the purchase. Although input from the target might be used, personnel decisions were usually made by the integration team. The process was either smooth or rough depending on the goals of the seller (whether or not the CEO/owners wanted to retire and cash out), Danaher’s goals, and the strength of the relationship between the integration team and the subsidiary leaders. For nonexecutive staff, action was frequently drastic because support functions were generally terminated. Engineers stayed, if a plant or site was retained, or given the option to move if the product lines were integrated into a different business unit.

Training DO NOT COPY To simplify postmerger work and allow Danaher to integrate the target company without disrupting operations, the target’s senior and middle management spent time early on (sometimes pre-merger) at the Chicago training center covering everything from kaizen events to policy deployment, value-stream mapping, performance management, and ideas-to-innovation (Danaher’s new organic growth initiative). DBS training would begin almost immediately for -10- UVA-BP-0549 retained employees. For employees at newly acquired companies, the experience was sometimes unforgiving (Exhibit 12).

The DBS training model ensured that every new line manager was assigned to kaizen events across the family of businesses to drive hands-on improvements, and, in the process, learned Danaher’s culture, tools, and mindset. Each kaizen event was staffed with employees, leaders of the subsidiary, and new MBAs. The team focused on identifying a customer issue and fixing it in less than a week. It was not uncommon to see Larry Culp moving equipment around the factory floor in the middle of a kaizen event.

Product lines and brands

The subsidiary brands were usually tied to one of the headquarters’ businesses. Danaher always left the target brand intact, but a complete integration into the Danaher culture was a must. If the acquisition filled a gap in the product portfolio, Danaher adopted a fold-in strategy, assimilating product lines into its own operation while shedding the support infrastructure. Danaher frequently rationalized products and, sometimes retained only some product lines while jettisoning the rest of a company.

Manufacturing

Before a deal closed, Danaher executives toured plants and searched for ways to improve performance, and after closing, drove these improvements through kaizen events. Cross- functional teams, including managers and shift workers, coordinated reorganizing the factory and establishing new production and tracking methods. Even the smallest operation was scrutinized, be it the act of picking up a tool, the organization of parts, or the distance a worker moved to get the product to the next stage of production. techniques were a common feature within Danaher plants, whereby managers and workers together determined the most efficient way to perform every operation and eliminate waste.

Finance and controls

Within 60 days of closing, Danaher’s own financial, personnel, and cost-accounting systems were installed in the subsidiary, enabling the integration team to measure and track synergies and carefully manage cash. Danaher set up reserves to cover anticipated closing costs and rationalization opportunities, and, as a result, operating executives could focus on top-line growth without worrying about profit and loss during integration. DO NOT COPY

The Path Forward

In March 2009, Culp wondered how to keep growing in the face of global economic crises, new low-cost competitors, raw material price increases, and criticism from market analysists. -11- UVA-BP-0549

Exhibit 1 DANAHER—THE MAKING OF A CONGLOMERATE Danaher (NYSE: DHR) Stock Price Performance (Adjusted for Splits), 2000–2008

Data sources: Danaher 10-K filing, 2008, and shareholder meeting prospectus.

DO NOT COPY -12- UVA-BP-0549

Exhibit 2 DANAHER—THE MAKING OF A CONGLOMERATE Danaher Income Statement and Balance Sheets 10-Year Summary (year ended December 31) Income Statement 10-Year Summary ($ in millions)

Sales Net Income EPS 2008 12,697.46 1,317.63 3.95 2007 11,025.92 1,214.00 3.72 2006 9,466.06 1,109.21 3.44 2005 7,871.50 885.61 2.73 2004 6,889.30 746.00 2.30 2003 5,293.88 536.83 1.69 2002 4,577.23 434.14 1.39 2001 3,782.44 297.67 1.00 2000 3,777.78 324.21 1.11 1999 3,197.24 261.62 0.90

Balance Sheet 10-Year Summary ($ in millions)

Current Current Long-Term Shares Assets Liabilities Debt Outstanding 2008 17,458.03 7,649.47 2,553.17 318.4l 2007 17,471.94 8,386.25 3,395.76 318.0l 2006 12,864.1 6,219.49 2,422.86 308.2l 2005 9,163.11 4,082.76 857.77 305.6l 2004 8,493.89 3,874.21 925.54 308.9 2003 6,890.05 3,243.34 1,284.50 307.4 DO2002 6,029.15 NOT 3,019.55 COPY1,197.42 305.1 2001 4,820.48 2,591.90 1,119.33 286.6 2000 4,031.68 2,089.35 713.56 284.0 1999 3,047.07 1,338.32 341.04 284.9

