During Honeywell’s most recent earnings call, investors and company watchers were left with a strong sense that Honeywell will be an active buyer during a coming wave of M&A. The company’s new CEO, Vimal Kapur, continued that theme during Honeywell Investor Day on May 11, but he also made clear the company’s future will be shaped by both organic and inorganic growth.
Company observers have been looking for Honeywell to become a buyer for months, as a story in the Washington Post suggested last year. Now, that responsibility falls to Kapur, Honeywell’s current president and chief operating officer and a 34-year company veteran, who will move into the CEO job on June 1, with current CEO Darius Adamczyk moving out of the top post and onto the role of executive chairman. During the investor event, Kapur echoed comments Adamczyk made during the company’s Q1 earnings call last month about Honeywell’s appetite for acquisitions, saying that the industrial giant will be aggressive, but “thoughtful” about pursuing acquisitions.
“It’s going to be thoughtful,” he said. “I would not do any acquisition for the sake of doing it. We're going to transform Honeywell, but I'm not really married to some big idea. What I'm married to is making our portfolio better and making our businesses more profitable.”
Kapur said Honeywell is interested in large-scale acquisitions likely to fall in the range of $1 billion to $7 billion, and that have in common the characteristics of above-industry growth rate, high recurring revenue mix, large total addressable market opportunity, higher gross margin, and technology differentiation, along with less vulnerability to cyclicality and potential market disruption.
Over the last few years, Honeywell has been engaging in a process to fill its M&A pipeline by identifying hundreds of public and private companies that fit those profiles and going through a process of screening, assessing and scoring them until the list was down to roughly 10. It recently announced one of those deals, the $670 million acquisition of Compressor Controls Corporation, a provider of turbomachinery control and optimization solutions, including control hardware, software and services, that primarily serves the LNG, gas processing, refining and petrochemical segments. Kapur also said Honeywell’s $1.3 billion acquisition of life sciences AI and software company Sparta Systems in 2020 also fit all of the above-mentioned criteria.
As Honeywell becomes an aggressive buyer, Kapur also said there could be “some pruning involved” as the company looks to sell some assets to get into the best possible shape to fuel overall growth.
At the same time, Kapur said Honeywell will not neglect its commitment to investing R&D dollars into more organic growth opportunities, including sensors for electric vehicles and other markets, IoT, quantum computing (via its majority ownership of Quantinuum), industrial air quality monitoring, building management, next-generation sustainable fuel production (one example being Honeywell’s announcement this week that it will combine green hydrogen and CO2 into low-carbon aviation fuel), and much more.
The inorganic growth moves–acquisitions–and the more organic growth efforts all will fall in line with what Kapur described as Honeywell’s four “macro” business opportunities: avionics and aerospace (with the revival of the air travel sector being a main theme), automation (including industrial IoT and sensors), the energy transition, and digital transformation.