Much to the disappointment of rival Honeywell (HON), United Technologies (UTX) has long maintained a merger between the two industrial giants woudn't clear antitrust hurdles, nor would it unlock nearly as much value as Honeywell has argued.
"All I will say is the regulatory and the customer obstacles were very real," UTX's CEO, Gregory Hayes, said at a Thursday investment conference. "We felt it was irresponsible to move forward with the combination because of those risks."
Hayes also laid out the reasoning why the Farmington, Conn.-based company will do just fine in 2016 without a merger, although he didn't rule out the possibility for an accretive acquisition in its aerospace segment.
"We're ready for an acquisition that adds value to our customer," Hayes said at the conference. "It will be in aerospace systems. It will either strengthen an existing product line or add an adjacent product line, but we will stay true to our core and we will ensure that we use the same playbook that made the Goodrich integration so successful." UTX acquired aircraft equipment maker Goodrich for $16.5 billion in 2012.
The first reason a merger won't be necessary, according to Hayes, is that UTX shares are already significantly depressed and there is a discount opportunity for an "aggressive" buyback, largely because investors have undervalued the industrial market over concerns with economic cooling.
The second reason is UTX's projected aerospace backlog of roughly $1 trillion over the next 25 years, Hayes said at the conference, highlighting that $750 billion of that future business is set to come from engine-maker subsidiary Pratt & Whitney.
"The other thing that's going to drive growth, of course, is urbanization and the growth of the middle class," Hayes said. "You have at least 65 million to 75 million people continuing to urbanize every year across the globe. That will drive growth because they moved into cities, and they moved into apartments, and they need air conditioning, and they need elevators, they need fire security and electronic security system."
UTX can capitalize on that growth given its substantial global footprint, Hayes said.
David Gitlin, president of UTX's aerospace operations, echoed Hayes' sentiment that M&A activity will not be necessary to find sustainable growth.
"We will grow organically," he said at the conference. "We don't need an acquisition to grow, but we will be opportunistic in M&A and we will look for companies that strengthen and complement our portfolio and enable us to add more value to our customers."