Lock Maker Allegion CEO Awakens Dormant M&A in Asia

Allegion Plc, North America’s largest lock maker, plans to awaken an acquisition process gone dormant under parent company Ingersoll-Rand Plc as the newly independent unit seeks growth in Asia.

The maker of Schlage locks, which completed its spinoff today, will use acquisitions as a “growth lever,” especially in China, after the parent company last purchased a security-related company in 2008, Chief Executive Officer Dave Petratis said in an interview.

“I would describe the pipeline as dormant,” Petratis said. “Clearly, Ingersoll-Rand had run the business with a focus on operational excellence. We’ve certainly set a priority to build the relationships that are important in an acquisition pipeline.”

Ingersoll-Rand, the maker of Trane air conditioners and Club Car golf carts, announced the spinoff of its locks unit in December 2012 after billionaire investor Nelson Peltz pushed for a breakup of the company. Peltz was named to Ingersoll-Rand’s board in August 2012 and his Trian Fund Management held a 4.2 percent stake as of Nov. 19, according to data compiled by Bloomberg.

Acquisitions will add to market growth of as much as 8 percent for electronic locks and 6 percent for mechanical locks, Petratis said. The company, which has its headquarters in Dublin, will provide forecasts for long-term sales growth and investment rates in March, he said.

Allegion fell 3 percent to $41.86 at 2:37 p.m. in New York, giving the company a market value of about $4.1 billion.

Last year, Allegion got 64 percent of its $2 billion in sales from the U.S. and 18 percent from Europe. The Asia-Pacific region accounted for 7 percent of sales.

The company will target “smart, tuck-in acquisitions” with rates of return that match or exceed its weighted cost of capital, which is higher than 12 percent, Petratis said.

“We have a couple hundred million of free cash flow on an annual basis, so we have plenty of room to navigate,” he said.

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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