Danaher adds to its diagnostics biz, but deal may not be large enough for the Street
Company officials described it as the largest deal in two years during the quarterly earnings call on the heels of the July 17 announcement. Still, the transaction does not belong in the same sentence as the Medtronic/Covidien or even Zimmer/Biomet transactions. It does not quell speculation that Danaher is the next shoe to drop.
Danaher officials said during the earnings call that they will work hard to "turbocharge" the microbiology business with annual revenues of $200 million and growth in the mid-single digits by integrating it into the company's larger diagnostics biz upon the deal's closure early in 2015. Specifically, the new business makes highly automated hospital equipment for identifying bacteria and determining resistance to specific drugs, officials said.
It is unclear if this double "will move the needle" and please growth-obsessed Wall Street types who are looking for a home run. Bloomberg reports that investors are staying away from its stock as they await another big deal akin to Danaher's purchase of Beckman Coulter for $6.8 billion in 2011. The company reiterated that it has more than $8 billion to spend on M&A activity, but some investors believe the war chest could be substantially bigger, according to the Bloomberg article. Danaher has $3.3 billion in cash and cash equivalents according to the just-released 10-Q filing.
The company pointed out it has made a variety of smaller deals recently (buying 14 companies generating aggregate annual revenues of $250 million at a cost of $607 million, according to the 10-Q), but to really please investors, it must acquire a juicy target like the Agilent's ($A) lifesciences arm; the division, with annual revenues greater than $1 billion, aims to separate itself from the parent company's electronic measurement businesses by November. Will Danaher's healthcare arm, consisting of lab equipment, diagnostics and dental devices, go the same way? (The conglomerate's other units include tools for water quality testing and communications networking equipment.)
Citigroup analyst Deane Dray told Bloomberg that pressure to create "baby Danahers" could reach a tipping point if another big deal is not consummated this year. It was written prior to the latest deal, but judging by the tone of the analyst's questions the pressure to go big remains. Danaher failed to do so earlier this year when it lost out on Johnson & Johnson's ($JNJ) Ortho-Clinical diagnostics unit to private equity firm Carlyle Group.
The life sciences and diagnostics division reported first half revenues of $3.45 billion up from $3.24 billion over the prior year. Dental device revenues increased to $1.04 billion, up from $995 million. The two healthcare-focused segments accounted for almost half of Danaher's total revenues.