Data source: Danaher annual report, 2008. -13- UVA-BP-0549

Exhibit 3 DANAHER—THE MAKING OF A CONGLOMERATE History of Acquisitions (partial list)

Year Key Acquisitions Platform Description Price Notes 1984 Dynapar Process and controls Encoders for motor motion control 1984 Mohawk Rubber Company Extruded products Automotive tire products Undisclosed 1984 Master Shield Inc. Vinyl products Building products Undisclosed 1985 Danaher Tool Group Tools and components Mechanic hand-tools Platform establishing 1986 Process and controls Pressure gauge, diverse control instruments 1986 Chicago Pneumatic Tools and components Tools, instruments $60 million 1986 Western Pacific Industries Tools and components Fasteners, screws, nuts, bolts 1987 Ammco Tools Inc. Automotive/transportation Wheel service equipment $52 million 1989 , Inc. Tools and components Hand tools $170 million 1989 Veeder-Root Environmental—petroleum Gas pumps and dispensers, retail automation Platform establishing 1993 Anderson Instrument Co. Industrial control Instruments and controls for fluid processing Undisclosed 1994 Delta Consolidated Industries Tools and components Tool storage equipment for trucks $167 million 1994 Hengstler GmbH Industrial control Counter and encoder Platform establishing 1994 Armstrong Brothers Tool Co. Tools and components Industrial hand-tools 1994 Mark IV Industries Industrial control Controls and Instrumentation division 1995 Joslyn Corporation Industrial control Electrical apparatus and controls $245 million 1996 American Sigma Environmental—water Water quality monitors Undisclosed Platform establishing 1996 Acme-Cleveland Industrial control Industrial control and telecom test equipment $200 million 1997 Gems Sensors & Controls Industrial control Fluid sensors and controls $147 million 1998 Fluke Test and measurement Electrical and industrial testing meters $625 million Platform establishing 1998 Pacific Scientific Company Motion Aircraft safety equipment $420 million Platform establishing 1999 Atlast Copo Controls Motion Servomotor, drive and control Undisclosed 1999 Hach Environmental—water Water analysis kits/instruments $325 million 2000 American PrecisionDO Instruments Motion NOTMotors and actuators COPY $186 million 2000 Kollmorgen Corporation Motion Specialized servo and stepper motor systems $267 million 2000 Warner Electric Company Motion Linear positioning equipment $147 million -14- UVA-BP-0549

Exhibit 3 (continued)

Year Key Acquisitions Platform Description Price Notes 2000 5 small acquisitions in electronic and network test, aerospace, environmental controls, and water quality $109 million 2001 United Power Corporation (UPC) Power conditioning Uninterruptable power systems $108 million 2001 Red Jacket Environmental—petroleum Gas pumps and dispensers, retail automation Undisclosed 2001 11 small acquisitions in electronic and network test, aerospace, industrial controls, and water quality $343 million 2002 Thomson Industries Motion Linear motion-control products $147 million 2002 Marconi (Videojet) Product identification Noncontact marking equipment $400 million Platform establishing 2002 Viridor Instrumentation Environmental—water Water quality instrumentation $137 million 2002 Gilbarco Environmental—petroleum Gas pumps and dispensers, retail automation $309 million 2002 8 small acquisitions in process and environmental control segments $166 million 2003 Willett International Ltd. Product identification Packaging code products Platform establishing 2003 Accu-Sort Systems, Inc. Product identification Packaging code products Platform establishing 2003 10 small acquisitions in process and environmental segments $312 million 2004 Radiometer S/A Medical technology Critical care diagnostic instrumentation $684 million 2004 Gendex (Dentsply) Medical technology Dental treatment equipment 2004 Kaltenbach & Voigt GmbH (KaVo) Medical technology Dental diagnostic systems and lab equipment $412 million Platform establishing 2004 Trojan Technologies Environmental—water Water disinfection and wastewater treatment $185 million 10 small acquisitions in medical technology, electronic test, motion, environmental, product identification, 2004 $311 million sensors and controls, and aerospace and defense 2005 Leica Microsystems AG Medical technology Surgical microscopes $550 million Life sciences—potential 2005 Linx Printing Technology PLC Product identification High-speed printing applications $171 million 2005 11 small acquisitionsDO in environmental and instrumentationNOT segments COPY$285 million -15- UVA-BP-0549

