Honeywell (HON, Financial) has been thriving in the aviation and defense sectors, manufacturing engines, power systems, and navigation hardware for military equipment through its Aerospace Technologies segment. The recent $1.9 billion acquisition of CAES Systems Holdings from Advent International aims to further capitalize on robust defense sector demand.
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The acquisition will enhance HON's defense and space product portfolio, particularly in radio frequency signal management, radar, and sensing technologies.
- These new components will open up new revenue opportunities and improve existing programs like the F-35 fighter jet and Advanced Medium Range Air-to-Air (AMRAAM) missile systems.
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This acquisition serves as a growth catalyst for HON's Aerospace Technologies segment, which saw an 18% organic sales growth in Q1, with defense and space markets growing by 16%.
- Supply chain improvements allowed HON to better capitalize on strong demand trends, expected to remain robust due to conflicts in Ukraine and the Middle East.
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Despite HON's large size, this acquisition may not significantly impact its near-term revenue, projected to be nearly $39 billion in FY24.
- The buyout price represents approximately 14x estimated 2024 EBITDA on a tax-adjusted basis, indicating an expected EBITDA of about $135 million for CAES in FY24.
- HON expects the acquisition to be accretive in the first full year of ownership, aided by the fact that it's an all-cash deal.
Overall, while not a game-changer, this acquisition is strategically and financially sound. HON strengthens its defense business, diversifies revenue streams, and does so at a reasonable price without issuing new debt or equity.
