A: A fair amount of it will be international. We want to grow our electronics and automotive business in North America. Despite much of our growth coming from emerging markets, my first reaction is that our acquisitions could well be in North America. The challenge is service technicians in heating, ventilation and air conditioning in the U.S. and around the world. We work with technical schools. We hire from the military. We put a lot of resources to recruit and train people.
Q: What do you recommend when companies expand to international markets?
A: Get established when you first go into a country. Do you know the landscape, your partners, your customers well enough? We expand where our customers need our help. The reason we go into Russia is that we're invited by Ford and Toyota. There are probably some markets that we would not enter because of the political risks, but they are small markets today. The overall international environment is very good.
Q: You mentioned that investors are concerned over your stock. It's down 23% since the end of October. What can you say to other optimistic, aggressive companies that have a struggling stock?
A: All you can do is continue delivering the message, be patient and consistent. Don't get focused on the short term. There is going to be a tendency for companies to cut back on investments. That impairs long-term strategies. A lot of companies decide to buy back stock to improve their stock price.
We believe in deploying that cash for our shareholders by acquiring companies. We had a nice run-up from $85 to $130 (before a 3-for-1 split) in seven months. We haven't changed our projections, we've stayed strong with our outlook. We still expect earnings growth to be 18%.
Q: Are stock buybacks a mistake?
A: If you don't have a better idea how to grow the business, it's probably your best alternative. I just hope that when companies make that decision, they aren't forgoing the long-term investments they need to grow.
Q: Your strategy seems to ride on acquisitions.
A: Our primary focus is on organic growth. Having said that, we have a strong balance sheet. Our cash flow gives us access to financing without having to go to the markets.
Q: Still, you can't buy everything. How do you know when to acquire and when to take a pass?
A: A rough thumbnail is if a transaction is going to generate a 15%-16% return after tax by the third or fourth year. If we can't identify a means of doing that, we take a pass.
Q: How can you make something grow that much faster than those who sell it to you?
A: We leverage our distribution channel, customer relationships, technology. York gave us a platform to international markets we didn't have.
Q: Jack Welch once insisted that each business at General Electric be No. 1 or No. 2 in the market, or he would sell it.
A: We're not a holding company, so we don't go in and out of businesses. We exited the plastic container business in the mid-1990s, but that is highly unusual.
Q: Why not just sell a troubled business?