Honeywell to buy Elster from Melrose for £3.3bn

Industrial conglomerate Honeywell International has agreed to acquire the Elster division of Melrose Industries for £3.3bn (€4.6bn, $5.1bn).

Having estimated annual sales of $1.8bn, Germany-based Elster is present in more than 130 countries with its devices measuring the flow of natural gas, electricity and water. It also manufactures flow computers and regulators for the gas industry.

Elster employs about 6,800 people with major locations in the US, Germany, the UK, and Slovakia. The company has a growing installed base with more than 200 million metering modules deployed over the course of the last 10 years alone.

The acquisition price translates to about 12.6 times Elster's estimated 2015 consensus earnings before interest, taxes, depreciation and amortisation (Ebitda).

The acquisition is expected to occur in the first quarter of 2016, subject to customary closing conditions, including regulatory review and Melrose shareholders' vote.

"The acquisition of Elster will generate strong future returns for Honeywell's shareowners because it increases our growth profile globally – creating both organic and inorganic growth opportunities – and because Honeywell can run this company effectively and accelerate its growth through our complementary technologies, software knowledge, and presence in High Growth Regions," Honeywell CEO Dave Cote said in a statement.

"Elster also creates a new platform for acquisition targets for Honeywell that will be additive to the business' growth and global presence. We will see immediate benefits to Honeywell's portfolio, accelerating into 2016 and 2017."

The acquisition comes as Honeywell targets to spend $10bn in purchasing new businesses by the end of 2018.

Cote noted that the company was on track with the target.

"During the past decade, we have completed more than 80 acquisitions adding approximately $12 billion in revenues. We will continue to look for good acquisitions to enhance our growth profile," he said.

London-listed Melrose said it intended to use the proceeds to finance a return of capital of over £2bn to shareholders in due course and for general corporate purposes, including paying down existing borrowings.

Melrose, which buys manufacturing companies and makes profit by selling them after restructuring, acquired Elster for about $2.3bn in 2012.

"I am pleased that we are able to deliver this return to shareholders earlier than we had originally anticipated and have every confidence that Elster will continue its success story under the ownership of Honeywell," Melrose CEO Christopher Miller said.