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Danaher Corp.'s (DHR) acquisition of Beckman Coulter Inc. (BEC) moves the industrial conglomerate deeper into the medical-technology sector.
Beckman makes diagnostic equipment used in hospitals and clinics. Danaher has been transitioning from industries that require large bases of fixed assets in plants, machinery and materials in favor of technology companies where growth is largely driven by research and product development. Danaher announced last month that it will sell its portfolio of aerospace and defense businesses and off-loaded its hand tools business last year to a joint venture with Cooper Industries.
Danaher's business lines include testing and measurement instruments, life sciences technology, dental appliances, water treatment and product identification equipment. The addition of almost $4 billion a year in revenue from Beckman would raise Danaher's medical, dental and life sciences businesses to 47% of the company's total annual sales.
Chief Executive Lawrence Culp Jr. said Monday he's not concerned about Danaher's becoming too concentrated in healthcare. Culp doesn't anticipate any additional large health sector deals this year.
"We're at a little bit of a high-water mark here I suspect, but it's temporary," Culp said during a conference call with analysts on Monday. "Over time, when you think about Danaher as a $20 to $25 billion [a year] company, you should really think about that [health-care] exposure being 40%, give or take."
In 2010, Danaher's net income rose 4% from 2009 to $1.8 billion, or $2.64 a share. Revenue rose 18% to $13.2 billion. Danaher relies on acquisitions to fortify slow-growing base revenue. The company has a reputation for being able to expand margins of the companies it buys through aggressive cost reductions and efficiency improvements. Analysts say it is unclear whether the company's business strategy will be as successful with technology companies as it has been with asset-heavy manufacturing companies.
Beckman's gross margin of 45% is below Danaher's gross margin of 50%.
"The general rule of thumb is that they've been buying businesses that are accretive to Danaher's gross margin," said Richard Eastman, an analyst with Robert W. Baid & Co. Beckman "has more margin opportunity than some of the others have offered."
Danaher's stock closed up 2.2%, or $1.05, at $49.03 a share. The stock set a new 52-week high at $50.29 during Monday's regular trading session. Meanwhile, Beckman Coulter closed up 10%, or $7.48, to $82.65.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; email@example.com