Honeywell International to Acquire EMS Technologies for About $491 Million
Honeywell International Inc. (HON) said its planned $491 million purchase of EMS Technologies Inc. (ELMG), to be split between two divisions, should boost profit in 2012.
The takeover may add as much as 5 cents per share to 2012 profit, according to analysts Jeff Sprague of Vertical research partners and Shannon O’Callaghan of Nomura Equity Research. Honeywell didn’t provide a specific estimate.
Honeywell is buying EMS to boost offerings in mobile computing technologies and satellite communications in its automation division and aerospace segment. The price is about 13 times EMS’ 2010 earnings before interest, taxes, depreciation and amortization, Honeywell said in a statement. Excluding corporate costs, the offer is about 9 times Ebitda, Honeywell said.
Honeywell’s offer of $33 a share would be a 59 percent premium to EMS’ closing price on April 18, the day before the company said its board was evaluating proposals from potential acquirers. EMS makes wearable mobile computers and satellite- based cargo-tracking equipment, along with antennas and broadband equipment that allows airplane passengers to connect with the Internet.
Because EMS has a diverse array of businesses, “we thought frankly that might make it harder for them to sell it, harder to get a good multiple,” Richard Valera, a New York-based analyst with Needham & Co., said in an interview. “Clearly that was not the case. Honeywell paid what I think was a very healthy multiple.”
Deal Valuation
EMS’s operations range across industries, which affects comparison with other deals. The median Ebitda multiple paid in the past five years for 16 acquisitions of wireless equipment companies was 7.1, according to Bloomberg data. The median for 11 acquisitions of satellite communications businesses was 6.2, data show.
The acquisition, on first blush, looks a little “pricey,” Ajay Kejriwal, an analyst with FBR Capital Markets who rates Honeywell’s shares “market perform,” said in an interview.
“If you account for the opportunity to cut corporate and other costs, the multiple looks a lot more reasonable at nine times,” he said.
The average premium paid for wireless companies in the past five years, calculated using a 20-day trading average, was 20 percent, and the average for satellite companies was 68 percent, data compiled by Bloomberg show.
The takeover, expected to be completed in the third quarter, will curb Honeywell’s 2011 profit by as much as 4 cents a share, without affecting the full-year earnings forecast, the Morris Township, New Jersey-based company said.
Share Prices
Profit may be $3.98 a share this year and climb to $4.57 a share in 2012, the averages of estimates from analysts surveyed by Bloomberg. Honeywell hasn’t yet projected its 2012 earnings.
Sprague, based in Stamford, Connecticut, sees the deal adding 5 cents a share and O’Callaghan, based in New York, estimates an increase of 3 cents to 5 cents in 2012. Both have a “buy” rating on the shares.
“EMS Technologies looks like a nice tuck-in with much low- hanging fruit,” Brian K. Langenberg, an Oak Park, Illinois- based analyst with Langenberg & Co., wrote today in a note. He also has a “buy” rating on the shares.
The $491 million valuation accounts for EMS cash that Honeywell would gain in the deal. EMS, based in Norcross, Georgia, has about 1,200 workers, according to its website.
EMS climbed $8, or 32 percent, to $32.80 at 4 p.m. in Nasdaq Stock Market trading, the largest percentage gain since at least February 1986. Valera, the Needham analyst, rates the shares “hold.”
Honeywell gained 18 cents to $55.71.
To contact the reporter on this story: Will Daley in New York at wdaley2@bloomberg.net
To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net
Honeywell to Acquire EMS for About $491 Million
Emile Wamsteker/Bloomberg
Honeywell International Inc. (HON) agreed to buy EMS Technologies Inc. (ELMG) for $491 million to add wireless communications equipment used to track cargo.
Honeywell International Inc. (HON) agreed to buy EMS Technologies Inc. (ELMG) for $491 million to add wireless communications equipment used to track cargo. Photographer: Emile Wamsteker/Bloomberg
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