DANAHER CORPORATION (NYSE: DHR) Long Pitch for MII Maya Venkatraman Agenda • Company Overview • Financials • Thesis Points • VAR • Misperceptions • Risks • Summary • Questions 2 Business Overview • Danaher Corporaon (NYSE: DHR) • Diversified Technology Leader. • Based in DC. • Began in 1969. • Focuses in 6 sectors: • Medical Technologies • Product Idenficaon • Test and Measurement • Environmental • MoJon • Dental 3 • Specialty businesses in aerospace & defense, sensors & controls, full-line wheel-service equipment, and vehicle systems sectors. Divisions • Accu-Sort • Delta • Gendex • Jacobs Vehicle Messtechnik • SybronEndo Systems, Inc. Consolidated • Gilbarco Veeder- Systems GmbH • Tektronix Industries • AB Sciex Root • Joslyn Clark • OECO • Tektronix • Allen • DEXIS • GLI • KaVo Dental • Orbisphere Communicaons • ALLTEC • DH Instruments • Guardian Vong • K-D Tools • Ormco • Thomson • American Sigma • Dover Systems • Kerr • Pacific Scienfic • Trojan • AmProbe • DynaPar / • G&L MoJon • Kistler Morse Instruments Technologies- Northstar Control, Inc Videojet • Anatel • Kobalt Hand • Partlow • Anderson • Eagle-Signal / • Hach Company Tools • Pelton & Crane • Vision Systems Veeder-Root Limited • Arbor Networks • HACH LANGE • Kollmorgen • PMA • Easco Hand (Europe) • Visual Network • Armstrong Tools • Kollmorgen • Polymetron Tools • Harowe Electro-Opcal Systems Ltd • Artus • PortescaP • ELE • • West Hart Scienfic • Lachat • • AviaJon Qualitrol Corp Instruments • Electro-KineJcs • HECON Instruments Services • Radiometer • EskoArtwork • Wille • AviaJon • Hengstler GmbH • Leica • Radiometer • EnergeJc Microsystems Services Europe • Hennessy AnalyJcal Materials • Bindicator Industries • Linx Prinng • Raytek • Environmental • Technologies • Holo-Krome • Buhler Montec Test Systems Red Jacket • HTL/Kin-Tech • Matco Tools • Calzoni • Robin • Fisher Pierce • Marsh • Chemtreat • Hydrolab Electronics • Fluke McBerney • Imaging Sciences • • Comark Ltd Corporaon Industries Sata Internaonal • CraSsman Hand • Securaplane • Fluke Networks • Invetech • McCrometer 4 Tools Technologies • GearWrench • Namco / Dolan • Iseli • Setra • Danaher MoJon • Gems Sensors & Jenner • Jacobs Chuck • • Danaher Tool • Spline Gauges Controls Manufacturing Negele GrouP • Sunbank DHR Stock Chart 5 Stock Summary • Share Price………………………………………………………………..……………. 51.96 • Market Capitalizaon..…………………….........................................34.25B • P/E……………………………………………………………………………….….……….19.68 • EPS..……………………………………………………………………………………………2.64 • 52-week Range.………………………………………………………..… ..35.24– 53.01 • Average Volume………………………………………................................ 3.29M • Revenue Growth……………………………………………………………………….. 18% • Interest Coverage Rao…………………………………………………………….. 20.8 • Gross Profit Margin……………….……………………………………………….. 50.2% • Cash …………………………………………………….……………………………….…1.63B 6 • Free Cash Flow to Net Income Conversion Rao…....................... 120% • Forecasted 5yr. Earnings Growth…………………………………………..... 15.0% Revenue Growth • Revenue growth categorized as “high” in comparison to other conglomerates 7 Financial Highlights 8 DHR is a Long 1 World-wide Industry Leader/Brand Recogni,on 2 Unique Posi,oning in the Market 3 Significant Poten,al for Growth and Innovaon 4 Prominent in Emerging Markets 9 5 Cost Effec,ve Business Model (DBS) Leading in All Sectors 10 Danaher is an Industry Leader • Danaher is an ac,ve acquirer of great, global companies with strong, market-leading brands. • Well diversified through emerging markets. • In 2009, Danaher expanded internaonally in response to a declining economy. It profits as the economy recovers, since those acquisi,ons are now generang profits. • Outstanding, experienced management. 11 Industry Segmentaon Revenue DistribuJon 2% Test & Measurement 22% Environmental 24% Life Sciences & Diagnos,cs Dental 14% 21% Industrial Technologies 17% Specialty Businesses 12 Environmental 13 Test & Measurement 14 Industrial Technologies 15 Dental 16 Life Sciences & Diagnoscs 17 Wide-Ranging Product Mix 18 Growth 19 Growth & Innovaon AcquisiJons made solely in 2010 20 New Iniaves • Danaher subsidiary, Hach, created The Virtual Tradeshow, an online tool which lets poten,al customers interact with water quality experts through video demonstraons, webex, and live chats. • Another subsidiary, Pelton Crane started a Den,stry Technology Seminar called “Driven to Excellence” where they introduce their newest dental equipment. • Resulted in a $50 million sales 21 funnel Research & Development • More than 1800 new products introduced in 2010 alone. • Circa $3.5B of 2010 revenue gained from new products introduced in past 3 years alone. 