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United Technologies Should Acquire This Rule Breaker Before It's Too Late

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Why isn't United Technologies (NYSE: UTX  ) playing in the smart-home market? NextMarket Insights pegs the opportunity rising from under $2 billion last year to more than $10.9 billion by 2017.

Mostly that number describes spending on home automation systems from telecom and cable providers. But with apps governing so much of our lives, it seems only a matter of time before the "smart home" market includes any sort of intelligent gear that makes it easier to keep up with the house. You might even argue we're already there: Home Depot and Lowe's each offer a variety of purported "smart home" electronics via their online storefronts.

Enter Nest Labs. The privately held maker of precisely this sort of gear -- including a well-received learning thermostat -- just introduced a combination smoke and carbon monoxide detector that's easily governed via apps:

The Nest smoke and carbon monoxide alarm. Sources: Nest Labs, YouTube.

As a homeowner, I'm thrilled by what Nest is doing. As an investor, there isn't much I can do to cash in on the company's progress. (Not till it comes public via IPO, anyway.) Unless, of course, someone were to make a rich enough bid to acquire Nest. United Technologies should be that company.

Why? Growth and adjacency. United Technologies already offers all sorts of industrial gear for automating and securing commercial buildings. Would creating a "smart home" unit with Nest at the centerpiece really be so bad? The greatest risk to the company, I think, would be ranging outside its circle of competence to develop a service team for residential installations and maintenance. But even that shouldn't be too much of a problem when Nest already has a database of pros certified on its gear available through its website.

We're also talking about seizing a market that's in the midst of multibagger growth. And United Technologies, which has juiced revenue by just 1.2% on average over the past five years, could use the catalyst. Think I'm wrong? Have a better idea? Tell us all about it in the comments box below.

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9/23/2016 4:03 PM
UTX $102.56 Down -0.44 -0.43%
United Technologie… CAPS Rating: ****