Danaher
Agenda Industry/Company Overview Investment t Thesis Financial Overview Relative Valuation Risks
INDUSTRY/COMPANY OVERVIEW
Conglomerate Industry Residential/Commercial Construction Utilities: Energy, Water & Power Aerospace/Defense Electronics/Telecom Safety & Security Automotive Healthcare/Life Sciences Test & Measurement
Competitors Large Cap Primes Cooper Crane Actuant Roper ITT Corp Pentair Tyco
Guide to Conglomerate Analysis Four key things to look at: Portfolio Mix In good businesses? End Markets What s up, steady and down? Acquisitions Can management execute? Valuation Where s it trading?
Company Overview Four Business Segments Professional Instrumentation Medical Technologies Industrial Technologies Tools & Components
Professional Instrumentation Environmental Test & Measurement 32% of Revenues; Water, Air Quality, Calibration, Electronics, Telecom
Medical Technologies Dental Acute Care Life Sciences Diagnostics 27% of Revenues; Orthodontists, Hospitals, Research/Pathology Labs
Industrial Technologies Product ID Motion Control Aerospace/ Defense 29% of Revenues; Food & Beverages, elevators, truck lifts, engine parts
Tools & Components Mechanic Hand Tools 2002: 26% of Revenues 2002: 26% of Revenues 2007: 12% of Revenues
Geographic Revenue Breakdown United States: 49% Europe: 31% Other: 7% Rest of Asia: 4% China: 9%
INVESTMENT THESIS
Best-in-Class Conglomerate Attractive product portfolio mix Defensive growth : Water, Medical/Dental, T&M Emphasis on long-cycle businesses Resilient end markets Diversified with limited exposure to cyclical cycles History of M&A Expertise & Execution M&A Opportunities
Water Supply Under Pressure $300B-$1T$1T 10%+ By 2025, one-third of the global population will not have access to adequate drinking water
Water Heavyweight 12% of Revenues Water Analytics - $4B global market Leading player, 65% outside the U.S Bullish on 40% growth in emerging markets UV Disinfectant i t - $500M global l market 30% market share Better life cycle cost advantage than chlorine Chemical Treatment - $3B global market Planning to expand 50% No presence yet in Europe and Asia
Test & Measurement 20% of Revenues Bread & Butter sector $20B+ global market 5-6% annual growth Defensive growth drivers: Food & environmental testing Workers safety concerns Personal security concerns
Life Science/Dental $20 billion global l market 7-9% annual growth Defensive growth drivers: Growing demand for better healthcare Academic & government investments Driven by strong aftermarkets Dental +MSD Medical +HSD
Diversified End Markets Test & Measurement 22% cyclical Dental Water 12% 15% Non- Life Science Electronics 11% 12% Automotive 8% Food & Beverages 6% Cy yclical Consumerables Housing Aerospace/Defense 4% 4% 6% HON 20% aero, MMM 30% consumer goods, EMR 25% electrical, UTX 50% to construction
M&A Strategy Targets fragmented niche industries i History of successful building new platforms Expand margins with low-cost sourcing, lean inventory & productivity initiatives Finances primarily by deployment of cash
M&A Results 30% Industry Average 25% ROIC 20% 15% 10% 5% 0% 0.0% 5.0% 10.0% 15.0% 20.0% Growth
M&A Opportunities M&A Opportunities within the next 6 months Reduction of PE, lower valuation numbers Downturns favor strategic buyers Mgmt indicated it is becoming more active Top-tier balance sheet: A-Rated,.27 D/E, 14x IC Significant capital available: $1.5B credit facility
FINANCIAL PERFORMANCE
Strong Revenue Growth Danaher Prime Average 35% 30% 25% 20% 15% 10% 5% 0% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Average Danaher 15.7% 30.1% 15.9% 20.2% 14.9% 19.4% UTX 10.0% 20.7% 14.1% 11.9% 14.5% 14.2% ITW 6.0% 16.9% 10.1% 8.8% 15.1% 11.4% Emerson 10% 1.0% 11.9% 10.8% 16.3% 12.1% 1% 10.4% Honeywell 3.7% 10.8% 8.0% 13.4% 10.3% 9.2% 3M 11.6% 9.8% 5.8% 8.3% 6.7% 8.4%
Strong Performance Danaher Industry 16.5% 14.2% 13.0% 11.0% 6.4% 5.4% Operating Margins EPS Growth FCF Yield
Strong Shareholder Return 5 Year Cumulative Returns
Relative Valuation P/E P/E/G EV/EBITDA P/Book D/E 3M 12.13 1.05 6.79 3.54 0.58 Agilent 12.93 0.81 8.93 2.41 0.73 Emerson 11.63 0.88 6.64 2.86 0.52 Honeywell 8.40 0.87 6.11 2.50 0.96 Grainger 12.16 1.01 6.28 2.61 0.25 ITT Industries 10.19 0.88 5.74 1.73 0.49 Roper 13.59 0.88 8.27 1.81 0.67 Danaher 14.05 1.18 9.47 1.96 0.22 Mean 11.89 095 0.95 728 7.28 243 2.43 055 0.55 Median 12.15 0.88 6.71 2.46 0.55 Historical rel P/E range 10% to 25% DHR Industry Premium (Discount) Current P/E 14.1 11.9 18.0% 2003-2007 Average 23.3 18.5 26.0% Cheap in this environment!
Risks More Severe customer capital expenditure freeze than expected Inability to buy attractive companies at reasonable prices Inability to access capital
Bottom Line: Undervalued Best-in-Class During an economic downturn, Danaher is best positioned to OUTPERFORM the S&P: 1) its portfolio composition in defensive growth & long-cycle sectors 2) end market & geographic diversification 3) history of disciplined execution combined with a strong balance sheet
Questions? Imagine. Innovate. Execute. Evolve.