The Honeywell International sign is seen outside their global headquarters in Morristown, New Jersey. The deal to buy Elster, a maker of gas, electric and water meters, will extend Honeywell’s equipment offerings and create “a new platform for acquisition targets,” CEO Dave Cote said yesterday.


Bloomberg/London


Honeywell International agreed to buy Melrose Industries’s Elster unit for £3.3bn ($5.1bn), broadening its product lineup and signalling that more deals may be in the offing.
Elster, a maker of gas, electric and water meters, will extend Honeywell’s equipment offerings and create “a new platform for acquisition targets,” chief executive officer Dave Cote said yesterday. Honeywell reaffirmed its 2015 profit forecast and predicted the deal would close in 2016’s first quarter.
Cote said in May he was interested in moving into water and health care as he pursues a goal of $10bn in takeovers by 2019. Honeywell, which operates in the energy, automation, aerospace and chemicals industries, wants to deploy a growing cash hoard while shareholders push for buybacks and dividends.
“The Elster acquisition proves that we are staying true to our disciplined M&A approach and integration processes,” Cote said in a statement. “It’s a model that has worked very well for us.” Honeywell hadn’t traded as of 8:40am in New York ahead of the start of the US market day. London-based Melrose surged as much as 16%, the biggest intraday advance since March 2009, and was up 9.9% to 279.6 pence at 1:37pm. The transaction more than doubled the $2.3bn that the investment firm paid for Elster in 2012.
Elster employs about 6,800 people with operations in the US, Germany, Britain and Slovakia, according to the statement from Morris Township, New Jersey-based Honeywell. The company said it isn’t commenting beyond the statement and a conference call planned for 9am New York time.
The purchase is Honeywell’s largest since the transaction that created the business, AlliedSignal’s 1999 acquisition of Honeywell for about $16.1bn, according to data compiled by Bloomberg. The combined company took the Honeywell name.
The price is about 12.6 times Elster’s estimated 2015 earnings before interest, taxes, depreciation, and amortisation, according to Honeywell.
It’s a “pricey platform move,” Gautam Khanna, a Cowen & Co analyst, said in a note to investors.
Elster’s products include equipment to measure and regulate the flow of natural gas, and gather and evaluate data on it. The gear is used in both production and distribution of the fuel.
Melrose, which has a market value of £2.5bn, said it will use the proceeds to return more than 2bn pounds to shareholders and reduce debt. Melrose was advised by Rothschild, as well as JPMorgan Chase & Co
Honeywell’s biggest line of business is aerospace, followed by automation and control equipment and performance materials, according to data compiled by Bloomberg.
In March, the company said it had made 80 acquisitions under Cote, averaging $170mn. Honeywell expanded into new product groups such as gas detection and safety equipment that served similar construction customers, the executive said.
Cote has said he isn’t a big fan of repurchasing shares as a use for excess cash. About 80% of companies do so at the wrong time, including Honeywell, he said in May.