Sauer-Danfoss Inc. History

Company Perspectives:

We offer our customers optimum solutions for their needs and develop new products and solutions in close cooperation and partnership with them.

Key Dates:

1926:

Sundstrand Machine Tool Company is formed.

1967:

Sauer Getriebe AG is formed.

1986:

Sundstrand and Sauer pool their hydraulic interests in a joint venture.

1990:

Sauer buys out Sundstrand.

2000:

A merger with Danfoss Fluid Power A/S results in Sauer-Danfoss Inc.

Company History:

With its headquarters located in Lincolnshire, Illinois, Sauer-Danfoss Inc. is a global leader in the manufacture of components and integrated hydraulic systems used in agricultural, construction, material handling, turf care, and road building equipment. Customers are original equipment manufacturers (OEMs), who rely on Sauer-Danfoss products to supply the necessary hydraulics to propel their equipment, transmitting power from the vehicle's engine to the wheels or tracks; to transmit power from the vehicle's engine to perform a work function; to provide an electronic control function that makes equipment much easier to use; or to supply an integrated system to govern a vehicle's propel and control function, as well as such functions as fuel management, cooling, braking, and steering. Sauer-Danfoss offers seven product lines. Hydrostatic transmissions propel a range of vehicles, from low- and medium-powered vehicles such as aerial lifts, skid steer loaders, and industrial forklift trucks, to high-powered vehicles such as combines, rollers, and forestry machinery. Open circuit products, which include gear units and axial piston pumps, perform the work function on forklifts, trucks, tractors, and road rollers. The company's orbital motors are low-speed hydraulic motors designed for moderate to heavy loads. Sauer-Danfoss also offers three categories of valves: proportional valves, directional control valves, and hydraulic integrated circuit and cartridge valves. The company offers a wide range of steering solutions for vehicles of all sizes, whether it be a normal steering wheel, a joystick, or an automatic steering mechanism controlled by sensor. Sauer-Danfoss's mobile electronic components and systems products provide advanced control systems for off-road as well as on-highway vehicles. Finally, Sauer-Danfoss's electric drives meet a wide range of needs in the forklift truck industry. Employing more than 7,000 people, Sauer-Danfoss operates 21 factories in North America, Europe, and East Asia.

Forming the Company As a Result of 1986 Joint Venture

Sauer-Danfoss was originally incorporated in Delaware in September 1986 as Sundstrand Venture Company, a joint venture between Sundstrand Corporation of Rockford, Illinois, and Sauer Getriebe AG, based in Neumuenster, West Germany. The two firms combined their hydraulic power transmission businesses, operating as Sundstrand-Sauer in the United States and Sauer-Sundstrand in Europe.

Of the two partners, Sundstrand boasted the longer history. The oldest entity connected to the company was the Rockford Tool Company, founded in 1905 in Rockford, Illinois, a community then composed predominantly of Swedish immigrants. The company focused on woodworking tools including the carving chuck and belt sander. Four years later another company, the Rockford Milling Machine Company, set up shop in the same building. It was owned by Oscar Sundstrand and his brother-in-law Edwin Cedarleaf. In 1914 Oscar's brother and an employee of the company, David Sundstrand, invented the ten-key adding machine, the first to adopt the modern arrangement of three rows of keys plus zero at the bottom. The adding machine proved to be so successful that the brothers formed a subsidiary, the Sundstrand Adding Machine Company, in 1919 to handle the business. Rockford Milling Machine and Rockford Tool Company decided in 1926 that it was in the best interests of both parties to merge, resulting in the Sundstrand Machine Tool Company. A year later the company sold the rights of the adding machine, which it could not properly market, to Underwood-Elliot Fisher Co., a typewriter and office equipment manufacturer. Sundstrand Machine Tool would now begin to diversify into areas to which it was more suited, such as the hydraulic component business that would one day lead to the creation of Sauer-Danfoss.

During the early 1930s Sundstrand began to experiment with hydraulic tools to produce its implements, superseding its traditional handcrafted approach, which was becoming unsuited to meet the exact tolerances required in contemporary precision machine tools. Soon, all of the company's hand-cranked machinery was replaced with hydraulic devices. Sundstrand also began to produce hydraulic products, such as hydraulic pumps, fluid motors, and hydraulic transmission systems. During World War II, Sundstrand became heavily involved in aviation and the company began to apply hydraulics to aviation engineering. Sundstrand was so successful with its aviation business, supplying a variety of systems and components to commercial and military aircraft manufacturers, that it formed an aviation division that took on an increasing level of importance. To better reflect the diversity of its interests, in 1959 Sundstrand Machine Tool shortened its name to Sundstrand Corporation. Then in 1962 the company organized itself into two divisions, Industrial Products and Aerospace.

