Case write-up I: Danaher Corporation
How far can DBS travel? Is there a limit to the range of businesses in which Danaher can create value?
The Danaher Business System (DBS) is a sophisticated and comprehensive strategy tool to create value that combines the advantages of an investment vehicle with excellent corporate portfolio management and strategy implementation. The DBS has had such a great success, delivering exceptional shareholder returns of 25% , that it seems unbeatable. Larry Culp, Danaher’s CEO back in 2010, argues that there is no size limit to the corporation’s growth. This claim is supported by the fact that the corporation started out big, entering only selected industries where it could generate at least $1 billion in revenue. Danaher not only leverages superior portfolio management skills of its M&A …show more content…
First, Danaher’s strategy can be copied by other conglomerates or large private equity funds and buy-out firms. There is a risk of competitors acquiring attractive businesses in target industries and restructuring them efficiently before Danaher does. Second, the world’s largest leading companies have been shifting from diversification to focus, with the number of conglomerates decreasing throughout the 1990’s and the beginning of the 21st century . This trend indicates that, in general, focused companies generate more value than diversified ones and thus challenges Danaher’s parenting advantage. Third, the cost of acquiring large leading companies has been increasing and is not always justified by their actual value. As a consequence, it will be difficult for Danaher to continue buying leading firms in each sector in a sustainable manner. Even though Danaher avoids cyclical and volatile industries, the success of its acquisitions is subject to the markets and economic
How far can DBS travel? Is there a limit to the range of businesses in which Danaher can create value?
The Danaher Business System (DBS) is a sophisticated and comprehensive strategy tool to create value that combines the advantages of an investment vehicle with excellent corporate portfolio management and strategy implementation. The DBS has had such a great success, delivering exceptional shareholder returns of 25% , that it seems unbeatable. Larry Culp, Danaher’s CEO back in 2010, argues that there is no size limit to the corporation’s growth. This claim is supported by the fact that the corporation started out big, entering only selected industries where it could generate at least $1 billion in revenue. Danaher not only leverages superior portfolio management skills of its M&A …show more content…
First, Danaher’s strategy can be copied by other conglomerates or large private equity funds and buy-out firms. There is a risk of competitors acquiring attractive businesses in target industries and restructuring them efficiently before Danaher does. Second, the world’s largest leading companies have been shifting from diversification to focus, with the number of conglomerates decreasing throughout the 1990’s and the beginning of the 21st century . This trend indicates that, in general, focused companies generate more value than diversified ones and thus challenges Danaher’s parenting advantage. Third, the cost of acquiring large leading companies has been increasing and is not always justified by their actual value. As a consequence, it will be difficult for Danaher to continue buying leading firms in each sector in a sustainable manner. Even though Danaher avoids cyclical and volatile industries, the success of its acquisitions is subject to the markets and economic