Danaher's Acquisition of Radiometer

Danaher Corporation ’s acquisition of Radiometer in 2003 started a new chapter in the history of both companies. The purchase price of $730m made it Danaher’s largest acquisition up to that point. Radiometer became Danaher’s first major operating company headquartered outside the United States, increased Danaher’s proportion of sales outside North America, and improved Danaher’s gross margin profile. Comparing Danaher’s reportable segments, as presented to the outside world, with its platform-establishing acquisitions shows the evolution of Danaher’s strategic platforms. Was Radiometer a transformational platform-establishing acquisition for Danaher’s new, international Medical Technology platform or was it simply an adjacency acquisition to the Water Quality platform? Answering this question will give the reader a better understanding of mergers and acquisitions theory in general and Danaher’s strategic platforms specifically.

This chapter starts with an overview of Radiometer as a publicly traded company since 1984, covering its product line extension, geographic expansion, and tax arbitrage acquisitions over the next decade. Radiometer divested those businesses between 1992 and 1998. Danaher and Radiometer as they existed in 2003 are introduced. Danaher’s acquisitions in Europe between 1992 and 1998 are then reviewed. With that background, the next topics covered are Radiometer’s appeal to Danaher as an acquisition target and Danaher’s appeal to Radiometer as a buyer. Part of the appeal of Danaher as a buyer came from Fluke’s experience with bolt-ons between 1998 and 2003. Lastly, the chapter ends with an alternative interpretation of Radiometer as an adjacency acquisition to the Water Quality platform instead of a platform-establishing acquisition. The language of business is spoken in U.S. dollars ($), Danish krone (DKr), British pounds (￡), euros (€), and Australian dollars (A$).

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Radiometer’s History as a Publicly Traded Company

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In 1984, Radiometer went public on the Copenhagen Stock Exchange and made history as the largest share issue in Denmark (up to that point). The Danish investment bank Privatbanken managed the issue in Copenhagen while 高盛 simultaneously managed the issue in London. In the year before going public, Radiometer had annual sales of DKr543.3m ($55.1m or ￡37.9m). In the two decades between going public and being acquired by Danaher, Radiometer’s growth strategy went through three stages: Growth through acquisition, divestiture, and focused niche.

Between 1985 and 1992, Radiometer attempted to grow through acquisitions, but struggled. Its acquisitions could be placed in three categories: (1) Product line extensions, (2) geographic extensions, and (3) tax arbitrage. There was some overlap between the three.

Mr. Johan Schroder (1940–2019) became chairman of Radiometer and handed responsibility for managing the company to a new chief executive in early 1986. News of the handover included the note:

“[Mr. Schroder] intends to help the company extend its range of activities by selecting suitable companies for acquisition. He hopes that Radiometer will be able to buy up two or three companies within the next six months. One or more of these may well be overseas. … It appears that Mr Schroder is looking at between 8 and 12 companies which may be candidates for future acquisition.”

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Radiometer’s Product Line Extension Acquisitions (1984–1992)

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The first company Radiometer acquired after going public was Qvists Laboratorium, a provider of chemical, physical, and bacteriological analysis for the food processing industry. Also in 1985, Radiometer bought Malthus Instruments, a manufacturer of microbiological analyzers, for ￡0.5m from a British metal refining and chemicals group. In 1986, Radiometer acquired Tacussel, a French electronics company, and Sensititre, a British microbiology company, for a total investment of around DKr148m ($20.3m or ￡13.7m). Radiometer estimated Tacussel generated revenue of DKr40m in the previous year. Tacussel was later rebranded as Radiometer Analytical and France became the base of its water analysis business.

Struers, a family-controlled laboratory equipment manufacturer, sought out a buyer in 1992 after the company reported a loss and forecasted more losses in the next year. Radiometer bought it for DKr93.5m. These companies acquired by Radiometer could be classified as product line extensions.

German group AGIV acquired Danish electronics manufacturer Brüel og Kj?r in 1992. Mr. Schroder joined a group of investors trying to keep the company in Danish hands, but that effort failed. He was not interested in carving out the Medico division because “it did not fit into [Radiometer’s] operations.”

Mr. Schroder often advocated for Radiometer to merge with Foss Electric, another major Danish electronics company, at some point in the future. He lamented the difficulty finding research and development staff within Denmark. Radiometer was reportedly considering three candidates for acquisition, focused on the United Kingdom or United States. That proposed acquisition never materialized.

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Radiometer’s Geographic Expansion and Tax Arbitrage Acquisitions (1991–1993)

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Radiometer bought distributors to expand geographically. This strategy was primarily used in Japan. Radiometer acquired its Japanese agent, Shinko Trading, in 1991. Radiometer also acquired Marumoto, Struers’ Japanese distributor, for DKr35m the next year. Marumoto reportedly generated revenue of DKr70m in 1991. One of these subsidiaries had a significant negative impact on the overall company’s results after Radiometer discovered the operation was counting units loaned out to customers as sales. That acquisition could hardly be called a success.

The third category of acquisitions made by Radiometer during this period were of loss-making businesses for tax arbitrage. In 1988, Radiometer acquired the measuring equipment business of a Danish shipping conglomerate, then renamed the subsidiary Radiometer Medical. The acquisition was structured in a way that reduced Radiometer’s taxes by DKr60m over the next two years. The New Holland group sold its Danish subsidiary to Radiometer in 1993. The subsidiary’s tax deficit was expected to reduce Radiometer’s tax bill by DKr50m over the next four years. Almost all Radiometer acquisitions during this period were of loss-making businesses, although some of those businesses at least expanded product offering and geographic reach.

