Honeywell To Buy Carrier Security Business For $5 Billion

(Bloomberg) -- Honeywell International agreed to acquire the security business of Carrier Global Corp. for an enterprise value of about $5 billion, which marks the biggest deal since 2015 for the maker of jet engines and gas detectors. 

The acquisition broadens Honeywell’s product offerings in its unit that specializes in security systems and electronic locks for large corporations. The deal includes the LenelS2, Supra and Onity brands, according to a statement. 

It also marks the first major acquisition under the company’s new leadership.

Chief Executive Officer Vimal Kapur, who took over as the company’s CEO in June, forecast a revenue of more than $1 billion for the combined security services business. 

“Honeywell’s strong track record delivering building automation products and services makes this a natural fit that will create a leading security platform,” he said in a statement. 

Carrier shares pared a gain of as much as 7.5% to trade up 4.3% to $55.18 as of 10:33 a.m. in New York. Honeywell fell 0.4% to $196.91.

Investors have been pushing Honeywell to juice its growth through more and larger deals. This latest bolt-on addition is the largest since its $5.4 billion purchase of Elster Group under former CEO Dave Cote, which was announced in 2015 and closed in early 2016. 

The purchase price is about 13 times earnings before interest, taxes, depreciation and amortization, and the deal is expected to close in the third quarter next year. The transaction will immediately boost operating margins, Charlotte, North Carolina-base Honeywell said. 

“Strategically, this is a hand-in-glove acquisition for Honeywell,” Nigel Coe, an analyst with Wolfe Research, wrote in a note. “It was the most logical buyer and so this is not a surprise.”

Coe said the deal is expected to be dilutive to Honeywell’s earnings per share in year one. For Carrier, he said the amount offered “is a great price” for the business.  

Carrier said it will use proceeds from the transaction to pay down debt. The company in April agreed to buy Viessmann Climate Solutions, a German maker of heating systems, for €12 billion ($13 billion) in cash and stock.

Evercore Inc. is serving as financial advisor to Honeywell. Skadden, Arps Slate, Meagher & Flom, Simmons & Simmons and Womble Bond Dickinson are providing external legal counsel.

The Wall Street Journal reported on the deal earlier. 

--With assistance from Ryan Beene.

(Updates from ninth paragraph with analyst comments.)

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