Honeywell Agrees to Acquire Elster

Honeywell has agreed to pay approximately $5.1 billion for the company, which has three divisions -- Elster Gas, Elster Electricity, and Elster Water -- and will post sales this year estimated to be $1.8 billion.

Honeywell announced July 28 that it has signed a definitive agreement to acquire the Elster Division of Melrose Industries plc. Elster has three divisions, Elster Gas, Elster Electricity, and Elster Water, which provide thermal gas solutions for commercial, industrial, and residential heating systems and gas, water, and electricity meters, including smart meters and software and data analytics solutions. Honeywell is paying approximately $5.1 billion for the company, which will post sales this year estimated to be $1.8 billion, according to Honeywell's announcement.

The announcement says the price is approximately 12.6 times Elster's estimated 2015 consensus earnings before interest, taxes, depreciation, and amortization (EBITDA) and the acquisition is expected to occur during the first quarter of 2016. The agreement is subject to customary closing conditions, including regulatory review and Melrose shareowners' vote. "The acquisition of Elster will generate strong future returns for Honeywell's shareowners because it increases our growth profile globally – creating both organic and inorganic growth opportunities – and because Honeywell can run this company effectively and accelerate its growth through our complementary technologies, software knowledge, and presence in high-growth regions," said Honeywell Chairman and CEO Dave Cote. "Elster has outstanding technologies, brands, energy efficiency know-how, and global presence, all of which we are very well positioned to build on. Elster also creates a new platform for acquisition targets for Honeywell that will be additive to the business' growth and global presence. We will see immediate benefits to Honeywell's portfolio, accelerating into 2016 and 2017. This is a great acquisition for Honeywell and our shareowners."

Honeywell is paying 3.1 times Elster's 2014 revenue and 14.3 times its 2014 headline EBITDA, according to Melrose, which is headquartered in London. Melrose bought Elster in August 2012 and divided the company into the three separately managed units.

"The disposal of Elster represents an excellent outcome for Melrose shareholders and another milestone in our track record," said Christopher Miller, Melrose's chairman. "Through investing heavily and improving operational performance, we have created substantial value for shareholders, more than doubling their money in three years. I am pleased that we are able to deliver this return to shareholders earlier than we had originally anticipated and have every confidence that Elster will continue its success story under the ownership of Honeywell."

Elster has about 6,800 people and operates major locations in the United States, Germany, the United Kingdom, and Slovakia. "The company maintains an impressive installed base with more than 200 million metering modules deployed over the course of the last 10 years alone," Honeywell's announcement states.