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Dover: Buy and Fold?
Employees of Dover Corp.'s many technology businesses will long remember July 25. It was the day that the holding company whose informal motto was "we buy and keep companies forever" shifted its stance, opting to put five of its Dover Technologies business units on the block.
Three of those units are well known to our industry: Universal Instruments, Hover-Davis and Vitronics Soltec (Alphasem and Mark Andy are the others.) Combined, they would make a hearty company of their own. In 2005, the five businesses had combined revenue of $580.2 million.
This brings to 15 the number of companies that Dover has divested in the past 18 or so months. The majority made capital equipment for markets that CEO Ron Hoffman described as "narrow in scope" and where "recurring revenue opportunities were limited."
On a conference call that week, Hoffman summed up the units that were spared the chopping block thusly: "ECT is a strong market leader, with lots of recurring revenue opportunities. Same thing for DEK. OK International has very strong recurring revenue."
"Recurring revenue." There's the operative term. Asked if Dover has a metric for it, Hoffman said, "We don't ... but it's very apparent to us that those companies with high recurring revenue/parts/service-type sales tend to have more defined, sustainable earnings and tend to have higher earnings in general. Those companies can also play in a broader range of the economic cycle."
It's no secret that Dover's stock has been flat for years (it's trading today at right about the same levels as it did at the end of 2000). Moreover, company management has taken on a new look over the past 24 months. Gone are the old guards, John Pomeroy and Gerhard Meese. It would appear that the new guys in charge have a different stance on what makes an operating unit worth operating. And where its predecessors' approach to the operating divisions was hands-off, the new guard has instituted some daunting metrics: Earnings growth of 10%; operating margin of 15%; ROI of 25%; working capital as a percent of revenue: 20%; and an average of eight inventory turns per year. The collective operating margin of the five businesses "for sale": 3.2% year to-date, down from 4.6% last year.
The company apparently senses a shifting wind in electronics manufacturing, and is getting out while it can. Dover expects to reap $325 million after taxes for the businesses. And statements from the individual units suggest a deal is almost done.
Hoffman characterized the move as the "culmination of the strategic portfolio review." In other words, the company that buys and holds is back to holding. For now.
Lead Ban Repeal?
Is it still possible that the EU ban on lead as mandated by the RoHS Directive will be repealed, a top scientist at NIST recently queried the U.S. government. In response, Chris Sherwood, commercial specialist with the U.S. Mission to the E.U. in Brussels, wrote in an email:
RoHS will never be repealed. But it is just possible that the lead ban will be lifted, because the Commission has indicated to us that [it] will undertake an extended impact assessment on the policy proposals they come up with when they plan the revision. This is going to take a much more all-embracing approach to the environmental costs and benefits than the original RoHS Directive. The pro-lead solder lobby should get ready for the revision of the RoHS Directive, starting probably in 2008, and push for this if they believe the lead ban is environmentally harmful.
Cost arguments are much, much less likely to count for the E.U., since cost was not permitted as one of the grounds for seeking an exemption under RoHS.
I would refer interested parties to a recent investigation by Bev Christian et al of Research In Motion, which, using the EPA's leaching protocol, found that "the possibility of significant amounts of heavy metals escaping from modern, well maintained landfills is quite low." The study further confirmed that in an "intact handheld electronic device" (read: the Blackberry) the "intact nature of the equipment is able to prevent high levels of elements from leaching from the unit in geologically short periods of time, if it were disposed of in a municipal landfill under worst-case leaching conditions. It is not unreasonable to assume a similar result for most modern handheld electronic devices." What's more, the RIM researchers found that lead outperformed copper using the EPA protocol. And copper, of course, is a common component of the substitutes for lead in solder.
I think we have our marching orders.
And finally, it is with more than a little sadness that I say goodbye to our associate editor Robin Norvell, who is going to work for Google. She has been a mainstay on this magazine for four years, and we will miss her intelligence, warm spirit and good humor.
