Fortive Corporation (FTV) announced its intention to separate into two independent, publicly traded companies with the transaction expected to be completed the 2nd half of 2020.


  • Fortive was spun off from Danaher Corporation on July 2, 2016 and adopted Danaher’s philosophy underpinning the proven Danaher Business System.
  • Recurring revenue as a percentage of total revenue has increased from ~20% at the time of spin-off to ~35%.
  • FTV generates strong Free Cash Flow so as to support its growth-by-acquisition strategy.
  • On September 4, 2019 FTV announced its intention to separate into two independent, publicly traded companies with the transaction expected to be completed the 2nd half of 2020.


In several articles this year I have expressed my frustration as to the lofty valuation of several companies in which I wish to increase my exposure or to initiate a position. Although I view the vast majority of the companies on my ‘Watch List’ as being too richly priced for my liking, I have made the occasional purchase when I viewed a company’s long-term prospects as attractive and the valuation as fair or attractive; this is my most recent article in which I disclosed a purchase.

On September 4th, I noticed that Fortive Corporation (FTV), a company on my ‘Watch List’, had fallen further out of favor with investors and was the company with the largest pullback in its share price of all the companies I monitor.

Much to my surprise I learned that FTV announced on September 4th its intent to separate into two independent publicly traded companies. I delved further into FTV and its plans to separate the second half of 2020.

Although GAAP EPS guidance for FY2019 has been revised lower the last few quarters I invest for the long-term. Unless there is a permanent impairment to the company’s business I don’t get overly concerned when I see what I deem to be temporary weakness as I view seek to invest in high quality companies that have fallen out of favor with the investment community.

The following is my take on FTV.

Business Overview

FTV was incorporated in 2015 and became a publicly traded company on July 2, 2016 when it formally separated from Danaher Corporation (DHR). Following its spin-off, FTV adopted DHR’s philosophy underpinning the proven Danaher Business System.

The Fortive Business System essentially involves acquiring companies with ‘moats’, expanding operating margins through lean manufacturing principles, and redeploying cash flows into further mergers and acquisitions.

Target companies typically have reputable brand names, large installed bases, and strong cash flows.

FTV’s management has focused particularly on increasing the recurring revenue profile of the portfolio; recurring revenue was ~20% at the time of the spin-off from DHR and is now ~35% and the plan is to increase this to 40%+ over the next few years.

This trend has been driven by acquisitions such as the acquisition of Johnson & Johnson’s advanced sterilization business (~80% recurring revenue), divestitures such as the sale of the automation and specialty unit to Altra Industrial Motion Corp. (AIMC), and an increasing importance of the software-as-a-service business.

FTV seeks to leverage its large installed base and combine connected devices with software to offer customers an integrated package.

I anticipate management will continue to focus on recurring revenue and digitalization to reinforce the company’s moat by increasing customer switching costs.

FTV is a diversified industrial technology growth company encompassing businesses that are recognized leaders in attractive markets. Its well-known brands hold leading positions in advanced instrumentation solutions, transportation technology, sensing, and franchise distribution markets. Its businesses design, develop, service, manufacture and market professional and engineered products, software and services for a variety of end markets, building upon leading brand names, innovative technology and significant market positions.

FTV’s research and development, manufacturing, sales, distribution, service and administrative facilities are located in more than 50 countries across North America, Asia Pacific, Europe and Latin America.

FTV is comprised of two reportable segments, Professional Instrumentation and Industrial Technologies.

Professional Instrumentation

This segment offers essential products, software and services used to create actionable intelligence by measuring and monitoring a wide range of physical parameters in industrial applications, including electrical current, radio frequency signals, distance, pressure, temperature, turbidity, radiation, and hazardous gases.

It consists of the Advanced Instrumentation & Solutions and Sensing Technologies businesses. The Advanced Instrumentation & Solutions business was primarily established through the acquisitions of Qualitrol in the 1980s, Fluke Corporation and Pacific Scientific Company in 1998, Tektronix and Invetech in 2007, Keithley Instruments in 2010, eMaint in 2016, Industrial Scientific and Landauer in 2017, Gordian and Accruent in 2018 and numerous bolt-on acquisitions.

Industrial Technologies

The Industrial Technologies segment offers critical technical equipment, components, software and services for manufacturing, repair and transportation markets worldwide. FTV offers a wide range of products spanning advanced environmental sensors, fueling equipment, field payment, hardware, remote management and workflow software, vehicle tracking and fleet management software, and signaling solutions for traffic light control. The products and services offered serve retail fueling operators, commercial auto-repair businesses, municipal governments and public safety entities and fleet owners/operators, globally.

This segment consists of the Transportation Technologies and Franchise Distribution businesses.

The Transportation Technologies business originated with the acquisition of Veeder-Root in the 1980s and subsequently expanded through additional acquisitions, including the acquisitions of Gilbarco in 2002, Navman Wireless in 2012, Teletrac in 2013, ANGI Energy Systems in 2014, Global Traffic Technologies in 2016, Orpak Systems in 2017 and numerous bolt-on acquisitions.

The Franchise Distribution business was established through the acquisitions of Matco Tools and Hennessy Industries in 1986.


FTV’s businesses generally operate in highly competitive markets.

FTV is of the opinion none of its competitors offer all of the same product and service lines or serve all of the same markets as it does.

FTV encounters a wide variety of competitors, including well-established regional competitors, competitors who are more specialized in particular markets, as well as larger companies or divisions of larger companies with substantial sales, marketing, research, and financial capabilities.

The number of competitors varies by product and service line. Management has observed increased competition in a number of served markets as a result of the entry of competitors based in low-cost manufacturing locations and increasing consolidation in particular markets. It does, however, believe FTV has a market leadership position in most of the markets served.

Key competitive factors vary among businesses and product and service lines, but include the specific factors such as price, quality, performance, delivery speed, applications expertise, distribution channel access, service and support, technology and innovation, breadth of product, service and software offerings and brand name recognition.

Intention to Separate Announcement

On September 4, 2019, FTV announced its intention to separate into two independent publicly traded legal companies; the transaction is expected to be completed in the 2nd half of 2020.

This presentation provides an overview of the businesses which will remain in the ‘new’ FTV and those which will be part of the ‘Newco’ as well as the rationale for the separation.

When FTV was spun off from DHR, FTV was able to identify and pursue a variety of growth opportunities it was unable to pursue when under the DHR umbrella. Management has indicated the same is expected once FTV splits into two separate legal entities.

Details on the capital structure of the two entities, the respective management teams, etc., have not yet been determined and management indicated on the September 4th conference call with analysts that periodic updates will be provided in the months to come.

Q2 and YTD2019 Results

FTV’s Q2 and YTD2019 results released July 25th can be accessed here and the accompanying Earnings Presentation can be accessed here. (cont’d.)

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Disclosure: I am long FTV.

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