Deal of the week: Honeywell buys Elster for US$5.1bn

Metering and Smart Energy Amy Ryan | July 29, 2015

In the US, multinational conglomerate Honeywell International, has agreed to purchase manufacturer and supplier of integrated metering and utilization solutions, Elster, in an all-cash deal for £3.3 billion (US$5.1bn).

Honeywell said that it would spend US$10bn on deals through 2018 as part of its five-year financial plan

The acquisition will give Honeywell access to Elster Group’s niche technologies and customers in the highly regulated heating, controls and metering industries.

Dave Cote, chief executive of Honeywell, explained that Honeywell showed interest in Elster because the utility metering market is “rapidly evolving as new smart technologies and software and data analytics capabilities are being adopted around the world”.

He added that Elster “also creates a new platform for acquisition targets for Honeywell”.

Expected close in Q1 2016
Honeywell, which has set aside US$10 billion (US$15.6bn) for acquisitions by 2018, said it was paying 12.6 times Elster’s estimated 2015 consensus core earnings.

The all-cash deal, which is expected to close in the first quarter of 2016, would have a minor dilutive impact on Honeywell’s 2016 earnings per share, the company said.

The agreement is subject to customary closing conditions, including regulatory review and Melrose shareowners’ vote.

Reuters reported that a source familiar with the matter stated that Honeywell had approached Melrose this year. The two sides quickly began talks and no other bidders were involved, the source said.

Return on investment
Melrose, an engineering turnaround specialist that buys businesses with the intention of selling them at a profit, said it would return more than £2 billion (US$3.12bn) to shareholders after the sale.

Melrose Executive Vice-Chairman David Roper said the sale of the entire Elster business, which the company acquired in 2012, had happened sooner than planned.

According to Roper, the market expectation was that Elster would be sold in parts.

Roper explained: “I think we’ve always said that, if an opportunistic bidder comes along and offers tomorrow’s price today, we will talk to them.”

Honeywell acquisitions
Honeywell said in March 2014 that it would spend about US$10 billion on deals through 2018 as part of its five-year financial plan, double its budget for the previous five years.

The company has since spent about US$5.5 billion on acquisitions, including the Melrose purchase, according to Thomson Reuters data.

The sale of Elster leaves Melrose with one remaining business, Brush, a manufacturer of electricity generating equipment.

Melrose scouting

Melrose’s Chief Executive, Simon Peckham ,said the company was scouting for an acquisition in the range of £2 billion ($3.12bn), preferably in Northern Europe or North America.

However, he declined to say when this might happen.

Rothschild acted as lead financial adviser on the deal along with advisers JP Morgan, while Investec acted as joint broker.