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Radiometer’s Divestitures (1992–1998)

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By the year ended April 1992, Radiometer had more than doubled its annual revenue from the year before it went public (1983). Its FY1992 revenue of Dkr1.58b had grown 9.5% annualized over that period. Radiometer’s core business was growing well, but the businesses acquired over the past few years were mostly loss-making distractions.

Steins Laboratorium bought Qvists from Radiometer for an undisclosed sum in late 1992. The unit had reported breakeven results over the past two years. Shortly after acquiring Struers, Radiometer sold its Struers Chem subsidiary to Sweden-based KEBO Lab. The justification for the sale was the subsidiary “feels it will be better served by having an owner which does not compete in the same market as its suppliers.” Radiometer also sold Struers’ Swedish subsidiary to Bergman & Beving, a Sweden-based distributor. The sale of Sensititre to Accumed in January 1995 was Radiometer’s full exit from the microbiology industry. That left Radiometer with its core Medical Group as well as France-based Radiometer Analytical and the metallography equipment businesses of Struers.

“Radiometer has found a new business area abroad which could provide the company with the dynamism and growth it has been searching for and give it a significant global market share,” reported B?rsen in late 1996. “The new activities would contribute [annual] turnover of between DKr 0.5bn and DKr 1bn … [as] a third leg to stand on.” An operation that size would equate to about one- or two-thirds of Radiometer’s annual revenue. The potential acquisition was supposed to be finalized by mid-1997. Instead, Radiometer’s management in April 1997 “decided to stop acquisition plans and concentrate on developing its medical division and consolidating its strong position in the in vitro diagnostics market.” Goldman Sachs was hired “to look for a suitable partner with whom [Radiometer] could work on maintaining and expanding its market position.”

By June 1997, Radiometer restructured itself to have two divisions: The Medical Group and the Scientific Product Group (SPG). The Medical Group had 1,640 employees and DKr1.2b annual revenue. SPG had 500 employees and comprised of Struers, Logitech, Radiometer Analytical, and their sales entities. SPG generated DKr497m annual revenue. “This means the group is giving up plans to find a third leg of interests via acquisitions,” explained Dow Jones . Radiometer’s annual report detailed the change in strategy:

“The decision of establishing pure medical sales subsidiaries implies that Radiometer abandons its previous strategy of obtaining an advantage of economies of scale in the sales subsidiaries by selling several product lines. It is then no longer relevant to try to acquire new manufacturing companies with products that can be sold through the sales subsidiaries of the Group. The Copenhagen Stock Exchange was therefore informed that the search for such companies had been discontinued.”

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Radiometer built up a cash balance of over DKr1b ($158m or ￡97.4m) by the fiscal year ended April 1997 in anticipation of a large acquisition. About half of that cash balance was paid out as a 50-krone special dividend (compared with 10 krone per share the previous year).

Not only did Radiometer’s management give up on trying to find a third leg of the business, it decided to sell the second leg. In December 1997, it announced the sale of SPG for DKr720m to Scandinavian Equity Partners (EQT), a private equity firm. The carve-out transaction had a 1.45 price-to-sales valuation. After the sale was completed, Radiometer was a stand-alone medical devices company looking for a larger partner.

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Radiometer and Danaher in 2003

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Radiometer was the subject of two 美国哈佛商学院 case studies; one in 2003, before Danaher’s acquisition, and the other in 2013, almost a decade after the acquisition. In 2003, the case writers asked:

“Should [Radiometer] remain focused on blood gas analysis and redouble its efforts? Or should it turn to other opportunities for growth? … Should Radiometer aim to [offer products in multiple segments of in-vitro diagnostics] or should it partner with others who could provide complementary products?”

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When Radiometer was up for sale in 2003, the process started with 10 suitors providing an indicative bid. These suitors represented major diagnostic and private equity companies. Radiometer’s management then went on a roadshow to present to half of them. Danaher joined the process late. Carnegie, the Danish investment bank that was leading the sales process, contacted Dan Pryor , Corporate Vice President of Strategic Development at Danaher since November 2000.

Mr. Pryor joined Danaher in 1994 after obtaining a Master in Business Administration (MBA) from the Harvard Business School. The press release announcing his promotion noted he “will have responsibility to provide strategic analysis and direction for Danaher’s acquisition plans designed to drive long-term growth and performance.” Prior to that role, he was Executive Vice President, Environmental Water Quality Group.

A market-centric approach to mergers and acquisitions meant programmatically identifying the markets Danaher should enter based on the type of business Danaher wanted to be. “The main goal was increasing growth and gross margin, which we viewed as proxy for intellectual property content,” explained Mr. Pryor.

The vectors he charted out included medical, life sciences, and product identification. “Diagnostics was one of the ones I identified as attractive, since it had the same characteristics as water—razor/razor blade, high gross margins, and favorable demographics.” He added:

“The challenge with the diagnostic sector was that all the players were large, so unless we could get really comfortable with the businesses, the risk would have been too high[.] … Radiometer checked all of our boxes aside from direct follow-ons—while they were in the diagnostic sector, they were a leader in a tiny niche.? However, we figured that we could use this as a foothold and figured we could find a way to expand it.”

