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Honeywell Dives Back Into M&A, Purchases Elster

July 28, 2015
When the deal is finished in the first quarter of 2016, it will mark the largest acquisition for Honeywell in more than a decade.

Honeywell International has a hand in so many different industries that almost any merger or acquisition feels like a natural fit for the international conglomerate with New Jersey headquarters. Its purchase of Elster on Tuesday, for the equivalent of $5.1 billion, is no different.

Honeywell, which has acquired about 80 companies during the last decade and plans to spend about $10 billion more on acquisitions through 2018, is perhaps best known for its aerospace products. The company also focuses on climate control technologies for homes, buildings and industry. According to Reuters, this will be its largest acquisition in more than a decade.

Elster, which is headquartered in Mainz-Kastel, Germany, and has a presence in 39 countries, manufactures water and gas meters, as well as control devices.

“Elster has outstanding technologies, brands, energy efficiency know-how and global presence, all of which we are very well positioned to build on,” Honeywell chairman and CEO David Cote said. “The acquisition proves that we are staying true to our disciplined M&A approach and integration processes, because it’s a model that has worked very well for us.

“We see Elster as a great opportunity to deploy our operating model and key process initiatives to grow the business, enhance our position globally and drive significant returns to shareowners over the long-term.”

The purchase is expected to close during the first quarter of 2016, pending approval from shareholders and regulators of Melrose Industries, a British group that works in gas heating, controls, metering and advanced technologies, and also purchases manufacturing companies and tries to flip them for a profit. The group succeeded with Elster, which it acquired in June 2012 for about $2.3 billion. Melrose chairman Christopher Miller called the sale an “excellent outcome” for the company and its shareholders.

The $5.1 billion equivalent involved with this purchase represents more than three times Elster’s 2014 revenue of 1.05 billion pounds and more than 14 times its 2014 adjusted earnings before interest, taxes, depreciation and amortization. It also represents about one-eighth of Honeywell’s 2014 revenue of $40.31 billion and close to its 2014 operating income of $5.83 billion.

Honeywell announced no change to the 2015 full-year guidance provided in its second-quarter earnings release. The company said it expects the dilutive effect of this transaction on its 2016 earnings per share to be minor.

Honeywell and Elster have global workforces of about 131,000 and 6,800, respectively.

Honeywell shares were trading at 104.20 in the late afternoon, up about 2.50% for the day and about 9.44% over the last year.

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