Many Roads: One Destination
In seeking potential acquisitions, Dover looks for well-managed companies that manufacture products purchased by industrial or commercial customers. These companies, in turn, may be in the market for investment capital, leverageable operating capabilities, or technical support.

Companies that are leaders in their niche markets are attractive candidates for acquisition; such historically successful enterprises fit well within Dover’s decentralized corporate structure.

No acquisition follows an identical pattern. Dover acquires some companies as independent stand-alones; others become part of the Dover organization as add-on companies to an existing business. Both routes to Dover have worked extremely well for the businesses involved. One of these ways may be right for your company.

What Makes a Dover Company?
Starting in 1955 with four companies, Dover today comprises about 40 independent operating companies. Most are number one in their niche market. Each manufactures products to be purchased by industrial or commercial customers. And each consistently outperforms its competition.

Companies are considered a right fit based on how well they are run rather than how well they conform to a formal model or theory of growth.

Dover doesn’t demand synergy among its stand-alone companies. Dover has always taken the position that its role is not to develop operating strategies; that responsibility is left to company management teams. Synergy, however, is a prerequisite in making add-on acquisitions.

Allowing skilled entrepreneurs the scope to do what they do best—run their companies and find new ways to grow them—has paid off handsomely for Dover Corporation and its stockholders. Dover has enjoyed strong and continuous growth since its inception—sales and earnings have grown over 12 percent compounded annually since 1955, and stockholders’ returns on their Dover investment have consistently surpassed the S&P 500.

Proven Formula for Success
To understand Dover’s operating style, it helps to know something of the company’s history and the role played by its leaders over the years. Dover traces its roots to a group of investors led by George Ohrstrom, Sr. A high-flying investor in the 1920s who, like many others, reaped some failures in the 1930s, Ohrstrom ultimately hit upon a conservative but successful investment strategy: he sought out financially successful family or closely held businesses whose owners not only wished to monetize their assets but also hoped to provide a secure future for their employees and remain personally involved with their companies.

At this stage in his life, Ohrstrom had little interest in presiding over complex bureaucracies. He wanted a group of modestly sized, profitable enterprises run by first-class people who understood their businesses and customers and who could continue to be successful.

Ohrstrom’s earliest acquisitions—Rotary Lift (a manufacturer of automotive lifts), C. Lee Cook (a manufacturer of compressor components), Norris (a manufacturer of oil and gas production equipment), and Peerless (a manufacturer of gas-fired space heaters)—each fit this description.

They had a simple approach to manufacturing products for niche markets. Each was highly profitable with strong cash flow. Each would continue to be run by the same management team after joining Dover.

These four companies combined to form Dover Corporation via an Initial Public Offering (IPO) in 1955. From this nucleus, the Dover culture has been crafted by the five CEOs succeeding George Ohrstrom, who died shortly after the IPO. While preserving the founding philosophy, each leader has made his own indelible contribution to building the Dover of today.

Fred Durham, Dover’s first CEO, set the example. Durham, who had sold
C. Lee Cook to Ohrstrom and remained as president, firmly believed that the key job at Dover was that of president at each of the operating companies. Right from the start, he set the tone of keeping corporate functions and staff to a minimum.
Tom Sutton, Durham’s successor and the company’s second CEO, had previously been president of Dover’s OPW business. Another zealous advocate of decentralized management, Sutton was instrumental in Dover’s significant growth during his fifteen-year term. In order to supplement internal growth, Sutton focused on attracting new companies to Dover and initiated the active acquisition program that remains a cornerstone of Dover’s growth strategy.

Gary Roubos, Dover’s third CEO, joined Dover in 1975 when it acquired Dietrich Standard, a company in which he had a large ownership interest. Dover grew significantly during the Roubos years and a number of building blocks were put in place, such as the long-term incentive compensation program and the organizational foundation for Dover’s segment structure.

Tom Reece succeeded Gary in 1994. Tom joined Dover when Ronningen-Petter was acquired in 1968. Over the years, Tom served as president of two other Dover companies—DE-STA-CO and Norris. During the Reece years, Dover accelerated its growth by strategic add-on acquisitions and international expansion.

Ron Hoffman, Dover’s fifth CEO, joined Dover when Tulsa Winch, which he owned, was acquired in 1996. Ron authored the PERFORMANCECOUNTS initiative and spearheaded the new 4 Segment/6 Platform organization.

