Rebuffed earlier this year in a $91 billion megadeal for United Technologies (UTX) , Honeywell International (HON) insisted it saw plenty of other opportunities for growth. It is becoming apparent that the company's plan B features a heavy dose of technology and software.
Morris Township, N.J.-based Honeywell is reportedly closing in on a $3 billion cash and debt deal for JDA Software Group Inc., a vendor of supply chain management software currently owned by private equity firm New Mountain Capital. The parties involved declined comment on the reports, which originated earlier in the week from Reuters.
While stopping short of confirming talks or commenting on price numerous dealmaking sources did confirm that New Mountain has been seeking options for the company, which it acquired for $1.9 billion in 2012, with one banker calling Honeywell "a natural fit."
The JDA deal, if it occurs, would follow Honeywell's decision last month to spend $1.5 billion to acquire Intelligrated Inc., another privately-held company that is focused on supply chain technologies. While Scottsdale, Ariz.-based JDA is focused primarily on making the software retailers need to plan out their supply chain, Intelligrated makes software and equipment that is used to increase productivity in warehouse environments.
A focus on automating formerly non-digital equipment and processes has been a common theme to Honeywell's actions in recent years, with the company last year committing $5.1 billion to acquire Elster Group, a maker of next-generation gas, electric and water meters. The company at the same time has been parting with non tech-focused commodity businesses that offer less growth upside, including the $1.3 billion-sale resin and chemicals unit currently on the block.
Analysts say the focus on automation is partially the influence of chief operating officer Darius Adamczyk, who will be taking over for long-time CEO Dave Cote next March. Cowen & Co. analyst Gautam Khanna in a recent note said that given Adamczyk's background as a software engineer he is "comfortable with software-heavy acquisitions."
An industrials banker who asked not to be named agreed, saying that Honeywell's goal is to either "consolidate and dominate" its old-line businesses or, in areas where that is not possible, chase higher margins by adding technology to areas like the supply chain as well as security, building controls and to its aerospace platforms.
If Honeywell wishes to continue to build out its supply chain automation business, it could be drawn to Atlanta-based Manhattan Associates (MANH) That $5 billion market-cap company would, like JDA, complement the Intelligrated buy and give Honeywell a full suite of products and technologies to offer retailers for procurement and planning their supply chain, managing their warehouses and supervising logistics.
Intelligrated sold in part because Permira, its private equity owner, felt the company had reached a point where it would benefit from the deep pockets and global reach of a large multinational. JDA meanwhile has been squeezed by a substantial debtload as well as growing competition from the likes of IBM (IBM) and Toronto Stock Exchange-traded Tecsys. Presumably Honeywell's balance sheet and reach would help solve JDA's issues, and the combined portfolio of products could give it a leg up against competitors.
Outside of the warehouse there are dozens of small to mid-sized potential targets with building automation, controls and smart valve offerings, with a larger company like Flowserve (FLS) a potential target should Honeywell wish to rapidly expand its pump and valve business.
Aerospace is another area where technology is increasingly overlapping with industrial businesses, and another spot where Honeywell is likely to invest. Honeywell produces a range of aerospace connectivity products, including airborne antennas, aircraft management software, what Jefferies analyst Howard A. Rubel calls a business that is "relatively modest in size, but has reasonable potential given the elements the company is putting together."
B/E Aerospace (BEAV) , a maker of aircraft interior systems, has long been suggested as a Honeywell target and a deal for that $5 billion company would still make sense though aerospace valuations remain relatively inflated. There is also a chance that Honeywell could look to sell some of its lower-margin aerospace and defense assets, especially once the resin business is out the door.
One of the reasons the hostile United Technologies bid caught so many off guard was Honeywell's long history of being a more subtle acquirer, focusing more on grabbing complementary technologies than on transformation. For the last few years Honeywell has been looking to automation and technology for growth. The latest rumors indicate the company continues on a steady path.