Danaher Corporation (DHR) announced Tuesday it's paying $180 per share in cash to acquire Masimo Corporation (MASI), valuing the medical technology company at $9.9 billion. It's a sizable bet on a business with solid recurring revenue and margins that Danaher believes it can improve further.
The deal arrives with some interesting backstory. Two years ago, activist hedge fund Politan Capital Management waged a proxy fight that resulted in Masimo founder Joe Kiani losing his board chair position. Kiani later stepped down as CEO but still holds about 5% of the company. Politan, led by Quentin Koffey, owns close to 9% and secured four board seats in the process. Now, the company they helped reshape is being sold.
From a valuation perspective, Danaher is paying roughly 18 times estimated 2027 EBITDA. But factor in expected synergies, and that multiple drops to around 15 times. Not exactly a screaming bargain, but not reckless either.
The Financial Upside Looks Straightforward
Here's where things get interesting. Masimo is expected to add $0.15 to $0.20 to Danaher's adjusted earnings per share in the first full year after closing. By year five, that contribution grows to approximately $0.70 per share. The company projects Masimo will generate more than $530 million in EBITDA by 2027 under its ownership.
Danaher also expects to squeeze out over $125 million in annual cost synergies and more than $50 million in revenue synergies by the fifth year post-acquisition. Combined, that's over $175 million in annual benefits once everything is fully integrated.
Long-term, Masimo is expected to deliver high-single-digit core revenue growth, which should give Danaher's Diagnostics segment a nice boost. The unit, which includes Radiometer, Leica Biosystems, Cepheid, and Beckman Coulter Diagnostics, will now house Masimo as a standalone operating company.
One analyst, Matt Larew, summed it up nicely: "Overall, the financial rationale appears sound with strong recurring revenue and work to be done to improve margins further when inside Danaher. This should make for straightforward upside potential in what we view as a not-so-aggressive deal model."
Larew also noted that the deal represents a shift for Danaher, which has recently focused capital on life sciences and bioprocessing. This move reinforces the company's identity as a portfolio manager of high-quality assets across different healthcare verticals.
Both boards have unanimously approved the transaction, which now awaits the usual regulatory approvals and closing conditions.
Price Action: DHR stock was up 0.55% at $207.50 at last check on Wednesday.
