Honeywell: Who Needs a Mega-Merger, Anyway?

The industrial company is going back to what it does best.
As of 4:15 PM EDT
147.28 USD
As of 4:15 PM EDT
125.05 USD

Honeywell's robot deal is a sign of what's to come for the industrial conglomerate.

The maker of airplane parts and thermostats announced on Friday that it was buying privately held Intelligrated for $1.5 billion to add sorting machines, warehouse-execution software and robotic arms that help companies get orders out the door cheaply and quickly. The dollar amount barely registers when stacked up next to Honeywell's jumbo-sized $100 billion-plus bid for rival United Technologies earlier this year, but the Intelligrated purchase is more telling than that failed effort about the company's next steps.

It's becoming increasingly clear that the United Technologies bid was more of a one-off opportunity than a sign of a major strategy shift. The odds of a redux happening anytime soon are pretty slim after the initial approach drew pushback from customers and rankled Honeywell shareholders who had gotten used to CEO Dave Cote's slow, steady and small approach to M&A. Other big deals are still possible -- but just not that big. Around $10 billion is likely the high end. 

Bit by Bit

Honeywell has only rarely splurged on purchases of more than $1 billion. The big deals it has done -- including its merger with Allied Signal and the purchase of Pittway -- haven't been the biggest success.

Source: Bloomberg

Cote, who announced this week he's retiring next year and handing the reins over to COO Darius Adamczyk, has said he's putting his elephant gun away. This deal shows he meant it and is getting back to the strategy that's yielded enviable margins and shareholder returns.

The technology focus of the deal also puts it in the wheelhouse of Adamczyk, who has degrees in electrical and computer engineering and a "deep expertise in software." Honeywell very much wants to be a part of this digital craze that's taken over the industrial industry. The word software showed up 11 times in the press release announcing Adamczyk's appointment to the CEO position.

Shareholder Friendly

Honeywell's stock price has soared under Cote's more than 14-year tenure. Cumulative shareholder gains of 556 percent more than doubled the return of the S&P 500 Index, the company said.

Source: Bloomberg

Honeywell has yet to announce the sort of massive undertaking that General Electric is pursuing to turn itself into one of the top 10 software companies. But Adamczyk said in May at the Electrical Products Group Conference that he wants to boost stand-alone software sales to as much as 10 percent of the company's revenue -- or about $5 billion-- over the next five years. Around 56 percent of Honeywell's revenue already comes from product-embedded software, such as data-collecting sensors and automation technology that help make machines more productive.

One way Adamczyk plans to build up Honeywell's software position? Acquisitions. So expect to see more Intelligrated-like deals under his tenure.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Brooke Sutherland in New York at

    To contact the editor responsible for this story:
    Beth Williams at

    Before it's here, it's on the Bloomberg Terminal.