Merger mania continues: Danaher (NYSE: DHR) is spending $300 million to acquire smaller measurement specialist Keithley Systems (NYSE: KEI) at a 70% premium over last night's closing price.
The deal follows a rash of crosswise buyouts in the measurement tools industry. Agilent Technologies (NYSE: A) bought part of Keithley's operations last November, then sold its network testing tools to JDS Uniphase (Nasdaq: JDSU) in February. Danaher itself spent $2.9 billion to buy Tektronix three years ago and then picked up a measurement division of General Electric (NYSE: GE) this summer. Merger fever is running hot, and Danaher sits right at the center of the heat map.
In fact, the number of standalone competitors in this field is dwindling fast. There's Danaher, there's Agilent, and then you have a handful of much smaller providers such as Zygo (Nasdaq: ZIGO). A couple of large conglomerates still dabble in measurement instrumentation, but this is no more than a hobby for 3M (NYSE: MMM), for example. And JDS Uniphase remains focused on network signal testing. Danaher is the 800-pound gorilla in this space, and it's eating all the other little monkeys.
Over the past 12 months, Keithley produced $11.4 million of net income and $7.5 million of free cash flow on $113 million in revenue. This deal will hardly make a difference to Danaher's $12.3 billion of trailing sales, but Keithley does come with stronger operating margins than Danaher's. It's more of a directional deal than a transformative one, unless of course you own shares of Keithley Systems already. Enjoy the payday in that case. There won't be a bidding war, I'm afraid, so you should cash in your shares at your earliest convenience.
Would Danaher get away with buying Agilent, too, thereby consolidating an entire industry under one corporate umbrella? Dream on in the comments below.
