What happened
Honeywell International (NASDAQ: HON) is acquiring a bolt-on business and shaking up another unit. The moves could work out over the long run but on Wednesday are putting pressure on the shares, sending Honeywell stock down as much as 3%.
So what
Honeywell is an industrial conglomerate focused on aerospace, building controls, and intelligent warehouses. The company hasn't done a lot of large acquisitions of late, but will do bolt-on deals to add capabilities in areas where it already has a presence.
On Wednesday, Honeywell said it was buying Compressor Control Corp. (CCC) from private equity firm Clayton, Dubilier & Rice. The deal price is $670 million, or about 15 times the target's expected 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA).
CCC is a provider of turbomachinery control and optimization solutions for the liquid natural gas, gas processing, refining, and petrochemical industries. Lucian Boldea, CEO of Honeywell's performance materials and technologies business, called the target "an ideal complement to our process solutions portfolio."
Elsewhere, Honeywell is shrinking. The company's Intelligrated unit is closing a facility in Ohio and laying off 223 employees, according to a local press report.
Now what
Conventional wisdom states that most mergers and acquisitions fail to live up to expectations, and investors have grown cynical about deals. Honeywell says the CCC acquisition will contribute to earnings immediately, and will achieve a 15% cash-basis return by year five of Honeywell ownership.
Investors won't know for a while whether the deal hits Honeywell's expectations, but the company has a strong record of bringing smaller companies into the fold and using them to expand its existing businesses. And CCC is small enough that it will not sink Honeywell even if things don't go to script. The Intelligrated layoffs are a reminder that Honeywell is constantly reshaping its businesses.
For long-term-focused holders, there is more opportunity than risk in the CCC deal.
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