In a previous article I looked at the recent history of mergers and acquisitions in the industrials sector and concluded that future deals were likely to involve companies making horizontal and/or vertical acquisitions within their core business areas. With that said, everybody loves a bit of takeover speculation, so let's look at some potential acquisition targets in the industrials sector in 2015.
United Technologies to buy Meggitt?
United Technologies (NYSE:UTX) management has been signalling M&A activity, both directly and indirectly. At an investor event earlier in the year, CEO Gregory Hayes outlined a willingness to make an acquisition of more than $5 billion, and interested readers can find out in the linked article why I think the U.K. aerospace company Meggitt is a possible target.
Furthermore, Hayes' commentary on the future of helicopter manufacturer Sikorsky gave succor to those who think the business should be sold off. After telling investors in December that he wasn't minded to sell Sikorsky, Hayes made it clear in February that he was reviewing the company's portfolio of subsidiaries, while maintaining that commercial aerospace and building was the company's core activity. So, Sikorsky out and Meggitt in?
LED lighting plays
The latest growth catalyst for the LED industry is undoubtedly lighting, but how to invest in the industry? One answer is to buy lighting manufacturers and distributors. Acuity Brands and Hubbell Inc. stand out as the obvious candidates.
After Eaton Corp. purchased Cooper Industries and ABB bought Thomas & Betts Corp. (both deals in 2012), observers speculated as to whether Acuity and Hubbell would be the next electrical equipment makers to be purchased. A quick look at their stock prices since then suggests it wouldn't have been a bad idea.
Acuity's attraction lies in its exposure to secular and cyclical growth in North American LED lighting and controls. On a forward P/E ratio of 25 times, the stock is hardly cheap, but it would offer a foreign acquirer an immediate foothold into North American commercial and industrial lighting.
Just like Cooper Industries, Hubbell has significant operations in electrical and power systems, with Soros Fund Management buying the stock amid media speculation that a large Hubbell shareholder is exploring options for its stake.
Danaher still acquisitive
Many readers already know Danaher Corp. (NYSE:DHR) is on the lookout for acquisitions, with management affirming "$8 billion-plus of acquisition capacity". Two companies that could interest Danaher are Agilent Technologies Inc. and Pall Corp. Agilent's life science and diagnostics testing solutions would complement Danaher's most profitable segment.
Filtration and separation company Pall's solutions could be a good strategic fit for Danaher environmental solutions. Pall's $10.7 billion market cap suggests it might be a bit out of Danaher's reach, but an acquirer could always try and separate Pall's life science and industrial businesses as part of the deal.
Specialty chemicals producer
Chemtura Corp. (NYSE:CHMT) is a highly fancied stock held by heavyweight investment firms run by Mario Gabelli and David Einhorn. The linked article goes into more detail on how the company has transformed itself from a disparate collection of underperforming businesses into a focused industrial chemicals play. The Gabelli Asset Fund's third-quarter shareholder commentary quoted Chemtura CEO Craig Rogerson as saying, "In 1-3 years Chemtura will be part of a bigger entity, with a merger the most likely outcome."
If Chemtura can expand sales of its synthetic lubricants while managing through the excess capacity issues in its bromine/bromine intermediates (used in flame retardants and controlling mercury emissions from coal power plants), then Rogerson's prediction could come true.