Exhibit 3 (continued)

Year Key Acquisitions Platform Description Price Notes 2006 Sybron Dental Specialties Medical technology Diversified dental professional products $2 billion 2006 Vision Systems Ltd Medical technology Life sciences instrumentation $525 million To be paired with Leica 2006 2007 ChemTreat Environmental—water Industrial water treatment products $425 million 2007 Techtronix Test and measurement Communication and signal-monitoring $2.8 billion devices 2007 10 small acquisitions in professional instrumentation, medical technologies, or industrial technologies $273 million segments Source: Created by case writer from Danaher annual reports, 2000–08 and 10-K filings.

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Exhibit 4 DANAHER—THE MAKING OF A CONGLOMERATE Danaher’s Original Businesses

The precision components business unit, which later became the Danaher Tools and Components segment, had its beginnings in 1986 when Danaher purchased Western Pacific Industries, a manufacturer of fasteners and plastic products. In the first five years, the portfolio was expanded through acquisitions, most significantly when Danaher was selected by Sears, Roebuck & Co. to manufacture its Craftsman line of hand tools. Danaher also became the leading supplier of tools to the National Automotive Parts Association (NAPA). The precision and components subsidiaries came to manufacture such diverse products as Swiss screw machine parts, the famous wrench, and drill chucks. Precision components became Danaher’s mainstay business and contributed up to 49% of overall revenues by 1991.

Automotive and transportation holdings focused on professional auto mechanic tools and transportation parts, considered to be a natural adjacency to the tools and precision products business by virtue of similar production methods and selling processes. As with precision components, this business unit continued to expand through several acquisitions including Coats, Jacobs, Fayette, Ammco Tools Inc., and Hennessy, which added wheel serving products, engine braking systems, tubular products, wheel balancers, tire changers, and brake repair components to the automotive portfolio.

The instrumentation business unit was created in 1984 with the acquisition of Dynapar Corporation, a leading supplier of controllers to the industrial motor market. Danaher took the lead in speed control and sensor products for electric motors and drives, and by 1986, three additional acquisitions added pressure gauges, equipment protection devices, instruments, and communication devices for transmission and distribution systems for the electric, water, and oil and gas industries. Once expertise had been established in industrial controls, Danaher entered a market using similar products—retail gas dispensing—by acquiring Veeder-Root in 1985. The company supplied underground fuel storage sensors and instrumentation products to four out of every five gas pumps worldwide. Subsequently, the instrumentation unit began to branch into instrumentation and environmental controls. During the economic recession of 1989–93, the environmental controls business became Danaher’s fastest-growing business, aided by stringent regulation and increased demand for environmental products.

Danaher’sDO extruded productsNOT division began inCOPY such areas as plastics manufacturing, rubber, and vinyl sidings; however, by the end of the 1980s, Danaher divested most of these holdings.

Source: Created by case writer from Danaher 10-K filings. -17- UVA-BP-0549

Exhibit 5 DANAHER—THE MAKING OF A CONGLOMERATE Strategic Platforms and Niche Lines

Source: CreatedDO by case writer NOTfrom Danaher 10-K filings. COPY -18- UVA-BP-0549

Exhibit 6 DANAHER—THE MAKING OF A CONGLOMERATE Danaher Segment Financials, Year Ended December 31 (dollars in millions)

Professional Instrumentation 2007 2006 2005 Sales $ 3,537.9 $ 2,906.5 $ 2,600.6 Operating profit 709.5 625.6 538.3 Depreciation and amortization 64.8 48.8 47.8 Operating profit as a % of sales 20.1 21.5 20.7 Depreciation and amortization as a % of sales 1.8 1.7 1.8

Medical Technologies 2007 2006 2005 Sales $ 2,998.0 $ 2,220.0 $ 1,181.5 Operating profit 393.2 261.6 138.7 Depreciation and amortization 119.7 84.3 44.2 Operating profit as a % of sales 13.1 11.8% 11.7 Depreciation and amortization as a % of sales 4.0 3.8 3.7