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A few things stood out about Danaher during due diligence. First, they insisted on walking through Radiometer’s factory floor, which no one else did. Second, they asked “endless questions; ten times more than anyone else.” Larry Culp , Danaher’s Chief Executive Officer (CEO) since 2001, was observed taking “a very intense and personal interest in the details of [Radiometer].” This level of interest was warranted by the fact that Radiometer would be Danaher’s largest acquisition up to that point. In the final round, only Danaher and a private equity company remained. Danaher offered a higher price and won.

“We did benefit [from the other bidders having] high share positions [because] some businesses that might have had a lot of synergies may have had some regulatory issues,” explained Daniel Comas, Danaher’s Chief Financial Officer (CFO). “It was very important for [Radiometer’s] board and the major shareholders to have certainty on that issue,” which they got from Danaher.

Danaher presented its operations to the outside world through reportable segments and major product groupings. There was some difference between Danaher’s reportable segments and its strategic platforms in 2002. At the highest level, Danaher split its 2002 revenue of $4.6b into two business segments: Process/Environmental Controls (PEC), contributing $3.4b revenue, and Tools & Components (T&C), contributing $1.2b revenue. A large portion of T&C segment revenue came from selling Craftsman-brand tools to Sears, Roebuck and Co. (“Sears”). Within the PEC segment, there were five reportable segments. The Environmental reportable segment was the largest, with annual revenue of $1b. Although the Environmental reportable segment was presented as a “strategic platform,” it actually contained two distinct platforms: Water Quality, anchored by Hach-Lange, and the Retail Petroleum platform, anchored by Gilbarco Veeder-Root . The Electronic Test and Motion reportable segments were equivalent in size, both generating annual revenue of approximately $677m. They were anchored by Fluke Corporation and Pacific Scientific, respectively. The smallest and newest reportable segment in 2002 was Product Identification, which contributed annual revenue of $338.7m and was anchored by Videojet Technologies . Motion, Electronic Test, and Product Identification were presented as both reportable segments and strategic platforms. Danaher also generated $1.1b from focused niche businesses that were not part of a strategic platform. At Danaher, a focused niche business does not fit into one of its strategic platforms but nevertheless generates “positive returns through competitive advantages in their respective markets” and provide “important career development assignments for Danaher leaders.” Overlapping with its reportable segments, platforms, and focused niche businesses, Danaher disclosed seven categories of Major Product Groups: (1) Analytical and physical instrumentation at $1.8b; (2) motion and industrial automation controls at $870m, (3) mechanics and related hand tools at $761m; (4) product identification at $286m; (5) aerospace and defense at $278m; (6) power quality and reliability at $252m; and (7) “all other” at $346m. All platform anchors and focused niche businesses were U.S.-based operations. Danaher was an American industrial enterprise that competed well overseas, but its platform strategy was not yet global.

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Danaher’s Acquisitions in Europe (1992–1998)

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How did Danaher get into the position that it could complete its largest acquisition to-date for a publicly traded company in Denmark? Danaher’s operating companies had foreign subsidiaries, but the first acquisition of a stand-alone business in Europe was in 1992. Danaher, through its London-based subsidiary Launchchange Limited, acquired the U.K.-based petrol station tank gauge equipment business of Micrelec Group for ￡7m in cash on January 11, 1992. Not only did Danaher get an operating subsidiary outside of the United States by purchasing a business from Micrelec, it also gained a talented associate. Remember that two of Danaher’s eight Core Value Drivers (CVDs) deal with employees: Retention and internal fill rate. Mr. Philip Whitehead resigned from the Board of Micrelec Group and became Executive in Charge of Danaher’s new combined entity. He later became Managing Director for Gems Sensors – Europe in 1998 and Managing Director, Corporate Development – Europe in 2001. “[Mr. Whitehead] played a significant role in the success of our … acquisition of Radiometer,” said CEO Culp. Mr. Whitehead was promoted to Vice President, Managing Director in 2004. Retaining and promoting Mr. Whitehead helped Danaher build out its presence in Europe.

Danaher’s first acquisition of a stand-alone business in Continental Europe was of Germany-based Hengstler on December 31, 1994. The family-owned business generated revenue of about $100m from the sale of counters, sensors, encoders, and other process control products. Hans Christian Hornbostel and Evan Yellin founded EuroConsult ( EC M&A ) in 1992 and advised Danaher on many of its deals in Europe. Mr. Hornbostel recalled the 1993 roadshow with Danaher in Germany:

“While on a factory visit with some forgotten acquisition target in southern Germany, we walked through a door that had an access control (or time and attendance) module on the wall. I pointed this out to [Dan Comas] and asked if something like this would potentially be of interest. As it were, this was a box manufactured by Hengstler GmbH[.] … I had actually worked with [Hengstler] while at Deutsche Bank in Frankfurt[,] so it was possible for EC to introduce Danaher formally and to advise [on the acquisition.]”

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Before acquiring Hengstler, Veeder-Root was Danaher’s most international operating company. Veeder-Root had legal entities in Australia, Brazil, Canada, France, Germany, and the United Kingdom as of March 1995. All of Hengstler’s 18 legal entities were outside the United States, covering 10 countries. It expanded Danaher’s legal entity presence in Europe, adding Italy, Spain, Belgium, and Sweden. Hengstler also provided Danaher’s first legal entity in Japan. Within two years, Hengstler had completed its first bolt-on acquisition: KACO (“Kupfer-Asbest Co.”). Danaher now had experience acquiring small European companies, so it had confidence acquiring progressively larger ones. The problem for acquiring a company like Radiometer at that time, though, was that Hengstler operated in similar industries as other Danaher operating companies. To bridge the gap between Danaher’s operations in the 1990s and Radiometer, Danaher needed to branch out into other industries.

