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Honeywell CEO Should Tap Into His Inner Dealmaker

Darius Adamczyk, chief executive officer of Honeywell International Inc., speaks during an interview in New York, U.S., on Thursday, Nov. 16, 2017. In October, Honeywell International Inc. posted expanded profit margins and the biggest sales gain in three years as new CEO Adamczyk prepared to shed two businesses.
Darius Adamczyk, chief executive officer of Honeywell International Inc., speaks during an interview in New York, U.S., on Thursday, Nov. 16, 2017. In October, Honeywell International Inc. posted expanded profit margins and the biggest sales gain in three years as new CEO Adamczyk prepared to shed two businesses. (Photographer: Bloomberg/Bloomberg)

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 prioritize 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.

While Honeywell has a reputation for using its research prowess to create businesses within the company, that won’t be enough to quell the clamor for dealmaking that will inevitably begin to build. Adamczyk acknowledged this, in a way, to investors during the company’s July 28 earnings conference call when he gave analysts a deeper explanation of why he created a chief operating officer position. (Any notion that naming Vimal Kapur as COO is some kind of imminent succession move should be written off as rank speculation.) Adamczyk said that he was getting too involved in the operations of Honeywell’s multiple businesses, which was taking him away from strategic work like brand-building, customer outreach, business development and, yes, acquisitions.

M&A “is an area that I probably should be spending a little bit more time in,’’ he said on the call.

That’s good news for investors who want to see Honeywell do more deals. But it begs the question of why Adamczyk needs to get more personally involved to come up with targets. He has a team dedicated to examining deals, and in a company as sprawling as Honeywell, the executives and managers closer to the factories and the customers are in the best position to pinpoint targets.

Maybe it’s about Adamczyk putting in more time on a few needle-moving, strategic deals. Here’s one that analyst RBC Capital Markets analyst Deane Dray has in mind and is quite intriguing on paper: Some variation of Honeywell snapping up General Electric Co.’s aerospace unit (which is one of the three main pieces into which CEO Larry Culp is breaking up the iconic conglomerate), merging it with its own aerospace unit and spinning out the combined businesses into a stand-alone powerhouse supplier to all the aircraft manufacturers.

Now that would turn Adamczyk into a deep-end diver and not just a CEO who dips his toe into the shallow end of the M&A pool.

More From Other Writers at Bloomberg Opinion:

• Consumer-Facing Manufacturers Feel the Pinch: Brooke Sutherland

• It’s Time for GE to Let Go of GE: Brooke Sutherland & Ben Schott

• Private Equity’s Goldilocks Era Is Coming to an End: Nir Kaissar

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

Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, he covered U.S. industrial and transportation companies and Mexico’s industry, economy and government.

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