Proving the Business Case for the Internet of Things

Honeywell to buy smart meter company Elster for $5.1bn

Steve Rogerson
August 11, 2015
Honeywell is to acquire the Elster division of Melrose Industries for about $5.1bn. Elster provides thermal gas products for commercial, industrial and residential heating systems and gas, water and electricity meters, including smart meters, software and data analytics.
Elster also manufactures flow computers and regulators for the gas industry.
"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 chairman and CEO Dave Cote of New Jersey-based Honeywell. "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."
Elster’s consensus sales for 2015 are estimated to be $1.8bn. The buying price is about 12.6 times Elster's estimated 2015 consensus earnings before interest, taxes, depreciation and amortisation, and the acquisition is anticipated to occur in the first quarter of 2016. The agreement is subject to customary closing conditions, including regulatory review and Melrose shareowner vote.
"The Elster acquisition proves we are staying true to our disciplined M&A approach and integration processes because it's a model that has worked very well for us," said Cote. "During the past decade, we have completed more than 80 acquisitions adding approximately $12bn in revenues. We will continue to look for good acquisitions to enhance our growth profile. We see Elster as a great opportunity to deploy our operating model and key process initiatives to grow the business, enhance our position globally, and drive significant returns to shareowners over the long-term. The Honeywell Hos operating system will be a major factor in creating new synergies that will increase the growth and profitability of each of Elster's businesses."
Elster employs about 6800 people with major locations in the USA, Germany, UK and Slovakia. The company maintains an impressive installed base with more than 200 million metering modules deployed over the course of the past ten years alone.
"This acquisition will allow us to improve customer value with technologies and lifecycle management for industrial end users served by Honeywell's environmental combustion and controls and process businesses," said Cote. "Elster's gas business offers products in high demand among natural gas customers and brings a strong, global distribution network and numerous cross-selling opportunities for existing Honeywell technologies to new customers in both developed and high growth regions."
He said that Elster's gas, electric and water meters were highly valued for their reliability, safety and accuracy.
“Elster has a world-class reputation for delivering on the operational efficiency and regulatory certification requirements of utility customers globally,” he said. “We expect that energy efficiency initiatives and mandates and the increased need for natural resource management will drive meaningful and sustained growth for Honeywell in the metering segment. Utility metering in particular is rapidly evolving as new smart technologies and software and data analytics capabilities are becoming adopted around the world and we expect strong growth from this segment globally. Elster's differentiated technologies, extensive industry expertise and relationship with utility customers globally – combined with its strong positions in the highly regulated heating, controls and metering segments – are a great fit for Honeywell's portfolio,"
There is no change to the 2015 full year guidance Honeywell provided in its second quarter earnings release. Honeywell expects that the dilutive impact of the transaction on its 2016 earnings per share to be minor.