22 Prominence in Emerging Markets • 20% YTD emerging market growth in sales • Over 50% of annual revenue comes from Internaonal Markets. • Industry leader in BRIC countries. • Introduced major subsidiaries in China: Leica, Hach, & Tektronix. 23 Danaher Business System If you don’t measure it, you can’t improve it. Personalized Balance Scorecard. Focus on Quality, Delivery, Cost, & InnovaJon 24 Danaher Business System (DBS) • Danaher Corp. started going “lean” in 1987; one of the earliest companies in the US to do so. • "Lean," is a produc,on prac,ce that considers the expenditure of resources for any goal other than the creaon of value for the customer to be wasteful, and thus a target for eliminaon. • Even before a deal/acquisi,on is made, the DBS team, works with the acquisi,on target to inject a heavy dose of Danaher DNA. Synergizing organic and inorganic growth through focus on 3 key factors: Create Value Increase Efficiency 25 Inculcate Growth and Innovaon Perceived Competors • General Electric (GE) • Sells mainly Capital Intensive products. So, more complex purchasing decisions for buyers. ROI is dissipated over 5-10 years. • Failed to recover from the recession. Low growth rate. • 3M (MMM) • Sensi,ve to product cycles and seasonality. Higher risk. overextended. • Domes,c slowdown over the recent past. Revenue from Display & Graphics division directly ,ed to North American consumer habits. More elas,c demand. • Downsizing pharmaceu,cal sector • Tyco Internaonal (TYC), United Technologies (UTX) • General conglomerates. Operate in different segments . Falsely perceived as compe,tors to DHR by analysts • Low revenue growth. Overextended, currency risks. 26 Conglomerate Industry’s high barriers to success keeP comPeJJon in check Mispercepons • Danaher is compared to general conglomerates • Clarificaon: Analysts onen don’t know where to posi,on it & with what other companies to compare it. • Danaher is considered overextended • Clarificaon: Danaher has a lot of capacity for growth. Only half the size of 3M but much more efficient • Analysts overlook the PotenJal value created by Danaher’s acquisions • Danaher’s management team has successfully integrated acquisi,ons by leveraging the companies’ untapped growth poten,al and buying very undervalued companies. • Analysts judge Danaher’s value by looking at its net assets alone • Clarificaon: R&D on internally developed assets is overlooked, since it is expensed when incurred • Danaher focuses in the Water market, which is overlooked by Wall Street 27 • Clarificaon: The water market is actually long-term profitable endeavor due to poten,al shortage of water. VAR “We really didn’t even look at anything else. I think the Product’s great. It solves a lot of issues for me.” – Steven O, Senior, Metrologist, Defense Industry, Washington DC (In reference to MET/CAL sonware, Test and Measurement, Fluke Calibraons) “HealOzone has changed the way I pracce denstry.” - Dr. S. Y. P. Cheng, Den=st, London (In reference to HealOzone, a root-canal disinfec,on product by KaVo) “Hach Lange has enriched the water and sewage market with many innovave products during their 75-year-old history. Hach Lange does not only sell products, but shows engagement, a pioneer's mind, and customer proximity in order to find praccal soluons and oPen the market for new measuring and regulatory ideas.” - Dr. G. Seibert-Erling, Consultant Engineer, Water treatment plant, Kressbronn-Langenargen, Germany 28 (In reference to Danaher’s leading water treatment subsidiary, Hach Lange) VAR • “Danaher is probably the best-run conglomerate in America. It's clearly the best performing: Over 20 years, it has returned a remarkable 25% to shareholders annually, far beer than GE (16%), Berkshire Hathaway (21%), or the Standard & Poor's 500-stock index (12%).” -Brian Hindo, Corporate Strategies Editor, Bloomberg BusinessWeek. 29 Possible Risks • Danaher uses metals in manufacturing its various products so non-ferrous metal prices may affect its gross margin. • If oil prices soar for long periods of ,me, it may lessen Danaher’s operang margin. • Li,gaon over patents on new products • Risk from changing exchange rates since Danaher is a global company 30 The Boom Line • Danaher has a niche since it is wide-ranging, but focuses in high-tech products across mul,ple sectors, demographics, and countries. • Danaher is very futuris,c. Danaher understands future world and it is deeply invested in planning for tomorrow’s needs while sasfying today’s. • Due to exceedingly high barriers to success, it is difficult for new compe,,on to enter and pose a threat to Danaher. • Stable management. They understand the repercussions of what they are doing. • Danaher Corporaon is not dependent on a single ver,cal industry; it is mul,faceted. Risk is mi,gated due to product 31 diversity. Quesons? 32 .