504 Airport Road
Santa Fe, New Mexico 87504-2108
Telephone: (617) 622-1111
Fax: (617) 622-1207
Sales: $584 million
Stock Exchanges: New York
SICs: 3826 Analytical Instruments; 3829 Measuring and Controlling Devices; 8734 Testing Laboratories
Thermo Instrument Systems Inc., a majority-owned subsidiary of Thermo Electron, is an international leader in developing and manufacturing analytical instruments used to detect and measure air pollution, nuclear radioactivity, complex chemical compounds, toxic metals, and other elements. In addition, the company provides specialized environmental analysis and engineering services throughout the United States. Facilities are located throughout North America, Europe, and Asia, with representatives and distributors serving more than 50 countries. The company's customer base includes industrial companies, utilities, government agencies, and research laboratories. Thermo Instrument Systems has been extremely profitable, largely due to its success in acquiring promising but failing businesses and turning them around. The company is ranked in the top ten of all instrument companies in the world based on sales, earnings, and return on stockholders' equity.
The history of Thermo Instrument Systems is inextricably linked to that of its majority owner, Thermo Electron, a Massachusetts-based company specializing in high-technology products. With $800 million in annual sales, Thermo Electron is renowned for its innovative spin-off strategies. Thermo Electron has nine majority-owned spin-offs, including Thermo Instrument Systems, and several wholly owned subsidiaries. Thermo Electron is led by the vision of its founder and CEO, Dr. George Hatsopoulos.
Born in Athens, Greece, Hatsopoulos was the son of the chief operating officer of Greece's electric rail system. Hatsopoulos attended the National Technical University in Greece, where he studied electrical engineering and thermodynamics. He then completed his studies in the United States, earning Bachelor's and Ph.D. degrees in thermodynamics at the Massachusetts Institute of Technology. As a graduate student at M.I.T., Hatsopoulos became fascinated by the concept of converting heat into electricity, and he began to work on the creation of a thermionic energy converter. While completing his doctoral research, he sought a means of marketing the products described in his dissertation, and, in 1956, with the support of a Greek shipping company, Hatsopoulos founded Thermo Electron.
Thermo Electron was unique for several reasons, all of which have contributed to its success in an industry in which many companies have struggled or gone bankrupt. Specifically, Thermo Electron sought to reward risk-takers and innovators, creating opportunities for them to pursue unusual research projects with commercial potential. Research projects that proved commercially viable were then made into subsidiary companies and spun off to the public. Generally, these subsidiaries were managed by the engineers and scientists who originated the research. This aspect of Thermo Electron's managerial structure was highly unusual in a field which typically provided very little in the way of upper-level advancement opportunities for engineers.
In 1970, Hastopoulos hired Arvin Smith to manage the direct energy conversion and electronics group of the company's Research and Development/New Business Center. Prior to joining Thermo, Smith had worked as an engineer and engineering manager in the aerospace industry for 16 years. In the early years of the space program, Smith worked at NASA's Jet Propulsion Laboratory and then relocated to Washington's Office of Advanced Research and Technology, where he became chief of solar and chemical power systems.
Shortly after Smith joined Thermo Electron, the company established a department within the R&D center to develop air pollution monitoring instruments. Smith was selected to head this new department. In 1977, Thermo Electron formed a new Environmental Instrument Division, appointing Smith as president. Under Smith's leadership, the division became one of Thermo Electron's most profitable businesses. In 1986, Thermo Instrument Systems Inc. was spun off and incorporated as a majority-owned subsidiary, and Smith became its president. The company's revenues for its first year were $85.8 million.
Thermo Instrument Systems enjoyed tremendous financial success from the outset. Like its parent company, Thermo Instrument maintained a group of division presidents who were technically knowledgeable engineers. Each division president was given financial goals, with a cumulative goal of 30 percent earnings growth for the company each year. In the years from 1986 to 1994, the company and its divisions reached their goals each year.
Two strategies in particular secured growth for the company: acquisitions and internal development. Through nine acquisitions between 1986 and 1994, the company achieved new technologies, distribution channels, markets, personnel, and opportunities to improve margins and profitability. In every acquisition, the company expanded margins and profitability, positioning each business for long-term dependable growth.
A 1994 management study of Thermo Instrument Systems by Raymond James & Associates found the company's propensity to transform a failing business into a profitable one to be "nothing short of extraordinary." Acquisitions were made with a three-prong approach, emphasizing earnings over revenue growth. First, the company de-emphasized lower margin products, increasing the price to the point where a reasonable gross margin could be earned. If the product did not sell at that price, it was discontinued. At the same time, the company developed technically superior products which could command a price premium of five to ten percent. Because the first two strategies were not always possible, the third focused on improving productivity. In 1994, Thermo Instrument Systems displayed the highest productivity of any company in a comparable group. The company's revenue per employee was $200,000, while the industry standard was $160,000 to $170,000.
In 1989, Thermo Instrument Systems made its first important acquisition, purchasing LDC Analytical for $21.2 million. LDC Analytical manufactured an analytical instrument known as the high performance liquid chromatograph (HPLC). This acquisition provided the company with new technology that facilitated the separation, isolation, and purification of complex molecular mixtures. This technology was used in the pharmaceutical, biotechnology, and chemicals industries.