Danaher’s entry into the water quality industry gave it a larger presence in Europe and established a direct relationship with Radiometer. American Sigma was acquired in 1996 as an adjacency acquisition to Veeder-Root, marking Danaher’s entry into the water quality industry. In 1998, Danaher acquired the non-medical instrumentation business that Radiometer had divested earlier. It became the premium price point brand in the water quality group. “Until we merged the Hach and Lange selling organizations in our water quality business in early 2000, Radiometer’s German subsidiary was, in fact, the exclusive distributor of Hach products in that country,” said CEO Culp.

Danaher’s acquisition of Hach gave it experience purchasing a company from a controlling shareholder who was part of the founding family. That experience was later applicable to Radiometer.

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Radiometer’s Appeal as a Platform-Establishing Acquisition

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By FY2003, Radiometer generated revenue of DKr1.8b ($300m) from blood gas analysis equipment and accessories. The chapter on Videojet introduced Danaher’s six criteria for a platform-establishing acquisition. The first five criteria related to the industry characteristics. The ideal industry: (1) had a market size exceeding $1b; (2) was growing mid-single digits without undue cyclicality or volatility; (3) had follow-on acquisition targets; (4) lacked “outstanding competitors such as Toyota Motor Corporation or 微软 ;” and (5) was a good environment to implement Danaher’s unique company culture, the Danaher Business System (DBS). The sixth criterion dealt with the actual company to be acquired: It should be a “tangible product-centric business.” These criteria excluded Rust Belt, Silicon Valley, or financial services businesses, for example.

Radiometer’s management believed it accounted for one-third of a market niche worth approximately $900m. Danaher’s management estimated the in-vitro diagnostic market to be worth $21b, of which the clinical chemistry segment accounted for $13b. Thus, Radiometer’s market size fulfilled the first acquisition criteria.

Danaher’s management believed the market would continue to grow mid-single digits and was inherently less volatile than more capital-intensive sectors. Radiometer had grown on a constant-currency basis over the prior three years. It fulfilled the second acquisition criteria (related to volatility and cyclicality).

Radiometer’s recent acquisitions implied there was a “long tail” of acquisition targets in the industry. The company bought California-based Sendx Medical for $30m in 1998. It also purchased California-based Accumetrics in 2001 but sold the company back to one of the co-founders in 2003 at a loss. Thus, the blood gas analysis market fulfilled the third acquisition criteria (related to smaller acquisition targets).

In the conference call to discuss the acquisition of Radiometer, CEO Culp mentioned 拜耳 and 罗氏公司 as competitors. If Radiometer fulfilled the fourth acquisition criteria, then we can assume that Danaher’s management did not consider those companies to be outstanding competitors in 2003. “This is a market with very, very respectable competitors, but I am confident from what we have seen in due diligence that we can sharpen the stick a bit and be more effective in the U.S. market,” said CEO Culp.

Danaher’s management determined Radiometer would benefit from implementation of DBS, the fifth acquisition criteria. “All of what we [sold in the early 2000s] in Motion or in [Electronic Test], it [was] just sophisticated technical sales,” explained CEO Culp. “These are types of businesses that we are quite comfortable with [and have more leverage potential in companies like Radiometer]” The Harvard Business School case study about Radiometer written almost a decade after the acquisition showed this was in fact true. As explained by the case authors:

“Sales grew on average at 8% per year, twice the market rate, operating profit margins expanded from about 20% in 2003 to greater than 30% in 2012 and working capital turns doubled. Much of this growth had come from Radiometer’s accelerated product development cycle and broadened blood gas analysis product line, continued high growth in Japan, expansion of the direct sales force from 10 into 20 countries, and related development of high growth markets such as China and Turkey.”

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Danaher’s Appeal to Radiometer as a Buyer

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Peter Kürstein succeeded Johan Schroder as President of Radiometer upon Danaher’s acquisition in 2004. He obtained an MBA from the Harvard Business School in 1981. As another example of retention within Danaher, he remained president until 2015. When Danaher entered the process to evaluate Radiometer, Kürstein recalled thinking: “A US company with no experience in medical instruments; if they bought us, what could they possibly add[?]”

Danaher had at least two specialties to contribute to Radiometer, not including DBS. First, Danaher had major operations in the U.S., Radiometer’s largest market with the least penetration. Radiometer restructured its U.S. subsidiary in 1994 then replaced the head of the unit in 1995 after disappointing results. In 1997, it was still having problems meeting expectations in the U.S. The U.S. operations made “large and resource-demanding efforts towards being chosen” by a large U.S. wholesale buyer of medical measuring equipment but lost the contract to other competitors. Soon after Danaher’s acquisition, the heads of operations and U.S. sales were internal fills from other parts of Danaher. Internal fill rate is one of Danaher’s eight CVDs.

Second, Danaher had a better track record with acquisitions. Danaher pursued three types of acquisitions: (1) Platform-establishing; (2) adjacency; and (3) bolt-on. In business theory, there are three types of mergers: (1) Conglomerate, which is between two entities without significant buyer-supplier relationships; (2) vertical, which is between entities with a direct buyer-supplier relationship; and (3) horizontal, which is between entities with an indirect relationship through the same buyers and/or suppliers.

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Fluke’s Bolt-On Acquisitions (1998–2003)

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In the 13 years between going public and selling SPG, Radiometer never completed a transformational bolt-on acquisition. Compare that to the first five years of Fluke under Danaher’s ownership.

