Navigating the College Application Labyrinth: A Parent's Journal from Junior Year

Danaher - Mergers & Acquisitions

Danaher grew inorganically with acquisitions. They own multiple platforms ranging from industry tools, instrumentation, environmental, life sciences and dental. They have essentially moved up the value chain moving into more niche markets. The high level strategy is to buy a new Platform and look for Bolt On's and Adjacencies for the existing platforms.

DHR has a 20 year history of delivering their shareholders returns better than S&P 500 with a difference of 2769% over this time (S&P grew 484% and DHR 3251%). Danaher sets a flat Cost of capital to about 10% to reduce the complexity and help analyze the return on the investment as most of the cash comes from the free cash flow.

Danaher has top line growth of 12-15% and even during the 2008-2009 recession time it still maintained about 8% as they people were still drinking coke and buying pampers. Danaher's revenue base is distributed broadly and overall portfolio of industries with low risk and about 7% on R&D to sustain the growth margin.

Main Mantra - Danaher is NOT a number first it is a culture FIRST company

Danaher is one of the most successful M&A companies creating a framework DBS based out of lean manufacturing principles from Toyota. DBS can be defined as a triangle of efficiency, growth and talent. The only other companies that come to my mind comparable to Danaher are GE and may be Cisco. One of the key lessons learned at Danaher - if you are going to make changes to acquired organization make it immediately and slide their people into the appropriate positions.

Danaher will not acquire an organization if its going to be a cultural war or if they are not sure if they are going to win it. This has been one of the core reasons why Danaher was so successful in all the acquisitions at a rate of 15 a year. Danaher acquisitions strategy is based on razor or razor blade model.

Industry + Acquisitions + Growth/improvement = PID Platform Today 

Key Market Characteristics

• Size (Billion or more)
• Growing / Not volatile / No cyclicality
• Fragmented (Long Tail)
• Grow globally

Target Acquisition

• 25 - 100 M Product Oriented
• Operational inefficiencies
• Talent - Entrepreneurship spirit
• Customer intimacy
• Family Owned Business - Team Mentality, High buy-in, resource limitations

8 Key Metrics To Manage Acquisitions

• Financial - Core growth
• Financial - Core market expansion
• Financial - Free cash flow 
• Financial - Return on invested capital on a deal by deal basis.
• Customer - Quality metric 
• Customer - On-time delivery
• Associates - Retention 
• Associates - Internal fill around 75% and 25% externally filled

Gross Margin and why it is an important metric?

Gross Margin demonstrates the value of goods or services that your customer is perceiving. Its easy to improve high gross margin business than the low margin business. The companies with 50/60/70% gross margin focus on technology and brand as well as paid for that some have deeper R&D divisions fueling innovation. What did we learn from off track and how do we get it on track?

CFO spends about 25% time on the M&A deals, Investor Relations 10%, Strategic and Operation review of the businesses 20% and rest of the time acquiring the right talent to grow current businesses and support future acquisitions.

Talent Management

Looking into some of the salient characteristics of Danaher's related to selection of people, systems and culture and Incentives for the employees. Danaher expect the business to be able to export the people to other divisions or acquisitions.As a culture defensive will not work at Danaher and some people do not submit to DBS and exit from the organization.

Mantra - Win type environment

Danaher is a matrix structure with the presidents owning everything other than tax and legalities. They leverage the power of working for the big company with which it  has retentive power specially in growing markets. Fundamentally Danaher is aligned to DBS which are set of best practice created over years by beg, borrow from other industries/organizations and learnt over time. DBS adherence  is the critical commitment they look for in each employee as they assess the cultural fit.

Danaher people are target for most of the high profile staffing firm given their growth and discipline driven culture.

Selection Strategy

• Top Talent
• New Hires - Physiological assessment - Win in a team - Assessments -> Creativity and Passion
• Employees through acquisitions are selected based on 8-12 week process retaining any where from  100 to 50% based on the fit and match of their culture

They pay employees at market to take money off the table and incentive on performance in terms of bonus and equity for senior leadership.

Employee Incentives

• Base Salary + Bonus + Equity Participation (Base - competitive within function and industry)
• Bonus in the range of 25% to 50% of base pay
• Bonus is based on performance of business and individual own  goals
• Revenue growth based on markets like China
• Stock option vesting is longer than other companies to help with the retention

Customer Intimacy (Low to High) Vs Cyclicality (High to Low)
Components - Instruments - Consumables - Software /SaaS / Service