NEW YORK (The Deal) -- The old Tyco International (TYC) under CEO Dennis Kozlowski was never shy about deal-making. Much has changed at the company since Kozlowski's fall from grace last decade. But after a lackluster quarter marked by tepid guidance, there are calls for the industrial firm to again rev up the M&A machine.
Dublin-based Tyco on April 24 reported quarterly results that topped estimates, but its shares traded down more than 5% after warning that its fiscal third quarter would come in well below expectations. The company mentioned forex issues, weather-related construction delays, and a slowdown in energy spending when discussing the weakness.
Tyco management is committed to cutting expenses, and believes that margins will expand over time as it improves its mix of high-tech building controls and safety products. But more drastic actions could be needed.
Barclays analyst Scott Davis in a note said that if growth continues at a slow rate, "we'd expect management to be more aggressive." Tyco is under-leveraged relative to its peers, the analyst said, and according to Davis has a corporate structure ready-made to support a larger entity.
The company has dabbled in M&A already, earlier this year closing its $329.5 million purchase of flame and gas detection equipment maker Industrial Safety Technologies from Battery Ventures. Davis did not offer specific targets for Tyco, but said he sees plenty of opportunities for the company to add scale. "When we attend fire/security trade shows there are a gazillion smaller niche folks out there," Davis wrote, adding there have "to be some roll-up opportunities" out there for the company.