Danaher acquired Fluke in a merger agreement (exchanging Danaher shares for Fluke shares). The deal was valued at $625m when it was announced on April 27, 1998. Pomona Electronics, with 1997 revenue of about $20m from testing accessories, was acquired from ITT Industries shortly after the Danaher-Fluke merger was completed. Fluke’s next merger was an internal restructure of another Danaher operating company. Danaher’s Communications Technology Corporation (“CTC”) subsidiary was split in two and integrated with Fluke within one year of the merger. One product line formed the Telecommunications Test Business Group. The other product line was integrated into the Fluke Networks Division. Fluke Networks became a separate operating company in 2000, becoming Fluke’s additional “leg of a stool.”

Robin Electronics, with revenue of ￡7.5m in 1998, was acquired in 1999 to expand Fluke’s presence in Europe. The U.K.-based Precision Measurement Division and California-based Test Tools product line of Wavetek Wandel Goltermann, with combined annual revenue of $25m, were added to Fluke in 2000. In March 2001, Fluke Networks acquired Fotec, a provider of fiber optic test equipment generating annual revenue of less than $5m.

Larry Culp became CEO of Danaher on May 1, 2001. He succeeded George Sherman. The first two acquisitions of publicly traded companies after Mr. Culp became CEO were bolt-ons to Fluke: Lifschultz and Microtest. On May 16, Danaher announced an agreement to acquire Lifschultz Industries for $33m. Less than one month after announcing the agreement to acquire Lifschultz, Danaher announced the agreement to acquire Microtest for $74m. The acquired company was headquartered in Phoenix, Arizona and generated revenue of $44.6m in 2000.? Microtest described itself as “a leading producer of network test and measurement products and network storage and appliance servers.” The acquisition target was primarily purchased for its fast-growing Network Test and Measurement segment, not the network storage business. After adjustments and re-structuring, the total consideration for Microtest was $60m to acquire annual revenue of $30m, or a price-to-sales ratio of about 2.0 times. CEO Culp considered that to be a high ratio, but the business was “extremely synergistic” with Fluke Networks. Over the next 18 months, Microtest was fully integrated into Fluke Networks.

In Danaher’s last acquisition of 2001, it facilitated a strategic pivot for a company called Transmation. Fluke completed the acquisition of the Transmation Products Group (“TPG”) for $11m on December 26, 2001. Three months earlier, Transmation’s Board of Directors announced a possible sale of certain non-core business units: TPG, which generated $9.5m in fiscal 2001, and another business unit that generated $8m in annual revenue. Hence, Danaher valued TPG at 1.16 times sales. Transmation used the proceeds to pay down debt. Within a year, Transmation changed its name to Transcat , the brand its calibration labs and product catalogs had been using. In the words of Transcat’s CEO: “It does not make strategic sense to tie our corporate name to a business we no longer own.”

Lionheart Technologies sold three subsidiaries—Bio-Tek Instruments Europe, Dale Technology, and DHI Nevada—to Danaher for $25m in the first quarter of 2002. Those subsidiaries were expected to add $20m to Fluke’s annual revenue. The acquisitions of the Lionheart Technologies’ subsidiaries gave Danaher access to a market vertical that was expected to be no larger than $200m in size, thus Danaher now had at least 10% market share. CEO Culp believed that the market segment provided good growth potential and stable revenues but was not dependent on further acquisitions. That grouping of companies later became Fluke Biomedical , Fluke’s third “leg of the stool.”

Up to that point, Fluke’s power quality products could only be used for single-phase applications. In April 2002, Fluke acquired California-based Reliable Power Meters, extending its product line to the three-phase segment. Later that year, Danaher acquired California-based Raytek Corporation, a manufacturer of non-contact infrared temperature measurement instruments. Raytek’s purchase price was $75m and it generated annual revenue of $50m, so it had a 1.5 price-to-sales multiple. Loop Expert Technology was the last bolt-on acquisition for Fluke before the five-year anniversary of the merger with Danaher. Loop Expert Technology generated annual revenue of $10m from products that were complementary to Fluke Networks. It was acquired for approximately $13m, giving it a 1.3 price-to-sales ratio.

If Fluke, within five years, could complete one internal merger, four carve-outs, five acquisitions of stand-alone private companies, and two acquisitions of publicly traded companies, then it had a lot to teach Radiometer. Imagine a Radiometer with Fluke’s capabilities to integrate bolt-ons. Instead of selling off all its operating companies outside of in-vitro diagnostics in the 1990s, Radiometer would have had divisions like Radiometer Microbiology, Radiometer Metallography, and Radiometer Scientific similar to how Fluke had Fluke Networks and Fluke Biomedical.

Danaher’s acquisition of Fluke was a steppingstone to acquiring Radiometer because Fluke had experience buying the European-based operations of a strategic partner. In 1993, Fluke bought the Test and Measurement business of 飞利浦 Electronics of the Netherlands, the largest acquisition in Fluke’s history. As explained in Fluke’s annual report for the fiscal year ended April 1994:

“The completion of the acquisition ended the five-year strategic alliance between the Company and Philips.? Under the terms of the alliance, the Company sold Philips’ products in North America and other selected markets and Philips sold the Company’s products in Europe and other selected markets. The acquisition … provided the Company with direct sales and service operations in fourteen European countries [and] added over 900 people to the Company, all in Europe.”