Of our five CEOs, three sold their companies to Dover and all have been presidents of Dover companies.

Lean Headquarters Staff
Dover leaves to its independent operating companies many management tasks typically handled by corporate headquarters. By managing their own human resources, legal affairs, engineering, research and development, strategic planning, purchasing, and marketing, Dover companies can proactively respond to changing customer needs without becoming entangled in bureaucratic red tape. In fact, less than 100 of Dover’s approximately 34,000 employees work at its corporate headquarters.

Why does Dover’s corporate staff remain so small? First, it is much easier to keep corporate functions from multiplying when there is very little bureaucracy to begin with and no one has any turf to defend. In addition, because Dover is composed of many companies, each serving a specific market with highly targeted product offerings, there is little need for integration or coordination of functions across company lines. The bottom line is that at Dover, the president of each operating company is expected to have ultimate responsibility for the healthy growth of his or her business. In this environment, corporate bureaucracy would only get in the way.

An Organization of Leaders . . . Linked by Trust
The Dover culture is founded on trust based on mutual respect. At Dover, a company presidency is not a stepping stone to another position. Rather, it is the pinnacle of importance for each individual company and for Dover itself. With guidance from segment leaders, Dover’s company presidents set the direction for their own companies, make their own decisions, and nurture and grow their own organizations.
The expectation is, of course, for excellence. Our five PERFORMANCECOUNTS “metrics” are well known at every level:

• 8 inventory turns
  
  
• 10% earnings growth
  
  
• 15% operating margins
  
  
• 20% or less working capital
  
  
• 25% return on investment (after tax)

Searching for the Right Fit
“High-quality earnings growth” is a maxim at Dover. That’s why our business strategy can be simply stated: we support the growth plans of our existing businesses while utilizing our strong excess cash flow to acquire new companies that are the right fit for Dover.

Our criteria for acquisition candidates is straightforward:

• We seek manufacturers of high-value-added engineered products
  
  
• Our focus is on components, equipment, and machinery sold to a broad customer base of industrial and/or commercial users, and with a steady stream of consumable/aftermarket revenue.
  
  
• We prefer niche-oriented, market-leading companies with either a number- one or strong number-two market position.
  
  
• Companies that are the right fit have a strong ethic of focusing on customers and providing high-value-added customer solutions.
  
  
• Candidates should have strong national or, preferably, international distribution and supply chains.
  
  
• We usually expect the management team to stay in place.
  
  
• We typically acquire only those companies with demonstrated outstanding financial performance records and solid prospects for future growth.

If our acquisition criteria sounds rigorous, it is! On the other hand, once a company joins Dover, our intention is that it remain forever. It is important for each side to avoid mistakes. The fit must work both ways for the acquisition to be successful.

Although acquisitions at Dover never follow an identical pattern, they tend to fall into two broad categories. Dover acquires some firms as independent operating companies—these we call “stand-alones.” We also acquire businesses that will become part of an existing stand-alone company—these we call “add-ons.” Either path to Dover can be appropriate, depending on the circumstances of the individual companies. Both acquisition models have worked very well in the past. The two can be differentiated this way:

Stand-alone Acquisitions
Typically, these are larger businesses that fit the Dover mold but offer no synergy with existing Dover companies. Stand-alone companies report to the segment leaders who, in turn, lead the acquisition team. The criteria used to judge these acquisition opportunities is very strict, and Dover’s reliance on existing management is greatest in these situations.

Our approach has been to make few, if any, changes in stand-alone acquisitions and to have the ownership transition virtually transparent to the marketplace. We look at stand-alone candidates as strategically enhancing one of our four market segments while offering opportunities for further growth through capital expenditures and/or additional add-on acquisitions.

Add-on Acquisitions
The characteristics of these companies can vary greatly. The primary criteria here is that the candidate fit the strategic needs of one of our existing companies. Unlike stand-alones, these add-ons should offer synergistic opportunities to improve performance. In some cases, very few changes are made to the acquired business since its operations and products are viewed as complementary. At other times, add-on companies are integrated extensively with an existing company, and significant changes are introduced. Since add-ons become part of an existing Dover company, that company president leads the acquisition team.

Dover is a growing family of successful companies, and we look forward to
exploring new opportunities.