Steve Sellhausen, SVP, Corporate Develop & Strategy, Dover Corporation, and Abhaya Menon, Associate Director, Market Development, S&P Capital IQ, discussed the importance of developing a corporate strategy for making strategic M&A deals.
ABHAYA MENON: Can we start with a little bit of background on your role in your organization?
STEVE SELLHAUSEN: I am the head of Corporate Development & Strategy. I report to Bob Livingston, the CEO of Dover, and work closely with the Dover board of directors as well as the rest of the C-suite — including Bob Livingston, CEO, Brad Cerepak, CFO, and Jay Kloosterboer, Head of HR, plus our 4 Segment CEOs — in developing and setting strategic goals and getting approval for the overall Dover corporate strategy. That includes our portfolio, capital allocation, the direction of the businesses and overall strategy at the Dover corporate level.
In addition, I run Corporate Development, which is primarily an M&A function. I’m responsible for a small staff and head our internal deal board that includes all acquisitions that Dover is interested in. Dover is a very acquisitive company. We always have been, and we do five to 10 deals a year. Those are my two primary functions.
How have you seen your corporate development team evolve in the past years? How have the teams in the business units and operating companies changed?
Over the past few years, we have really been focused on linking strategy to our actual M&A origination and closing process. Before, it was more of an ad-hoc process. But we’ve improved skill sets in the different business units and in the segments for linking strategy development to target identification so that they will proactively go after the deals that are specific to our strategic roadmaps and then acquire and integrate those businesses.
Secondly, Dover had never really integrated its acquisitions before. We just bought small, interesting operating companies and left them alone. We changed that strategy starting in 2009 and are now focused on building global businesses by acquiring strategic companies and then increasing their value by realizing synergies. Integrating businesses was a whole new skill set for us, and I’d say that we’re in the middle of that learning process. But we now have a formal process in place and designated integration managers who live with the integration project team for 24 months after the acquisition. We’re developing more and more people who know how to do that, and we’re much better at it than we were before.
“A wealth of knowledge is available when we involve all of our segment executives, so we’ve brought them into the process on all deals.”
What has been driving the increased focus on the integration of acquisitions?
As I’ve said, Dover has always been acquisitive. We used to buy interesting, engineer-driven products and industrial manufacturing businesses, and we’ve always been focused on technology and high-margin businesses. But we never integrated them. We just looked at them as entrepreneurial managed businesses, left them alone and provided them with the capital to enable them to grow their businesses organically or add on through M&A. That worked for many years, when we were paying only five or six times EBITDA for businesses. However, in 2008 or 2009, there was a change in strategy that involved Bob Livingston, Brad and myself, where we realized that we needed to build larger global platforms instead of just adding on a bunch of small, standalone businesses. Acquisition is a more competitive game when you’re paying eight, nine and sometimes even 10 times EBITDA. It becomes much more important to acquire strategically important businesses and find a way to create synergies, but you can’t do that unless you have a well-developed and -disciplined process for integrating those supply chain synergies and consolidating manufacturing plans and sales teams.
For the C-suite executives you work most closely with, have those relationships changed recently?
No, the overall corporate strategic direction has remained a joint effort between CEO Bob Livingston, myself, CFO Brad Cerepak and increasingly Jay Kloosterboer from HR because talent resources are critical to giving us the bench strength to execute our growth strategies.
The M&A and corporate development strategic direction are still largely driven by the four segment executives. We have four CEOs and CFOs who run their individual reporting segments, and the execution of the deals involves a lot of interaction with them and working with their operating company presidents to identify and screen deals.
I also mentioned that we have set up a deal board process. It vets transactions when they first come in and as they move through the due diligence process and are ultimately approved to make an offer. Obviously, we have to get our board of directors to sign off on the larger acquisitions. The members of that board are all of the C-suite executives I’ve mentioned: myself as the chairman, the CEO, the CFO, Jay, Ivonne Cabrera, our general counsel, Niclas Ytterdahl, who is the head of our global supply chain, and the four segment CEOs. That’s our core team, and they’re all involved in screening deals throughout the various steps of the process. Everybody gets a vote on how deals move through the process and what will make sense going forward.
And are all four segment CEOs involved, irrespective of which unit is doing the deal?
Yes, and that’s another difference in our processes. Before, only the operating company president and the segment executive were considered relevant to the deal. But a wealth of knowledge is available when we involve all of our segment executives, so we’ve brought them into the process on all deals. You’d be surprised by the input you get when you do that, and there are cross-selling opportunities across segments. For example, we consider our supply chain executive to be key because, oftentimes, a lot of the synergy opportunities in acquiring small companies are on the sourcing side. So having a broader discussion around acquisitions has really been helpful in preventing bad deals from happening and bringing creative ideas to yield value in other deals.
Where do you see the best opportunities? How can businesses successfully capitalize on them?
Again, we don’t acquire opportunistically. We start with strategy, and we’ve identified the strategic growth platforms that are specific to our portfolio of businesses. For example, we’re now spinning off Knowles, our communications components business. So our strategic roadmaps are aligned to our growth platforms, including energy equipment, our fluids business, our food service and refrigeration equipment business, and our printing and identification business. Strategy drives the targets, and then we look for adjacencies — be it technology, white spaces, product lines or global geographic expansion. That’s where we see the big opportunities. We’ve told our people that if they bring us a deal that doesn’t fit with what we’ve previously discussed about our strategic roadmap, chances are good that you won’t get very far with it.
Having said that, there’s a lot of interesting companies out there as far as adjacencies go, and we do look at those. Even so, we’re really trying to be disciplined about staying with our strategy and making acquisitions that fit that strategy. We’re seeing a lot of opportunities in the energy space; there’s a lot of consolidation going on there. There has also been a lot of interest in oil field equipment businesses and energy businesses. And we’re seeing a lot of interest in our pumps and fluids business. Those are pretty fertile hunting grounds for us. Historically, we’ve also done a lot of deals in the refrigeration sector; our Hill Phoenix and (most recently) our Anthony deals have been very successful in building up our refrigeration platform.
Stephen R. (Steve) Sellhausen joined Dover Corporation in April 2008 as vice president of Corporate Development. Mr. Sellhausen, Senior Vice President, Corporate Development & Strategy, currently has responsibility for all aspects of Dover’s acquisition, divestiture and strategic planning efforts. Responsibilities include working with Dover executives and operating company management to develop and implement strategic objectives and to identify, analyze, approve (by chairing the internal deal board), negotiate, close and integrate (by serving on PMI steering committees) acquisitions. He is also chairman of the Dover Investment Committee, responsible for managing Dover’s pension and 401K plan assets.
Prior to joining Dover, he was a managing director with Citigroup Global Markets. Mr. Sellhausen has over 20 years of investment banking, M&A and capital markets experience, serving a broad range of industrial and private equity clients.
Abhaya Menon is an Associate Director of Market Development at S&P Capital IQ. He is responsible for business development and strategy for corporations and financial institutions in the Americas. In this role Abhaya works closely with clients, prospects and market participants to collect feedback and define the product roadmap for the platforms.
Prior to this, Abhaya was the product manager responsible for the creation and delivery of the credit analytics solutions on the S&P Capital IQ platform. Abhaya holds a Master’s degree in Mathematics from the University of Nebraska and B.A. in Mathematics and Chinese from Williams College.