Danaher Corporation History

Company History:

Danaher Corporation, a holding company established in 1984, currently consists of thirteen wholly owned subsidiaries that manufacture such diverse product lines as automotive and industrial tools, transportation products, and precision instruments and machines. The company achieved the status of a Fortune 500 company barely two years after being established, and is less than a decade saw its sales revenues climb from &Dollar;300 million to &Dollar;1 billion dollars. It is the world's largest producer of drill chucks, the country's largest producer and marketer of Swiss screw machine components, and the leading automotive tools supplier to both the National Automotive Parts Association (NAPA) and Sears.

Danaher had its origins in 1969 when its predecessor, DMG, Inc., was organized as a Massachusetts real estate investment trust. DMG restructured in 1978, becoming a Florida corporation under the name of Diversified Mortgage Investors, Inc. (DMI). In 1980 a new holding company was formed under the name DMB, of which DMI became a subsidiary. Until 1984 all operations of DMG had been in real estate, but that year the holding company underwent a major transformation when it acquired two new subsidiaries. Continuing its real estate operations in the DMI subsidiary, DMG entered the business of tire manufacturing with its acquisition of Mohawk Rubber Company and entered into the manufacture and distribution of vinyl building products with its purchase of Master Shield Inc. Steven and Mitchell Rales, the majority stockholders of DMG, Inc., named the reorganized holding company Danaher Corporation--after a favorite mountain stream in western Montana. Steven M. Rales, 33 years old at the time, became the chief executive officer and chair of the board of the new company.

Danaher's founders developed a carefully considered strategy of acquisition that was centered around the purchase of companies that had "high performance potential" but were not, for a variety of reasons, performing their best at the time of purchase. They also sought to acquire companies with well-known trademarked brands, high market shares, a reputation for innovative technology, and extensive distribution channels on which to build. Once acquired, Danaher's subsidiaries were grouped according to product lines and potential markets. If a company did not perform well after acquisition, Danaher's directors divested it and used the resulting capital to invest in new technologies or industries.

Utilizing this strategy, Danaher acquired another twelve companies within two years of its founding. By then, Danaher was listed as a Fortune 500 company, and revenues had climbed from &Dollar;300 million in 1984 to &Dollar;456 million by 1986. The fourteen subsidiaries were grouped into four business units: automotive/transportation, instrumentation, precision components, and extruded products. At least twelve of Danaher's products were market leaders.

The automotive/transportation unit produced and marketed tools for the professional auto mechanic as well as transportation parts. This unit consisted of well-known companies and leading market brands including Coats, a highly regarded trademark of wheel service products (such as tire changers and wheel balancers), Matco Tools, Jacobs Engine Brake, and Fayette Tubular Products, which was a leader in car air-conditioning parts.

The instrumentation unit of Danaher manufactured counting and sensing instruments, including devices that kept track of motion (magnetic encoders, electronic counters, and electronic voting machines), and instruments measuring and recording temperature. This unit boasted such prestigious companies as Veeder-Root--which supplies instruments for four out of five gas pumps worldwide--Dynapar, Partlow, and QualiTROL.

The precision components unit manufactured such diverse products as Swiss screw machine parts, the famous Allen wrench, and drill chucks. Finally, the extruded products unit, manufacturing vinyl siding and plastics, included Mohawk Rubber, Master Shield, and A. L. Hyde Company, a leading American plastics manufacturer. With the exception of A. L. Hyde, most of these companies no longer remain as Danaher subsidiaries. Among Danaher's biggest customers were petroleum, aerospace, telecommunications, electronics, and automotive firms, including Toyota and Honda.

Chairman and Chief Executive Officer Steven Rales and Executive Committee Chairman Mitchell Rales maintained that they were seeking the best--not just good, but superior products and service; not just to be a leading company, but a world leader. According to analysts, they had become skilled in aggressive competition, divestment of unprofitable businesses, consolidation of facilities, and debt and cost reduction. Each year the company grew by more than eight percent and boasted record sales. In 1987 net sales increased 141 percent over 1986.

During 1989 Danaher reassessed and restructured. George M. Sherman, an executive officer from Black & Decker, became president and chief executive officer, bringing to Danaher his own corporate vision, which included increasing the company's hitherto negligible international sales. Danaher's fourteen subsidiaries were reduced to twelve (and shortly thereafter grew to thirteen), while its four business segments were reduced from four to three: tools, process/environmental controls, and transportation.