Industrial Technologies 2007 2006 2005 Sales $ 3,153.4 $ 2,988.8 $ 2,794.9 Operating profit 532.5 467.7 409.3 Depreciation and amortization 63.2 61.1 60.4 Operating profit as a % of sales 16.9 15.0 14.6 Depreciation and amortization as a % of sales 2.0 2.0 2.2

Tools & Components Selected Financial Data 2007 2006 2005 Sales 1,336.6 1,350.8 1,294.5 Operating profit 175.6 194.1 199.3 Depreciation and amortization 20.8 21.4 22.8 Operating profit as a % of sales 13.1 14.4 15.4 Depreciation and amortization as a % of sales 1.6 1.6 1.8

Percentage of Total Sales Segment 2007 2006 2005 Professional instrumentation 32 31 33 MedicalDO technologies NOT COPY27 23 15 Industrial technologies 29 32 36 Tools and components 12 14 16

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Exhibit 6 (continued)

Percentage of Total Sales Identifiable Assets: 2007 2006 2005 Professional instrumentation $ 6,692.0 $ 2,691.0 $ 2,589.0 Medical technologies 6,160.6 5,534.1 2,408.6 Industrial technologies 3,536.2 3,623.7 3,158.9 Tools and components 801.1 824.4 785.8 Other 282.1 190.8 220.8 $ 17,471.9 $ 12,864.2 $ 9,163.1

Liabilities: Professional instrumentation $ 1,286.7 $ 784.2 $ 794.9 Medical technologies 1,489.7 1,482.3 855.2 Industrial technologies 829.0 832.5 897.3 Tools and components 214.8 238.7 240.9 Other 4,566.0 2,881.8 1,294.4 $ 8,386.2 $ 6,219.5 $ 4,082.8

Depreciation and Amortization: Professional instrumentation $ 64.8 $ 48.8 $ 47.8 Medical technologies 119.7 84.3 44.2 Industrial technologies 63.2 61.2 60.4 Tools and components 20.8 21.4 22.8 $ 268.5 $ 215.7 $ 175.2

Capital Expenditures, Gross Professional instrumentation $ 39.0 $ 34.5 $ 32.3 Medical technologies 47.6 31.6 16.1 Industrial technologies 48.0 44.7 47.9 Tools and components 20.9 25.6 23.4 Other 6.5 — — $ 162.1 $ 136.4 $ 119.7

Data source: Danaher annual report, 2008. DO NOT COPY -20- UVA-BP-0549

Exhibit 7 DANAHER—THE MAKING OF A CONGLOMERATE Danaher Corporate Organization Structure

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Source: Created by case writer. -21- UVA-BP-0549

Exhibit 8 DANAHER—THE MAKING OF A CONGLOMERATE Danaher Platform Organization Structure

EVP and group executive

SVP SVP SVP Business Headquarter Headquarter Headquarter Legal Development Business A Business B Business C

President President President Other support Finance Business 1 Business 2 Business 3 functions

Integration VP Operations VP Marketing VP Sales team

Product Line Managers Finance Marketing managers

Factory Operations HR & Legal Managers

DBS Experts New MBA’s

Source: Created by case writer. DO NOT COPY -22- UVA-BP-0549

Exhibit 9 DANAHER—THE MAKING OF A CONGLOMERATE DBS/Kaizen Case Study

Daniel Even, president of Sybron Dental Specialties, reflected on his experience postacquisition to the editor of Dental Economics:

Our first kaizen was on the factory floor. We have a product, the clear ceramic ortho bracket, which is very difficult to make. Any slight variation in the manufacturing process causes the material to chip or fracture, and we end up with a lot of scrap. Even though the materials to build this product are very expensive and the time to build it is lengthy, it’s a very important product for us because patients want braces that don’t show. This product is ground out of a block of crystal; the crystal itself is actually grown. On top of that, it has to cure for a long time. The entire process takes almost 24 days and takes up a lot of floor space. During this kaizen, we literally reduced floor space by 30%, and we significantly decreased the number of days it takes to build the part to six days. So, we ended up with the same quality product but with less floor space and a faster delivery time to the customer.