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Fluke estimated the merger caused its international sales to increase to 53% of the total from 35%. European revenues increased to 38% from 13%. In the year before the Danaher-Fluke merger, Fluke undertook a major restructuring of its European operations. That experience could be applied to Radiometer later.

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Radiometer as a Water Quality Adjacency

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To the outside world, Danaher’s acquisition of Radiometer was presented as a platform-establishing acquisition for the Medical Technology platform. When Danaher acquired Kaltenbach & Voight ( KaVo Dental ) in 2004 and Leica Microsystems in 2005, they were presented as adjacency acquisitions within the Medical Technology platform. Another interpretation is that Radiometer was an adjacency acquisition in the Water Quality platform, whereas KaVo and Leica Microsystems were platform-establishing acquisitions for the Dental and Life Sciences platforms, respectively.

“[Radiometer] is a great opportunity for us to expand into a new sector while not straining too far from [electrochemistry and photometry] technologies and products [used by Hach-Lange] in which we know the Danaher Business System works well,” said CEO Culp upon announcing the acquisition. “We could have redefined the borders of the Environmental platform—given the technology synergies between Radiometer and Hach-Lange.” Instead, Danaher focused on the medical nature of Radiometer and kept it separate.

Radiometer only completed two bolt-on acquisitions in the first four years under Danaher’s ownership. Switzerland-based Linde Medical Sensors generated annual revenue of $5m and was acquired in the fourth quarter of 2005 to broaden Radiometer’s existing blood gas diagnostics products. Finland-based Innotrac Diagnostics was acquired in 2006. “[The] bolt-on acquisition of Innotrac … gave us the nucleus of technology that ultimately [became Radiometer’s most significant product introduction after Danaher’s acquisition],” recalled Mr. Thomas Joyce, successor to Mr. Culp as Danaher’s CEO.

Danaher announced the acquisition of Gendex from Dentsply on the same day that it announced the acquisition of Radiometer. Both businesses became part of the Medical Technology reportable segment, but Gendex was not a bolt-on or adjacency to Radiometer. “Ideally we would have bought Gendex after KaVo but the timing didn’t work, so we swallowed hard and took the risk of buying a stranded asset,” explained Mr. Pryor.

The acquisition of Gendex was completed in February 2004 and the acquisition of KaVo for €350m ($425m) was announced in March. In a repeat of American Sigma and Hach in the Water Quality platform, Gendex was folded into a larger acquisition made later. Dexis was acquired in the first quarter of 2005 and Pelton & Crane was acquired in the third quarter of that year as bolt-ons to KaVo. In 2006, Danaher acquired Sybron for $2.2b, making the Dental platform significantly larger. Danaher’s dental companies were spun-off into Envista Holdings Corporation in 2019.

The third major acquisition in the Medical Technologies reportable segment was Leica Microsystems. Danaher announced the $550m acquisition of Leica Microsystems in July 2005. “Interestingly, Leica has a dental product portfolio that they have not invested in largely because they do not have a channel to market,” explained CEO Culp at the time. “Obviously, with KaVo, we have an outstanding channel to market on a worldwide basis.”

Leica also had a pathology diagnostics business. “We get a larger spend with the hospital customer which will complement … our visibility at Radiometer with that customer segment,” said CEO Culp.

Although Leica Microsystems had some adjacencies with both KaVo and Radiometer, it was more of a platform-establishing acquisition for the Life Sciences platform than an adjacency acquisition to Radiometer. In October 2006, Danaher announced the acquisition of Australia-based Vision Systems for A$700m ($520m), noting that the combination of Vision and Leica Microsystems “would offer a complete line of specimen preparation and diagnostic instruments while offering the advanced chemistries critical to the future of pathology.”

There were no comparable adjacency acquisitions directly paired with Radiometer in the first five years of Danaher acquiring the company. In fact, that is another similarity to Fluke. ( 泰克 was acquired for $2.8b in 2007, doubling the size of the Electronic Test platform.) Radiometer and Fluke were successful, global companies, but Danaher did not add major adjacencies to build out their respective platforms within the first five years of their acquisitions.

In the official history of Danaher, based on reportable segments, the Motion platform was the first strategic platform (Pacific Scientific), then Electronic Test (Fluke), then Product Identification (Videojet), then Medical Technology (Radiometer). An understanding of Danaher’s use of acquisitions to build strategic platforms provides an alternative interpretation. “Water Quality was where we really started thinking about building platforms in strategically attractive industries that we could build and integrate into,” explained Mr. Pryor. Motion was the second strategic platform, created through the acquisition of Pacific Scientific. Although Fluke was acquired before Videojet, the follow-on deals that filled out the platform happened faster in Product Identification than in Electronic Test. That would put Product Identification ahead of Electronic Test. Similarly, although Radiometer was acquired before KaVo and Leica Microsystems, the follow-on deals that filled out the platform happened faster in Dental and Life Sciences than in Diagnostics. That puts Dental as Danaher’s forth strategic platform and Life Sciences as the fifth. Electronic Test arguably was not a true strategic platform until 2007, making it the sixth.

?

Conclusion

?

