Danaher Corp.'s (DHR) sale of Pacific Scientific Aerospace confirms Danaher's long-suspected interest in off-loading its portfolio of aerospace and defense businesses, analysts said Tuesday.

Danaher plans to sell Pacific Scientific to U.K.-based Meggitt PLC (MGGT.LN) for $685 million in cash. Pacific Scientific, which had revenue of $378 million last year, accounted for an estimated two-thirds of Danaher's annual revenue from its aerospace and defense portfolio. Pacific Scientific's product lines include fire suppression systems, gauges, personal restraints and sensors.

"When you think of aerospace and defense, it's been a non-core business for Danaher for a long time as they've moved their portfolio toward asset-light businesses," said Richard Eastman, a senior analyst for brokerage firm Robert W. Baird & Co. "It's not a long-term growth market" for Danaher.

The Washington-based industrial conglomerate has been focusing on a handful of sectors that it views as providing Danaher with an opportunity to dominate the market. This group of sectors includes, testing and measurement instruments, life sciences technology, dental appliances, water treatment and product identification systems.

Rumors about Danaher having its entire aerospace portfolio on the block have been circulating for several months. But the company was widely believed to have taken the segment off the market in recent months when it couldn't receive its desired price. Danaher CEO Larry Culp refused to comment on whether the company was trying to sell its aerospace and defense holdings when asked about it during the company's annual presentation to investors and analysts in December.

Danaher did not return calls for comments Tuesday about the deal with Meggitt. U.S. diversified industrial companies have been reducing their exposure to defense-related businesses in anticipation of steep cuts in U.S. defense spending in the coming years. Last week, ITT Corp. (ITT) announced that it will spin off its defense business as a separate company to its shareholders by the end of 2011.

An estimated 57% of Pacific Scientific's annual revenue comes from commercial aviation, with the remaining 43% coming from military customers. Pacific Scientific has been a money-maker for Danaher, contributing about 7 cents to company's earnings per share for 2010. Meggitt's purchase price represents a multiple of 8.7 times Pacific Scientific's 2010 earnings, according to Baird.

"It's not a bad business at all," said Daniel Holland, an analyst with research firm Morningstar Inc.

Analysts said its unclear whether the remaining holdings in Danaher's defense portfolio are for sale. The businesses have combined annual revenue estimated at $250 million.

The acquisition of Pacific Scientific will broaden Meggitt's product lines and increase its exposure to major commercial and military aviation programs, including Boeing Co.'s (BA) 787 Dreamliner, Airbus' A380, A350 and A400M and the Eurocopter NH-90.

Meggitt Chief Executive Terry Twigger said in a written statement that the deal "represents a further major step in the strategic growth and development of the Meggitt Group and fits well into Meggitt's business model, with strong technology positions, a significant level of sole source content and aftermarket sales representing over one-third of Pacific Scientific's total revenues."

Meggitt said the transaction will be funded in part by the sale of up to 69.8 million new ordinary shares of Meggitt stock, representing less than 10% of its current share capital. The balance of purchase price will be funded from existing debt facilities.

Meggitt earns roughly 41% of its revenue from the civil aerospace market, 45% from the military market and the remaining 14% from other markets, primarily energy. Meggitt estimates cost synergies from Pacific Scientific of about $5 million in 2011, rising to about $18 million a year by 2014. The one-time cost to achieve these savings is expected to be about $32 million spread over three years. Meggitt expects the deal to enhance its earnings immediately.

Completion of the deal is dependent on regulatory clearances, including a review by the Committee on Foreign Investment in the U.S.

Meggitt's shares closed Tuesday's regular trading session on the London Stock Exchange down 3 pence, or 0.78%, at 368 pence. Danaher was recently trading up 0.25% at $47.27 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

 (Jonathan Buck contributed to this report)