Rising stock prices are causing companies to pause before attempting to grow through acquisitions, Reuters reported.
When United Technologies Corp. paid more than $16 billion to buy plane parts-maker Goodrich Corp. about two years ago, the U.S. conglomerate's biggest-ever takeover raised some eyebrows for its rich valuation.
But that is nothing compared to what a buyer would need to cough up today for Rockwell Collins Inc, a similar airplane components maker deemed by Morningstar Ratings LLC to be one of the most likely takeover candidates in the industrial sector.
United Tech paid 12.4 times Goodrich's trailing operating earnings at the time, according to Thomson Reuters data, but Rockwell's shares now trade at about that level without any deal premium baked into the price. Takeout premiums among industrial companies averaged about 25 percent last year.
Such is the dilemma facing United Tech, 3M Co., Honeywell International Inc. and other diversified manufacturers that are eager to bolster their businesses through deals yet may hesitate as the rising stock market drives prices higher.