Data source: Dental Economics, February 16, 2007.

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Exhibit 10 DANAHER—THE MAKING OF A CONGLOMERATE Danaher Corporate Values

The Best Team Wins Associates are our most valued assets. We’re passionate about retaining, developing and recruiting the best talent available. Danaher and its associates win because: We are team-oriented with involvement by all. We seek fact-based, root cause solutions; not blame. We are accountable for results, and we deliver. We are nonpolitical and not bureaucratic. We have high integrity and respect for others. Winning is fun! Customers Talk, We Listen Quality First, ALWAYS! We base our strategic plan on the voice-of-the-customer. Robust, repeatable processes yield superior quality, delivery, and cost that satisfy our customers beyond their expectations. Continuous Improvement (Kaizen) Is Our Way of Life The Danaher Business System IS our culture. We aggressively and continuously eliminate waste in every facet of our business processes. Leading Edge Innovation Defines Our Future1 We continuously apply our creativity to the technologies of products, services, and processes. Out-of-the box ideas, both large and small, add value to our enterprise. We accomplish breakthroughs through the policy deployment process. We Compete for Shareholders Profits are important because they attract and retain loyal shareholders. DO NOT COPY

1 Danaher began to emphasize innovation in 2000. -24- UVA-BP-0549

Exhibit 10 (continued) Danaher’s Corporate Mission

We strive to create shareholder value through:

 delivering sales growth, excluding the impact of acquired businesses, in excess of the overall market growth for our products and services;  upper quartile financial performance compared to our peer companies; and  upper quartile cash flow generation from operations compared to our peer companies.

To accomplish these goals, we use a set of tools and processes, known as the DANAHER BUSINESS SYSTEM (DBS), designed to continuously improve business performance in the critical areas of quality, delivery, cost, and innovation.

Data source: Danaher annual report, 2008.

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Exhibit 11 DANAHER—THE MAKING OF A CONGLOMERATE Danaher Acquisition Guidelines

Strategic Considerations Financial Considerations  Industry fit (manufacturing, tools)  Cultural fit  ROIC: 10% after tax within three years  Adoption of DBS  EPS accretion  Bolt-on, platform-enhancing  Free cash flows in excess of earnings  Quality, delivery, and innovation  Assessment of cost structure  Market share leadership  Price  Brand strength (goodwill)  Counter-cyclicality

Source: Created by case writer from public sources.

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Exhibit 12 DANAHER—THE MAKING OF A CONGLOMERATE Reactions at Danaher

Group/platform Our organization has embraced DBS. At the first kaizen, we became executive believers at what we could accomplish through this methodology. The experience is incredibly exciting because of the impact we see within the first couple of hours of a kaizen. We actually move things on the floor and see results very quickly, which builds an incredible amount of momentum. As people see the results, they become more engaged. We end up working long hours because we’re so eager to get to the finish line and implement the tools to their fullest extent. It’s very energizing and exciting and high impact. Current It has become impossible for management within Danaher company to make employee any decisions or “run” their company on their own. The corporate management is micromanaging everything! The spread of funds over ALL companies makes it difficult to do anything when you could be doing better on your own. MBA on Danaher provides a place to grow and improve as the company is all about leadership growth and continuous improvement. The company relies on self-motivated development leaders to define their own path and forge ahead smartly to achieve whatever track they want. Danaher provides tools and frameworks for you to achieve, but if you need structure, this is not the place for you. If you want to create/find opportunity and develop it into a profitable growth business, look here. The growth of your responsibility is only limited by your ability to produce results. Current They took over our private company preaching their DBS culture with no employee respect for people. New managers took over and laid off the managers left at the company. The rest left voluntarily. I would say, Danaher is a good company, just look at the outstanding financial results, but their corporate managers have gone too far, and they have not paid attention to the local management. Manager Danaher corporate has a lot of good ideas and really tries to incorporate the companies they purchase into the DBS; however, old management has a hard time correctly adapting the DBS concepts and quickly delegates blame to DOcover up itsNOT own mistakes. COPY Manager Danaher must become more customer focused and less focused on monthly revenue. Place more emphasis on new product development and stop trying to suck more income out of old products.

Data source: http://www.glassdoor.com/Reviews/Danaher-Reviews-E193.htm.