Industrial conglomerate Honeywell International announced that it will be shedding two of its business units by the end of 2018. The company, which posted a revenue of $39.3 billion in 2016, said it will spin off its building and vehicle businesses as it aims to narrow its focus. The units will become two distinct, publicly traded entities with their own internal management structures. Honeywell’s home and buildings unit will focus on manufacturing products such as air conditioners, thermostats, and generators, while its vehicles unit will focus on products such as turbochargers and other automotive technologies. The newly split companies are expected to post revenues of about $4.5 billion and $3.0 billion, respectively.
Honeywell did, however, opt to maintain its aerospace unit despite investor pressure to spin that off as well. This decision comes amid steady consolidation in the aerospace sector with recent megadeals taking place, such as the United Technologies acquisition of Rockwell Collins. “The remaining Honeywell portfolio will consist of high-growth businesses in six attractive industrial end markets, each aligned to global megatrends including energy efficiency, infrastructure investment, urbanization and safety,” said Honeywell President and CEO, Darius Adamczyk in a press release announcing the move.
While the two spins-offs will considerably shrink Honeywell’s business and revenue, the influx of cash would be able to fund acquisitions to help grow its remaining portfolio. Buyers that source products from these sectors, particularly in the aerospace, safety equipment, process solutions, and security markets, should be wary of takeovers that could increase market share concentration and erode negotiation leverage. Honeywell already controls a sizable share of revenue in markets like protective gloves, face and head protection and closed-circuit television systems. Buyers in these markets may want to explore locking in prices sooner rather than later, as any consolidation will likely inflate market prices.
- Honeywell will no longer sell products for buildings and vehicles such as air conditioners, thermostats, and automotive parts.
- Selling of these two business units will give Honeywell the cash to buy out competitors in markets that it is remaining in.
- Buyers can mitigate the effects of potential consolidation by locking prices in the form of long-term contracts.
Sign up to our newsletter
Tariffs & International Trade Disruptions: How Did We Get Here?
Over the past 20 years, multilateral trade has hit a wall. The underlying issues that have caused a breakdown in multilateral agreements, other than trade deficits and agricultural disagreements, are actually problems that procurement professionals consider daily. Learn short- and long-term strategies to handle the tariff volatility.
5 Markets with Fast-Paced Consolidation
Consolidation has been impacting operators across many sectors of the economy during the past three years. Read on to find out how this wave of consolidation and mergers has impacted buyers in these 5 markets.
Helium Shortage Leads to Rising Procurement Anxiety
Amid the third major shortage of helium in the last 15 years, procurement professionals are facing ballooning demand, deflating supply and pressure-filled price volatility.