The acquisition of Radiometer was a major milestone in Danaher’s history. It was the first major operating company headquartered outside the United States, it increased Danaher’s proportion of sales outside North America, and improved its gross margin profile. Danaher’s international operations began with the foreign subsidiaries of acquisition targets. Its first acquisition outside the United States was of Micrelec’s U.K.-based petrol station tank gauge equipment business in 1992. The first acquisition in Continental Europe was of Hengstler in 1994. Acquiring the water quality businesses and Fluke gave Danaher more experience competing outside the United States. Before being acquired, Radiometer had two major gaps it needed to fill. First, it needed to be more competitive in its most important market, the United States. Second, it needed expertise in acquisitions. It gained both from Danaher, although the industry it was in made it difficult to add adjacency acquisitions quickly. After Danaher divested Veralto in 2023, Radiometer became the longest-tenured operating company in post-split Danaher. Not only did Radiometer change internally after the acquisition, but it also became a pillar of new Danaher, a focused life sciences company.

[This text is a draft chapter of a manuscript that will appear in the Cambridge University Press Elements in Business Strategy series.]

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[2] B?rsen. “Borsen looks at the development of Radiometer A/S of Denmark, and at the performance of its shares since the listing of the company on the Copenhagen Stock Exchange in April 1984.” September 16, 1986.

[3] Textline Multiple Source Collection (1980-1994). “Mr Johan Schroder has given up his post as managing director of Radiometer, the Danish measuring instrument manufacturer, and has appointed Mr Kim A Hueg as his successor.” January 24, 1986.

[4] B?rsen. “Quists Laboratorium of Denmark, now a subsidiary of Radiometer, has published its final results for 1986.” August 4, 1987.

[5] Goodhart, David. “JM Sells 0.5 Million Pounds Offshoot.” Financial Times. August 21, 1985.

[6] B?rsen. “Radiometer of Denmark has published its annual report for 1986.” May 20, 1987.

[7] B?rsen. “Radiometer A/S of Denmark has acquired Tacussel of France.” June 20, 1986.

[8] Reuters. “Denmark’s Radiometer to Take Over Struers.” March 16, 1992.

[9] B?rsen. “Managing director of Radiometer comments on sale of Brueel og Kjaer to AGIV.” July 9, 1992.

[10] Textline Multiple Source Collection (1980-1994). “Radiometer believes merger with Foss Electric will come within few years.” December 2, 1989.

[11] B?rsen. “Radiometer of Denmark sets up Subsidiary.” February 21, 1991.

[12] B?rsen. “Radiometer of Denmark takes over Struers’ Japanese agent.” May 22, 1992.

[13] B?rsen. “Radiometer Revises Down 1993/94 Profit Forecast.” April 18, 1994.

[14] B?rsen. “Radiometer group has published its results for the twelve months to 31 December 1988.” March 4, 1989.

[15] B?rsen. “Radiometer Acquires Company from New Holland.” October 6, 1993.

[16] Reuters. “Danish Radiometer 1991/92 Profit Steady.”? August 20, 1992.

[17] B?rsen. “Radiometer Sells Laboratory.” September 4, 1992.

[18] B?rsen. “Radiometer to sell Struers Chem to KEBO Lab.” December 4, 1992.

[19] B?rsen. “Radiometer of Denmark to Sell Subsidiary to Bergman och Beving.” April 30, 1993.

[20] Dow Jones International News. “Denmark’s Radiometer: Capital Gain of 19 Mln DKK.” January 30, 1995.

[21] B?rsen. “Radiometer Identifies New Business Area.” October 2, 1996.

[22] Follett, Chris. “Radiometer See Lower 96/97 Gains.” Reuters. April 17, 1997.

[23] Dow Jones International News. “Denmark’s Radiometer: Two Organizational Divisions.” June 18, 1997.

[24] Dow Jones International News. “Denmark’s Radiometer: Concentrate on Core Units.” August 18, 1997.

[25] Radiometer 96/97 Annual Report. Page 5.

[26] Dow Jones International News. “Denmark’s Radiometer: Tough Competition in Key Markets.” August 18, 1997.

[27] Wells, John; Danskin, Galen. “Radiometer, 2003.” Harvard Business School. 9-715-409, September 3, 2014. Page 1.

[28] Correspondence dated March 12, 2024.

[29] Ibid.

[30] Correspondence dated March 17, 2024.

[31] Wells, John; Danskin, Galen. “Radiometer, 2013.” Harvard Business School. 9-715-410, September 22, 2014. Page 2.

[32] Fair Disclosure Wire. “Danaher Conference Call to Discuss Tender Offer for the Shares of Radiometer A/S.” December 11, 2003.

[33] In 2002, Danaher’s eight focused niche businesses listed on the annual report were: (1) Aerospace and Defense, (2) Industrial Control, (3) Power Quality, (4) Delta Consolidated Industries, (5) Hennessy Industries, (6) Jacobs Chuck Manufacturing Company, (7) Jacobs Vehicle Systems, and (8) Joslyn Manufacturing Company. Using the framework established in Table 1, they were all acquisitions since the mid-1980s that could be classified as either conglomerate, vertical, or horizontal adjacencies but not platform-establishing or bolt-on acquisitions.

[34] Danaher’s 2002 CEO Letter to Shareholders.

[35] Regulatory News Service. Op. Cit. October 14, 1991.

[36] Dow Jones News Service. “Danaher Corp: European Firm has $100m Annual Revenues.” December 16, 1994.

[37] Correspondence in March 2024.

[38] Anand, Bharat; Collins, David; Hood, Sophie. “Danaher Corporation.” Harvard Business School. 9-708-445, July 23, 2008. Page 5.

[39] Fair Disclosure Wire. “Danaher Conference Call to Discuss Tender Offer for the Shares of Radiometer A/S.” December 11, 2003.

