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15 May 2019
10:00—03:00

Honeywell’s $1.5 Billion Bet on an E-Commerce Boom Pays Off

The purchase of warehouse automation specialist Intelligrated looks especially smart now that Amazon is going to one-day delivery.

Amazon.com Inc. raised the bar for its retail rivals yet again with its April announcement that it would roll out free one-day shipping for top customers. Stepping up the pace from the previous two-day shipping window will be costly: Amazon will spend $800 million in the current quarter alone to modify its logistics network, forcing competitors to make sizable investments to keep up. One likely beneficiary of the apparently insatiable demand for ever-faster shipping is Honeywell International Inc. and its Intelligrated warehouse automation business.

Honeywell’s $1.5 billion acquisition of Intelligrated in 2016 is one of the rare large, technology-focused deals that’s been a smashing success. Intelligrated’s products—which include voice-directed systems that accurately guide employees to goods within massive warehouses—help companies reduce costs and shorten the time between orders coming in and packages going out.

Unlike General Electric Co.’s ill-fated—now more or less defunct—attempt to become a top 10 software provider, the payoff from this bet has been swift for Honeywell. Intelligrated boosted its sales by double digits in the most recent quarter, continuing its blockbuster growth.

And while Amazon is an important customer, it’s not the only one: Roughly two-thirds of the top 50 U.S. retailers use Intelligrated’s technology. The U.S. may be in the “middle innings” of converting traditional retail sales to e-commerce, Honeywell Chief Executive Officer Darius Adamczyk said in an interview with Bloomberg TV, but there’s still a huge untapped opportunity in Europe, India, and other overseas markets. Honeywell last year paid €425 million ($490 million at the time) to acquire Germany-based warehouse automation company Transnorm. In 2017 it bought a 25 percent stake in Flux Information Technology Co., a provider of warehouse and supply-chain management software in China, and formed a joint venture with the company.

Apart from the Transnorm purchase, Honeywell hasn’t done much M&A since Intelligrated. That’s not for lack of trying or a lack of cash. Prices of would-be takeover targets aren’t what Honeywell would like them to be, and it’s adamant about not overpaying. Targets like Intelligrated don’t come along every day, and for now investors are willing to be patient while Honeywell hunts for the next one.

• Leaps and Bounds

Intelligrated’s 2018 orders were up about a third from 2017, and the most recent quarter’s sales extended a streak of double-digit growth.

• Growing Pains 

The business’s profitability is weaker than Honeywell’s as a whole, but sales will shift from equipment to service contracts, which helps.

 
By Brooke Sutherland

Sours: bloomberg.com