Darius Adamczyk, the chief executive officer of Honeywell International Inc, is running out of excuses not to make a splash in M&A.
Adamczyk, who has been CEO since 2017, has talked for a while about Honeywell’s large pipeline of potential acquisitions and how he wants to prioritise doing deals over buying back stock. But he usually quickly countered that with the argument that valuations were off the charts. And he was right — at the time. That long period of elevated company values is coming to an end, of course, with the painful 14% decline in the S&P 500 Index this year. Even the stickier valuations of companies owned by private equity will come down, especially as cheap money dries up with rising interest rates.
The onus to pull the trigger on acquisitions is now squarely on Adamczyk, who is even more cautious by nature than his mentor, Dave Cote, who liked to repeat that investors told him when he took over as CEO of an ailing Honeywell in 2001: “Please don’t blow the money.’’
Honeywell certainly has the money. The maker of goods as diverse as jet engines and warehouse automation equipment has $9 billion of cash on hand and could take on more debt if needed to acquire a large company. The company has discussed having cash and debt capacity of up to $27 billion that could be used for acquisitions.
Unlike in other sectors, investors expect multi-industrial companies to manage their collection of businesses like a portfolio manager would stocks, but with real assets. That means growing through acquisitions and exiting markets that have lost their luster through divestitures.
Adamczyk, 56, has done the latter, but not much of the former. In his second year as CEO, Adamczyk spun out the last of the company’s automotive businesses (now Garrett Motion) and even had the temerity to sell the residential electronics unit (now Resideo Technologies) that included the iconic Honeywell thermostat, the product that launched the 137-year-old conglomerate.
But Adamczyk hasn’t been on the purchase side of any large deals. The biggest acquisition on his watch was the $1.3 billion purchase of software maker Sparta Systems, which was completed in February 2021. Honeywell has snapped up a few other fairly small companies, the biggest of which was Transnorm Beteiligungen GmbH, a German maker of automation equipment, for about $490 million.
The argument about prohibitively high valuations is undercut a bit when considering a competitor like Emerson Electric, which contributed $6 billion for a majority stake in a company that combined its industrial software business with Aspen Technology Inc. and $1.6 billion for Open Systems International within the last two years. And those are just the big ones as Emerson CEO Lal Karsanbhai pursues the trend of industrial companies pivoting toward software.
With the spinoffs that Adamczyk completed at the end of 2018, Honeywell’s sales dropped by about $5 billion in 2019 from a record $41.8 billion the previous year. The pandemic hit the company’s aerospace and energy businesses hard, and sales sank to $34.4 billion last year.