The tool unit was greatly expanded by Danaher's 1989 merger with Easco Hand Tools, Inc., and by 1991 tools made up 49 percent of Danaher's sales.

The entirely new process/environment unit reflected a new emphasis on environmental instruments and machines, which included Veeder-Root's underground fuel storage sensors, Dynapar's motion control devices, and QualiTROL's instruments for measuring pressure and temperature, used widely by the electrical transformer industry. The A. L. Hyde Company belonged to the "process/environment" category by virtue of its extruded plastics production. This business segment was, by far, Danaher's fastest growing.

Transportation, accounting for 29 percent of Danaher's sales in 1991, included such leading brand names as Hennessy/Ammco (producing wheel balancers, tire changers, brake repair lathes), Jacobs Brake (producing engine retarders for heavy diesel trucks), and Fayette Tubular Products for car air-conditioning components.

Danaher's reorganization and streamlining contributed to its continued record sales, growth, and development of new products. In 1991 Sears, Roebuck & Co. selected Danaher as its only source for the manufacture of Sears mechanics' hand tools. Danaher was already marketing the Jacob Engine Brake diesel engine retarders in Japan, and, in 1991, Danaher acquired Normond/CMS, the leading manufacturer and marketer in Great Britain of environmental products. Danaher was already the leading supplier of hand tools to the National Automotive Parts Association.

The recession of the late 1980s and early 1990s affected Danaher, though not severely. Facilities were consolidated and some restructuring occurred (the firms Dynapar and Veeder-Root were combined into Danaher Controls, for instance, to eliminate duplicate services), but net sales of &Dollar;832 million in 1991 were only one percent below the previous year, and in 1992, sales increased significantly to &Dollar;897 million, the best year in the company's history for per share earnings. Chief Executive Officer George Sherman attributed the relatively mild effects of the recession to the company's investment in capital spending and in research and development at a time when most other firms practiced a timid "wait and see" policy.

With the worst of the recession over by 1993, Danaher's fortunes seemed secure. In part this was because of increasingly stringent environmental regulations and the growing demand for such environmental products as underground storage tank monitoring devices and fuel pump computers. This was already Danaher's fastest growing segment of business. Medical technology will probably be another increasingly important area in the company's future. International markets also continued to grow in importance. Under the presidency of George Sherman, Danaher's international sales were rising significantly, to just over 10 percent of total sales, and market analysts predict that the percentage will double by the year 2000.

Principal Subsidiaries: Danaher Controls; Danaher Tool Group; Fayette Tubular Products; Hennessy Industries, Inc.; Holo-Krome Co.; A. L. Hyde Co.; Iseli Co.; Jacobs Brake Manufacturing Co.; Jacobs Chuck Manufacturing Co.; Matco Tools; Partlow Corp.; QualiTROL Corp.; Veeder-Root Co.

Further Reading:

• Gubernick, Lisa, "Raiders in Short Pants (S. and M. Rales of Danaher Corp.)," Forbes, November 18, 1985.
• Ichniowski, Tom, "A Portrait of the Takeover Artist as a Young Man," Business Week, August 22, 1988.
• "Danaher Takeover of Easco Likely: Shareholders to Vote Today on Proposal," Washington Post, June 7, 1990, p. E1.
• "Danaher: Riding the Rales: The RAles Brothers Build Their Dream Conglomerate," Financial World, September 18, 1990.
• Potts, Mark, "Danaher Corp. (Executive Changes)," New York Times, September 20, 1990.
• pp. C4(N) and D4(L).
• "The Washington Area's Largest Public Companies (The District of Columbia)," Washington Post, April 8, 1991, p. WB11.
  Annual Reports: Danaher Corp., Washington, DC, 1985-1991.
• "Danaher Forms Industrial Groups (Will Form Danaher Tool Group, Industrial Prods. Div.)," Industrial Distribution, August, 1991, pp. 11-12.
• Woo, Junda, "Shareholder Can Bring Derivative Suit after Merger (Case Involving Danaher Corp. and Easco Hand Tools Inc. Merger and Arthur Blasband's Derivative Action Case)," Wall Street Journal, August 7, 1992, pp. B3(W) and B2(E).
• "Danaher Corp. (Third Quarter Earnings)," Washington Post, October 22, 1992, p. D13.

Source: International Directory of Company Histories, Vol. 7. St. James Press, 1993.