Sundstrand's Hydraulics division made great strides in the early 1960s by applying CSD technology to off-highway equipment. To better commercialize the technology, the Hydraulics and Aerospace divisions joined forces to develop yet another division, Hydro-Transmission. In 1965 Sundstrand began to supply hydrostatic transmission components to automakers. Over the next 20 years Sundstrand continued to broaden its interests and by the middle of the 1980s was generating close to $1.3 billion in annual revenues, of which just 37 percent came from industrial markets.

Founding a German Business Component in 1967

The other partner of Sauer-Danfoss, Sauer Getriebe, was founded by Dr. Klaus Murmann in 1967 and became a licensee of Sundstrand hydrostatic transmissions technology. Born in West Germany, Murmann was educated in the United States, earning an undergraduate degree from Dickinson College and later studying at Harvard Law School. He ultimately received a law degree from the University of Kiel. In 1960 he joined the family business, Sauer Group, where he gained seasoning before striking out on his own with Sauer Getriebe. With the formation of the joint venture with Sundstrand, he was named its chairman and chief executive officer, while Sundstrand's Michael J. Draper became president and chief operating officer. They presided over a company with 12 manufacturing facilities located around the world, whose combined revenues totaled in the $200 million range.

Sundstrand's involvement in the joint venture, however, was brief. Because the business failed to meet management's goals, in March 1989 Sundstrand agreed to sell its half-share to Murmann for a reported $70 million. (The Murmann family owned a 72 percent stake of Sauer Getriebe, which controlled the other half-share.) As a result, Murmann owned about 80 percent of the company. The holding company, Sundstrand Venture Company, then changed its name to Sauer, Inc. in early 1990. Also in 1990 the company made plans for an initial public offering (IPO) of four million shares of common stock, one million of which were to be offered in the United States by American underwriters and the balance to be sold in Germany through German underwriters. Due to poor conditions in world financial markets, however, Murmann decided to postpone the IPO.

Several years would pass before Murmann was ready to again attempt to take Sauer public. For five years the company enjoyed annual growth in the 12 percent to 13 percent range, so that in 1997 Sauer topped $535 million in revenues and recorded a net profit of more than $27 million. To further expand the business, and pay down some debt, Murmann looked in 1998 to tap the equity market to raise the necessary capital. To that point the company had completed a number of small acquisitions only but was interested in growing more aggressively via external means. In addition, Murmann expressed a desire to go public in order to use stock, in the form of options, as an incentive in recruiting and retaining employees. Completed in May 1998, the offering, headed by Credit Suisse First Boston, netted $48.1 million.

The price of Sauer's stock quickly dipped, due to a number of difficult business conditions. The agriculture market, accounting for a fifth of all sales, entered a difficult period, and some foreign markets also suffered--in particular Europe, which contributed about 40 percent of the company's sales. On the positive side, the company had been successful in increasing its production capacity by some 25 percent in 1997 and 1998, and also made inroads in penetrating Asian and Latin American markets. But difficult economic conditions began to be reflected on the balance sheet. Sauer only grew at a 5 percent rate in 1998, with revenues rising to $564.5 million after the company posted sales of $535.2 million in 1997. Net income also fell from $27.1 million to $26.3 million.

Even more difficult conditions were to follow in 1999. Most notably, the U.S. agriculture market continued to be mired in a slump. Sauer did, however, enjoy significant gains in construction, specialty vehicles, and the turf care market in Europe. It also invested more than $57 million in 1999 in technology, new customer programs, manufacturing efficiency, and other improvements. Also of note in 1999 was the opening of a new manufacturing plant in Lawrence, Kansas, which added $120 million of production capacity. But the financial results for the year were clearly disappointing. Net sales were off by 5.3 percent over the previous year, totaling $534.4 million, and net income fell to $18.1 million. Nevertheless, there were promising signs in 1999 that pointed to better days ahead.

Sauer-Danfoss Merger: 2000

Some acquisitions initiated in 1999 came to fruition in 2000 and would prove to have a dramatic impact on the bottom line. In January 2000 Sauer completed the $5 million acquisition of Custom Design Electronics of Sweden AB and its subsidiary NOB Electronik AB, makers of electronic control systems, displays, and related software. But a far more significant transaction would be completed in May 2000 when Sauer acquired Danfoss Fluid Power A/S from the Denmark-based Danfoss A/S in a stock swap worth $80 million that was in effect a merger of equals. It was also part of a consolidation trend that resulted in a fourth global, full-line supplier of mobile hydraulics products. Danfoss's expertise in steering and work function products nicely complemented Sauer's propel and control functions, thereby establishing the combined company as a single-source supplier, which an increasing number of customers were seeking in order to concentrate on vehicle design rather than the development of subsystems and components.

