Reading through the company description on the Danaher [NYSE: DHR] website doesn't get you any closer to understanding what the company actually does. In its words, it's "a diversified technology leader that designs, manufactures, and markets innovative products and services to professional, medical, industrial, and commercial customers." In short, Danaher makes stuff.
More importantly, it's a consummate consolidator, an industrial conglomerate that buys poorly run companies and cleans them up. And it exemplifies several of the principles that Tom regularly calls upon in his investing research.
As Tom said of the businesses that most appeal to him, "It starts with a passion, it starts with something you believe, and you give your life to it, rather than just try and start up something great, raise money, and sell it to somebody else." CEOs such as Jim Sinegal of Costco [Nasdaq: COST], Kip Tindell of The Container Store, and Jeff Bezos of Amazon.com [Nasdaq: AMZN] are making decisions based on what they will mean for their companies 10, 20, or 50 years down the road.
Nearly three decades ago, while fishing on the Danaher, a tributary to the Flat Head River in Montana, Mitchell and Steven Rales came up with their vision of a manufacturing company dedicated to continuous improvement and customer satisfaction. Today, Mitchell is chairman of Danaher's executive committee and Steven is the chairman of the board.
The company has acquired hundreds of companies in fields including hand tools, test and measurement, medical technologies, product identification, and environmental, and it now boasts nearly 50,000 employees and a market cap of over $30 billion. It incorporates new businesses through what it calls the Danaher Business System, which stems from the principles of lean manufacturing. Today, this system drives the company through a never-ending cycle of change and improvement. They bring in a company whose performance left something to be desired, apply their processes, wring out any inefficiencies, and boost the margins. In retrospect, it usually looks as though Danaher picked up its acquisitions at bargain prices.
The problem is that Danaher's success isn't exactly a secret. Shares have marched steadily upward for more than two decades, and today they are priced at a premium to its peers. They will likely never be cheap. Still, the company always manages to perform beyond expectations, so it might just be a matter of biting the bullet and getting a piece of this reliably outstanding company.
Companies that boast a reliable process for getting the most out of other businesses is a very compelling feature to Tom. And that leads us to his next pick.