United Technologies hunting 'large scale M&A' though good targets scarce
United Technologies (NYSE:UTX) is looking for larger acquisitions but sees a dearth of good opportunities, according to CFO Greg Hayes.
During the Q&A session of the Morgan Stanley Laguna conference on Tuesday (16 September), Hayes was asked how he saw the current M&A pipeline.
"Not terribly robust ... We continue to look for opportunities to do large scale M&A. And I make that large scale comment specifically because, at USD 65bn, you've got to do bigger deals to move the needle," he replied.
Hayes noted that the company would continue to do smallish deals on the technology front and on the Otis portfolio side.
"But really the target here is, where can we help move the needle to help us in these two core markets that we operate in on the commercial aerospace side and commercial buildings?" he said.
Hayes explained that for a USD 15bn Aerospace Systems business, it was tougher to do deals, and there were not many engine companies for sale. While he added that there were more opportunities on the commercial side, valuation was an issue because of rising equity prices.
In the face of high multiples, cost synergies were key, Hayes noted.
"We want to find deals where we can generate real hard cost synergies like we did with Goodrich. When you can create value through cost synergies, you can afford to pay some of these multiples that are out there," he said. "USD 500m of synergies on Goodrich creates 5bn of value to the shareowners. We want to find more deals like that, probably not at 18bn, but bigger deals. But I would tell you right now, there's not much in the pipeline of that ilk."
Earlier in the session, as part of a longer reply to a question about share buybacks, the CFO noted the difficulty in bringing back cash from overseas and said the company had over USD 5bn of "trapped foreign cash."
During the first half of 2014, United Technologies spent USD 84m on a number of small acquisitions, primarily in its commercial businesses.
United Technologies has five main business segments: Otis; UTC Climate, Controls & Security; Pratt & Whitney; UTC Aerospace Systems; and Sikorsky. The company refers to Otis and Climate, Controls & Security as its "commercial businesses," while Pratt & Whitney, UTC Aerospace Systems and Sikorsky are the aerospace businesses.
In September 2013, the company formed UTC Building and Industrial Systems, a new organizational structure consisting of Otis and Climate, Controls & Security. Those two businesses continue to report their financial results as separate segments.
The CFO's remarks at this week's conference mostly echoed those from previous months. On the 1Q14 earnings call in April, as this news service reported at the time, Hayes said he did not expect to make any large buys this year but would continue to look.
While United Technologies has used various advisors in recent years for both acquisitions and disposals, Goldman Sachs and Deutsche Bank have been used more than once for sizeable transactions since 2010. For legal, Wachtell, Linklaters, and Cleary Gottlieb have advised on multiple deals during the past few years, according to the Mergermarket M&A database.
Hartford, Connecticut-based United Technologies has a market capitalization of USD 99bn.