Honeywell’s 5-Year M&A Spending to Double to $10 Billion

Honeywell International Inc. said it plans to more than double spending on acquisitions over the next five years, to $10 billion or more, as the manufacturer seeks to speed sales growth.

Making those deals by 2018 may add $8 billion to revenue, pushing the total to $59 billion from 2013’s $39.1 billion, Morris Township, New Jersey-based Honeywell said today. Purchases in the past five years totaled about $4.7 billion, data compiled by Bloomberg show.

“We have a great pipeline of potential targets,” Chief Executive Officer Dave Cote said in an investor meeting today in New York. “I’d like to be able to spend $10 billion on M&A; I can promise you I’m only going to do it if it’s smart.”

Honeywell’s product line ranges from car coolants to fighter-jet parts to thermostats, giving the company access to consumer and industrial markets. Profit margins will expand by as much as about 3.7 percentage points to 20 percent by 2018, according to Honeywell, which said it seeks “double-digit” earnings growth as it uses software to improve product development and boost sales in faster-growing countries.

“Our expansion in key high-growth regions and ability to localize our capabilities is another great example of how we’ll drive accelerated growth over the next five years,” Cote said.

Honeywell was little changed at $94.66 at the close in New York. The shares gained 3.6 percent this year, topping the 1.4 percent advance for the Standard & Poor’s 500 Index.

100 Companies

Cote said last year he was evaluating about 100 companies as potential acquisition targets, with a focus on deals of less than $1 billion because they are easier to assimilate. Since he became CEO in February 2002, the company has made about $12 billion of acquisitions, a pace of about $1 billion a year.

The company’s finances and increased management experience on buying companies would allow it to “easily accommodate” an acquisition of up to $4 billion, he said today.

“I really think our capability to acquire has gone up in terms of the size of the deal we could do,” Cote said.

Honeywell will only buy companies where it can at least get a “double-digit” return on investment by the fifth year and that add to earnings in the second year, Cote said. Honeywell also wants to cut costs equal to 6 percent to 8 percent of the target’s sales.

Biggest Deal

Of acquisitions since 2009, the largest was Sperian Protection, a French maker of protective goggles and respirators, for $1.1 billion in 2010. Honeywell spent $2.2 billion on purchases in North America, $2.1 billion in Europe and just less than $350 million in the Asia-Pacific region, according to data compiled by Bloomberg.

Without acquisitions, sales are projected to rise to as much as $51 billion in 2018, Honeywell said. The company expects to generate free cash flow of as much as $28 billion during the next five years, outpacing the $19 billion from 2010 to 2014.

The company also reaffirmed its first-quarter profit forecast of $1.23 to $1.27 a share. Analysts estimate $1.26 a share on average, according to data compiled by Bloomberg.

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