Honeywell to Pay $1.3 Billion for Life-Science Software Firm

(Bloomberg) -- Honeywell International Inc. agreed to pay $1.3 billion for Sparta Systems, an industrial software provider that specializes in life sciences, in what would be the largest acquisition since Chief Executive Officer Darius Adamczyk took the helm in 2017.

The all-cash transaction is expected to close in the first quarter, Honeywell said in a statement Tuesday. Sparta, based in Hamilton, New Jersey, is part of the portfolio of private equity firm New Mountain Capital. Founded in 1994, the software maker employs about 250 people.

The deal bolsters Adamczyk’s strategy of marrying software capabilities with Honeywell’s industrial technology. Sparta, the largest pure software provider that Honeywell has bought, will complement the manufacturer’s years of experience in providing automation equipment to the life-science industry. Sparta has more than 400 customers, including 42 of the world’s top 50 pharmaceutical companies, Honeywell said.

While Sparta “will initially help us expand our capabilities for our existing breakthrough initiative in life sciences, we plan to leverage Honeywell’s global footprint and expertise to quickly expand Sparta’s capabilities to serve other markets,” said Rajeev Gautam, president of Honeywell’s Performance Materials and Technologies unit.

Forging On

Sparta’s products will form part of Honeywell’s software offering, which is called Forge. With Honeywell sitting on $15 billion of cash, the transaction is likely to ease some of the investor pressure on Adamczyk to be more aggressive with acquisitions.

Adamczyk has snapped up smaller companies this year, including the unit of Ballard Power Systems that makes fuel cells for drones and Sine Group, a mobile-phone software provider. But the Sparta acquisition is the largest since Honeywell in 2016 purchased Intelligrated, a maker of warehouse automation equipment, under Adamczyk predecessor’s, Dave Cote.

“The acquisition further strengthens Honeywell’s leadership in industrial automation, digital transformation solutions and enterprise performance management software,” the Charlotte, North Carolina-based company said in the statement.

Sparta will add about $125 million of software sales next year, which will likely increase to $138 million in 2022, Jefferies analyst Sheila Kahyaoglu said in a note to clients. The business is quite lucrative, with operating margins estimated at about 48%, she said. While the operation is small compared with Honeywell’s $37 billion in 2019 sales, the industrial giant will be able to use its global operations to expand the Sparta business.

“The near-term opportunity is around geographic expansion and cross-selling,” Kahyaoglu wrote. “Sparta’s products are largely underpenetrated in Asia, with the opportunity to leverage Honeywell’s existing footprint in the region in order to drive expansion.”

Honeywell fell less than 1% to $209.23 at 12:54 p.m. in New York. The stock had advanced 19% this year through Monday, while the Dow Jones Industrial Average climbed 5.9%.

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