Danfoss was founded by engineer Mads Clausen in 1933 to make automatic valves for refrigeration plants. The company diversified into a wide range of products, including hydraulics and control systems. In 1998 the Mobile Hydraulics Division was spun off as a separate company, Danfoss Fluid Power. Following the merger with Sauer Inc. the resulting entity, maintaining the Sauer corporate entity, changed its name to Sauer-Danfoss Inc. Murrmann was tabbed to serve as chairman and Sauer's David Pfeifle took over as chief executive officer. Danfoss CEO Jorgen Clausen became vice-chairman and Danfoss's Erik Hansen was named chief operating officer. Within a matter of months, however, Pfeifle would be forced to step down due to coronary artery bypass surgery necessitated by the discovery of obstruction in his major arteries. Murmann once again assumed the CEO position until Pfeifle recovered.

In December 2000 Sauer-Danfoss completed a small acquisition, paying $2.3 million for Integrated Control Technologies, a U.K.-based company that produced electronic controls and related software for mobile hydraulics. Along with the purchase of Custom Design Electronics earlier in the year, Sauer-Danfoss had greatly bolstered its European electrohydraulic operations. In addition, following the Danfoss merger, the company took steps to reorganize sales and marketing operations and to establish a training program in order to help the sales force to better understand all that the combined company now had to offer to its customers. Sauer-Danfoss also was able to realize some savings by consolidating plants, sales offices, and administrative offices. As a result of acquisitions and other organizational changes in 2000, Sauer-Danfoss saw revenues grow from $534.4 million in 1999 to more than $782.5 million, and net income improve from $18.1 million to slightly less than $27 million.

Sauer-Danfoss adopted a growth strategy that was based on two-thirds internal and one-third external, through acquisitions and joint ventures. Moreover, a major aspect of Sauer-Danfoss's acquisition strategy was as much geographic as product-related, in order to have applications resources available on a regional basis. In 2001 the company completed several key transactions. Early in the year it bought Compact Controls, Inc., located in Oregon, for $36 million in cash. CCI produced cartridge valve and hydraulic integrated circuit manifolds and bolstered Sauer-Danfoss's position in valves. Another addition in 2001 was the Italian company Italdigit s.r.l., maker of electronic controls and wiring harnesses, a deal that strengthened Sauer-Danfoss's ability to offer innovative technology for machine control systems. The acquisition of Dantal Hydraulics in India and Hidrover Valvulas S.A. in Brazil offered greater geographic reach, as did joint ventures established in Japan and China. Despite difficult world economic conditions, Sauer-Danfoss emerged in a strong position, although the results for the year proved to be disappointing. While revenues improved to nearly $855.3 million, net income declined to $7.6 million.

Working against the backdrop of a troubled worldwide economy, Sauer-Danfoss enjoyed a successful 2002 on a number of levels. It continued to manage its costs and enhanced productivity while also growing the business through strategic acquisitions. With revenues growing to more than $952 million in 2002, and net income rebounding to slightly less than $14 million, Sauer-Danfoss was positioned to become a $1 billion company. It would also have to carry on without its longtime leader on a daily basis, Klaus Murmann, who at the age of 71 retired from day-to-day involvement with the company, although he retained the chairmanship.

Principal Subsidiaries: Hydro-Gear, Inc.; TSD Integrated Controls, Inc.; Danfoss Fluid Power AB; Integrated Control Technologies Ltd.

Principal Competitors: Eaton Corporation; Parker Hannifin Corporation; Robert Bosch Corporation.

Further Reading:

• Brezonick, Mike, "All Part of the Plan," Diesel Progress North American Edition, March 1, 2002, p. 42.
• Fagan, Mark, "Iowa-Based Hydraulic-System Maker Sauer to Merge with Denmark-Based Danfoss," Journal-World, September 16, 1999.
• Osenga, Mike, "Thus Consolidation: Sauer & Danfoss to Join Forces," Diesel Progress North American Edition, October 1999, p. 16.
• "Tales of an IPO," Business Record, May 17, 1999.

Source: International Directory of Company Histories, Vol.61. St. James Press, 2004.

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