[40] Anand, Bharat; Collis, David J.; Hood, Sophie. “Danaher Corporation.” Harvard Business School Publishing. Case No. 9-708-445. July 23, 2008.

[41] Fair Disclosure (FD) Wire. “Danaher Conference Call to Discuss Tender Offer for the Shares of Radiometer A/S.” December 11, 2003.

[42] Fair Disclosure (FD) Wire. “Danaher Conference Call to Discuss Tender Offer for the Shares of Radiometer A/S.” December 11, 2003.

[43] New York Times. “Company Briefs.” August 21, 1998.

[44] Espicom Company Reports. “Radiometer – Overview.” March 20, 2003.

[45] Fair Disclosure (FD) Wire. “Danaher Conference Call to Discuss Tender Offer for the Shares of Radiometer A/S.” December 11, 2003.

[46] Fair Disclosure (FD) Wire. “Q2 2005 Danaher Earnings Conference Call.” July 21, 2005.

[47] Wells, John R.; Danskin, Galen. “Radiometer, 2013.” Harvard Business School. September 22, 2014. 9-715-410.

[48] Dow Jones International News. “Denmark’s Radiometer: U.S. Unit Underperforms.” May 14, 1996.

[49] Dow Jones International News. “Denmark’s Radiometer: Sees Poorer Sales in Japan, U.S.” April 17, 1997.

[50] Dow Jones International News. “Denmark’s Radiometer: Shares Plunge on News.” September 24, 1997.

[51] Wells, John; Danskin, Galen. “Radiometer, 2013.” Harvard Business School. 9-715-410, September 22, 2014. Page 4.

[52] Business Wire. “Fluke Acquires Accessories Manufacturer, Pomona Electronics, From ITT Industries.” September 30, 1998.

[53] Business Wire. “Fluke and CTC Combine Business Operations.” May 3, 1999.

[54] Process Engineering. “UK Robin Acquired in Fluke Buy.” September 1, 1999.

[55] Dow Jones News Service. “Danaher Acquires Some Wavetek Wandel & Goltermann Assets.” January 6, 2000.

[56] Lightwave. “Fluke Networks Acquires Fotec, Inc.” March 28, 2001.

[57] Wall Street Journal. “Danaher to Acquire Lifschultz.” May 17, 2001.

[58] Talley, Karen.? “Nasdaq, Small-Caps Drift Lower; Microtest Surges, Loudcloud Falls.”? Wall Street Journal.? June 14, 2001.

[59] Fair Disclosure (FD) Wire. “Abstract of Q3 2001 Danaher Earnings Conference Call.” October 18, 2001.

[60] Fair Disclosure (FD) Wire. “Q4 2002 Danaher Earnings Conference Call.” January 30, 2003.

[61] Transmation, Inc. Form 8-K. August 23, 2001.

[62] Transcat, Inc. Form 8-K. October 1, 2002.

[63] Energy User News. “Fluke Corporation Acquires Reliable Power Meters.” June 1, 2002. Vol. 27, Iss. 6.

[64] Montague, Jim. “Danaher Buying Raytek for $75 Million.” Control Engineering. August 28, 2002.

[65] Fair Disclosure (FD) Wire. “Q3 2003 Danaher Earnings Conference Call.” October 16, 2003. Note: The $13m purchase price was calculated by taking the $186m cash paid for acquisitions in the first nine months of 2003 then subtracting the $123m paid for acquisitions in the first six months to get $63m paid in the third quarter of 2003. Danaher paid $50m consolidated for McCormick-Selph and Accurate Metering Systems that quarter, leaving $13m for Loop Expert Technology.

[66] The one internal merger was CTC into Fluke Networks. The four carve-outs were Pomona Electronics, Wavetek’s product lines, TPG, and the subsidiaries of Lionheart Technologies. The five acquisitions of stand-alone private companies were Robin Electronics, Fotec, Reliable Power Meters, Raytek, and Loop Expert Technologies. The two acquisitions of publicly traded companies were Lifschultz and Microtest.

[67] According to Fluke’s annual report for the fiscal year ended April 25, 1997: “During the fourth quarter of 1997, the Company recorded a pretax charge of $12 million, $0.94 per share, related to the restructuring of some of the Company's European operations. The Company will close its product development operation in Hamburg, Germany, and transfer all business responsibilities from Hamburg to Almelo, The Netherlands. … The Company intends to centralize European finance functions as well as European product repair operations. In addition, changes are being made in the sales organizations in Europe.? The restructuring charge consists primarily of severance related costs of $11 million, affecting approximately 120 employees.”

[68] Fair Disclosure (FD) Wire. “Danaher Conference Call to Discuss Tender Offer for the Shares of Radiometer A/S.” December 11, 2003.

[69] Fair Disclosure (FD) Wire. “Q4 2005 Danaher Earnings Conference Call.” January 26, 2006.

[70] Innotrac Diagnostics Oy first appeared on Danaher’s Subsidiaries of the Registrant on March 1, 2007.

[71] Fair Disclosure Wire. “Danaher Corp Investor and Analyst Event.” June 11, 2015.

[72] Correspondence on March 17, 2024.

[73] Fair Disclosure Wire. “Danaher Merger & Acquisition Announcement of Definitive Agreement to Acquire Leica Microsystems.” July 1, 2005.

[74] Fair Disclosure Wire. “Danaher Merger & Acquisition Announcement of Definitive Agreement to Acquire Leica Microsystems.” July 1, 2005.

[75] Correspondence on March 10, 2024.