1990 marked the beginning of a new era of expansion for Thermo Instrument, as it merged with Thermo Environmental Corporation, which had been formed in 1987 when Thermo Analytical merged with Thermo Water Management. Thermo Environmental, an 80 percent subsidiary of Thermo Electron, was acquired by Thermo Instrument Systems in 1990. Thermo Environmental was then divided into several wholly owned subsidiaries, including Thermo Analytical Inc., Thermo Consulting Engineers, Bettigole Andrews and Clark Inc., and TMA/Normandeau Associates. The acquisition of Thermo Environmental was a key move for Thermo Instrument Systems Inc., allowing the company to expand by adding laboratory, consulting, and engineering services to complement its core analytical instruments business. This merger/acquisition paved the way for Thermo Instrument's expansion into operations beyond instrument manufacturing in the 1990s. The company's year-end revenues for 1989 (refigured to include the merger) were $184.7 million.
Thermo Instrument Systems made a strategic decision to enter the market for mass spectrometers in 1990. That fall, the company acquired Finnigan Corporation, the world's leading manufacturer of mass spectrometers. Often referred to as "the mother of all detection technologies," mass spectrometers were unsurpassed by any analytical instrument in their ability to provide information on the molecular weight of a chemical/biological compound and the amount of compound present in a sample. The market for mass spectrometers--one of the fastest growing segments of the analytical instruments market--would grow at approximately ten percent each year.
In 1990, the Clean Air Act was passed, with emission monitoring rules mandating the installation of continuous emission monitoring systems on boilers for utilities and industry. This legislation would become important in the early 1990s, as regulations became finalized and spending to bring boilers in line began to occur. The company achieved revenues of $285.4 million in 1990 (accounting for 40 percent of Thermo Electron's revenue) and $338.8 million in 1991.
Another important acquisition was made in 1992, when Thermo Instrument Systems purchased Gas Tech, Inc., a California manufacturer of worker safety instruments and systems that detected and monitored toxic and combustible gases. Prior to the acquisition, Thermo Instrument Systems sold air monitoring instruments through its Thermo Environmental Instruments subsidiary. However, the purchase of Gas Tech, Inc. opened new markets to the company, because while the instruments sold by Thermo Environmental were driven by EPA rules, Gas Tech was governed by OSHA (worker safety) standards.
Also in 1992, the company acquired new technology with the purchase of Nicolet Instrument Company. With 1992 revenues of $139 million, Nicolet was Thermo Instrument's largest acquisition, and its assimilation represented the greatest challenge in the company's history. Fourier Transform Infrared Spectrometry (FTR), an analytical instrument technology that identified organic compounds and determined their concentration, presented excellent potential for monitoring air pollutants. Recognizing that FTR technology would become an important segment of the analytical instruments market, Thermo Instrument Systems again positioned itself to reach that market through the acquisition of Nicolet, the world's leader in the market. Thermo Instruments closed the 1992 fiscal year with sales of $423 million, a 25 percent increase over the previous year.
In 1993, for the third year in a row, Thermo Instrument was named one of America's 1,000 most valuable companies by Business Week. Thermo Instrument was the only New Mexico-based company on the list, and was placed at number 638 on the basis of its stock market value of $1.15 billion. Earnings per share had risen 25 percent, from 92 cents in 1991 to $1.15 in 1992. According to Financial World, a $100 investment in the company in 1987 would have been worth $429 by the end of 1992. By 1993, Thermo Instrument's revenue increased to $584 million (primarily due to the 1992 acquisitions), a remarkable 38 percent increase over the previous year.
In 1994, the company acquired several of the businesses that formed the envirotech measurement and controls group of Baker Hughes Incorporated. The company also joined forces with Thermo Process Systems, forming an environmental services company entitled Thermo Terra Tech. Under the agreement, Thermo Instrument would contribute its environmental service business, and Thermo Process would contribute its environmental laboratory business. This joint venture brought Thermo Instrument back to its origins as an instrument manufacturer.
In 1994, Thermo Instrument's business plan for the next few years continued to project 30 percent growth, with the source of growth split evenly between internal development and acquisitions. During the early 1990s, the majority of growth came from acquisitions, with only four to five percent real growth in sales. The company also expected to achieve greater internal development through maintenance of its competitive position within existing, growing product lines and through accelerated development of new products, as it strove to become a leader in each of four areas of business: analytical instruments, monitoring instruments, process monitoring, and environmental services. With a broad customer base that included industrial companies, government agencies, utilities, and private research laboratories, a growing market in universities, and exceptional stock market value, Thermo Instrument Systems was likely to meet its goals.
Principal Subsidiaries: Finnigan; Nicolet Instrument Corporation; Thermo Jarrell Ash; LDC Analytical; Thermo Environmental Instruments, Inc.; Gas Tech, Inc.; Eberline; National Nuclear; Reactor Experiments; Xetex; Eberline Ltd.; Thermo Analytical Inc.; Bettigole Andrews and Clark, Inc.; Thermo Consulting Engineers; TMA/Normandeau Associates; Envirotech Measurement and Controls Group of Baker Hughes.
David, Gregory E., "Thermo Instrument: It Measures Up," Financial World, October 26, 1993, p. 20.
Feder, Barnaby J., "The Spinoff Stratagem," The New York Times, November 11, 1990, p. 4.
Miller, Christopher, "Santa Fe Company Stays on Elite List," Albuquerque Journal, April 9, 1993.
"Not By Technology Alone," Chief Executive, April 1993.
"Thermo Electron Says Two Subsidiaries Buy Baker Hughes Lines," Wall Street Journal, February 1, 1994, p. B2.
"The 200 Best Small Companies in America," Forbes, November 12, 1989, p. 234.
Source: International Directory of Company Histories, Vol. 11. St. James Press, 1995.