Honeywell eyes big buys in new areas

$10bn five-year goal on course

HONEYWELL International chief executive Dave Cote is open to considering acquisitions in water and health care, both potential new business lines, as he examines a pipeline of more than 100 possible deals.

“There are a couple of industries I’ve always been intrigued with – water and medical being two of them,” Cote said in an interview.

“I would never say never on any of that. I’d have to find a spot where I’d say, ‘OK, we can make this better.’”

Cote’s willingness to explore fields new to Honeywell shows his pursuit of a five-year goal set last year to spend $10 billion (R117.5bn) on takeovers, about double the tally in the prior half decade. The maker of thermostats and aircraft electronics sat on a record cash pile of $9.1bn and last made a $1bnplus purchase in 2010, according to data compiled by Bloomberg.

Honeywell had a team of 50 executives working exclusively on finding and vetting possible purchases, Cote said. He said he held meetings every six weeks to discuss “high-probability” candidates.

“We have a very full pipeline right now,” said Cote, 62, who named a new acquisitions chief, vice chairman Roger Fradin, last year as part of his biggest management shakeup since becoming chief executive in 2002.

Honeywell wants to deploy a growing cash hoard while shareholders push for buybacks and dividends. The lone acquisition announced since the $10bn strategy was set: a $185 million agreement in December to purchase Dover’s Datamax-O’Neil unit.

Cote said he was mostly looking in industries similar to where Honeywell operated now, which included energy and automation besides aerospace, chemicals and climate controls. He would branch out only for a compelling target, he said. “I always want to make sure the odds are in our favour when doing something like that,” Cote said. Honeywell told investors in a March presentation that it had made 80 acquisitions under Cote, averaging $170m. The company expanded into new product groups such as gas detection and safety equipment that served similar construction customers, Cote said.

That was a successful formula, said Jeff Fahrenbruch, a fund manager with Dallasbased Barrow Hanley Mewhinney & Straus, which manages about $100bn including about $1.37bn of Honeywell shares. Fahrenbruch said he would welcome more “bolt-on” acquisitions as opposed to having Honeywell risk overpaying for a large firm in a new industry.

“The type of acquisition that really worries me is buying a brand new business and creating a new strategy,” Fahrenbruch said. “Those tend not to work.”

Honeywell has 50 executives working exclusively on finding and vetting possible purchases.