Following the path of industrial giants 3M (MMM, Financial) and GE Aerospace (GE, Financial), Honeywell (HON, Financial) is set to streamline its operations by spinning off business units that do not align with its long-term growth strategy. Honeywell announced plans to spin off its Advanced Materials business into a new publicly traded company by late 2025 or early 2026, aiming to enhance shareholder value.
The Advanced Materials unit, part of Honeywell's Energy and Sustainability Solutions segment, produces additives and polymers for products like plastics, paints, and asphalt. In the second quarter of 2024, the unit achieved an 8% sales growth, driven by strong performance in fluorine products. Continued momentum could attract significant interest for an Advanced Materials IPO.
The Advanced Materials business could be valued at approximately $10 billion in an IPO, translating to about 2.6 times the estimated FY24 sales of $3.8 billion.
Although spinning off a growing business might seem counterintuitive, Honeywell believes that separating Advanced Materials will allow it to be properly valued as an independent entity. The spin-off will enable Advanced Materials to pursue specific growth strategies.
For Honeywell, this move aligns with its focus on three megatrends identified last October: automation, the future of aviation, and energy transition. This realignment will optimize the company’s operations within these areas.
While not becoming an aviation pure play like GE, Honeywell will be better positioned to capitalize on demand in commercial aviation and defense markets. Honeywell's Aerospace Technologies segment has seen eight consecutive quarters of double-digit organic growth.
The Energy and Sustainability Solutions segment supports efforts to reduce emissions and enhance power grid efficiency. In Q2, sales increased by 3% organically, driven by refining catalysts and aftermarket services growth.
We anticipate that the market will favor Honeywell's efforts to simplify its business and align with key growth strategies, similar to the positive reception for GE and MMM. With Honeywell’s stock performance stagnant in 2024, this spin-off could serve as a positive catalyst for the company.
