Danaher signals growing appetite for acquisitions

NEW YORK, July 23 (Reuters) - Danaher Corp (DHR.N) looks set to step up its dealmaking.

Danaher, whose products include medical and dental technology, hand tools and water quality equipment, said it was encouraged by the opportunities in its deal pipeline.

The company, which has grown through acquisitions over the past two decades into a industrial conglomerate with a $20 billion market capitalization, has $1.3 billion in cash and more than $1 billion available under a commercial paper program.

"We certainly are very busy right now on the M&A front," Chief Executive Larry Culp said on a conference call with analysts. "Time's our friend here, as the 52-week highs come down (on public companies) and the economy wears on many private owners.

"We're very comfortable with the prospect of deploying billions of dollars in this environment," Culp said. "These are the types of times in which we want to be an aggressive strategic investor in our businesses."

Morgan Stanley this week upgraded the stock to "overweight," from "equal weight," and raised its price target to $73 from $57, citing the improved deal outlook, calling deals a key catalyst for the stock.

Danaher's M&A focus "is largely on 'mid-tech, modest growth' companies that often fall under the radar screen of both industrial companies and higher growth tech and medical companies," Morgan analysts said in a research note.

Healthier credit and capital markets make it possible to finance deals through either debt or equity, prices are falling, and expectations for low global growth over the next several years can help smart buyers outperform.

Danaher earlier reported better-than-expected quarterly results, one of several industrial giants to do so. [ID:nN23395018]

EXPECTING BOLT-ON DEALS

Helping the acquisition climate are reduced expectations among potential sellers.

Sellers, who had earlier banked on a quick economic recovery, have in recent months become more realistic about prospects for recovery. That has "helped in terms of the price discussion," Danaher executives said on Thursday.

The potential for M&A is one of the reasons to own Danaher shares, said Eric Schoenstein, principal at Jensen Investment Management in Portland, Oregon, which holds 900,000 Danaher shares in its Jensen Portfolio (JENSX) mutual fund.

"They're able to identify undermanaged companies when it comes to product and cost and margins, and bring them up to speed," Schoenstein said.

He predicted Danaher would not enter new markets, like it did when it expanded into dental equipment with the $2 billion purchase of Sybron Dental in 2006 and other deals. It will instead look for bolt-on deals to expand existing product lines and make the company less cyclical, or economically sensitive.

The absence of private equity players helps dampen prices. But the question remains whether the company can execute deals at favorable terms, Schoenstein said, citing Danaher's $2.8 billion deal for Tektronix, a maker of testing technology, for which the company may have overpaid.

"We're concerned, are they finding opportunities to continue to grow through acquisitions," he said. "It's been a strong part of their strategic profile, if that were to change, we may have to think differently about what kind of growth opportunity Danaher is as a company."

(Reporting by Nick Zieminski; editing by Gunna Dickson)