Ending two months of speculation, Danaher announced on February 7 an agreement to acquire Beckman Coulter (see page 2). The deal is valued at approximately $6.8 billion, including debt and net of cash acquired. This is approximately 1.8 times Beckman Coulter’s 2010 revenues. With the purchase, Danaher will become a major provider of in vitro diagnostics (IVD) assays and automation systems. Danaher will also add to its growing portfolio of analytical and life science instruments and consumables (see IBO 10/31/10).

On Danaher’s conference call discussing the deal, Danaher President and CEO H. Lawrence Culp, Jr., highlighted three reasons for the acquisition: Beckman Coulter’s status as an “iconic life sciences and diagnostics company,” the “great DBS [Danaher Business System] opportunity” and “the uniquely compelling value creation.” He stated that Beckman Coulter is well positioned to benefit from trends in the $25 billion IVD market, such as an aging population, growth in emerging markets and the advent of predictive medicine.

The DBS opportunity includes more than $250 million in cost synergies and sales growth in China. According to Danaher, Beckman Coulter’s Chinese IVD sales are growing more than 25% annually and total over $300 million, making it number two in the market. The acquisition is expected to create a 10% return on invested capital within four years and to generate more than $650 in free cash flow. Danaher will fund the acquisition with cash on hand (25% of funding), new and assumed debt (60%) and equity (15%). Danaher will keep the Beckman Coulter name, but Beckman Coulter will delist from the New York Stock Exchange.

According to the conference call, in 2010, Beckman Coulter’s revenues totaled $3.7 million, with a gross margin of around 45% and an operating margin in the low teens. Beckman Coulter’s Clinical Chemistry, Cellular Systems, Immunoassay and Life Sciences businesses represented 33%, 30%, 25% and 12% of revenues, respectively.

Danaher’s Life Sciences & Diagnostics division generated revenues of $2,298.3 million in 2010. Following the acquisition, 47% of Danaher’s revenues will be in Life Sciences & Diagnostics. Mr. Culp told analysts on the conference call that this does not represent a permanent reorientation for the company: “We’re at a point where this kind of comes up as close to 50% of sales, but I think over time when you think about Danaher as a $20 billion to $25 billion company, you should really think about that exposure being, call it, 40%, give or take.”

The acquisition will bring a new set of products and expertise to Danaher. The company’s current diagnostics exposure includes Radiometer, which supplies blood gas analyzers, and Leica Biosystems, a provider of diagnostic products for pathology and histology. Beckman Coulter will add a diagnostics business that primarily includes clinical chemistry tests and automated systems, immunoassays, chemistry/immunoassay work cells, hematology systems and flow cytometers.

The major product lines in Beckman Coulter’s Life Sciences business are centrifuges, liquid handling systems and capillary electrophoresis instruments. The business also offers pH and electrochemistry meters, UV/Vis spectrophotometers and particle analyzers. Beckman Coulter is one of the world’s largest providers of laboratory centrifuges. Another market in which Beckman Coulter is one of the two largest suppliers is research flow cytometers. Research flow cytometers are part of the company’s Cellular Systems segment. Within the Immunoassay and Molecular Diagnostics segment is the Beckman Coulter Genomics business, which provides genomic testing services and nucleic acid purification products for research applications.

As Mr. Culp discussed on the conference call, numerous synergies and partnerships are possible between the companies’ life science research businesses. In particular, he noted new opportunities for AB SCIEX: “Beckman’s strong automation capabilities, incumbent positions in thousands of hospitals and regulatory expertise will aid AB SCIEX’s growing diagnostic position in mass spectrometry.”

He also indicated strong interest in the Life Sciences business on its own: “I think we look at that business as a very strong opportunity, because not only does it have some neat tie-ins to what we’re doing in the research labs with AB SCIEX and Molecular Devices as well as Leica, but frankly it’s a business that hasn’t gotten, perhaps, the attention that it warranted.” In the first nine months of 2010, Beckman Coulter Life Sciences sales were flat.