Activist Investors Buy Stakes in Smart Building Technology Firm Johnson Controls

Activist investor Elliott Investment Management and Soroban Capital Partners each have built sizable positions in smart building technology provider Johnson Controls, according to Bloomberg.

The investment firms have not disclosed whether they will push for boardroom, executive or strategy changes at Johnson Controls, which has been a Wall Street laggard in recent quarters. The evidence: Shares of Johnson controls rose 9.2% over the past year, but rivals such as Carrier gained 52% and Lennox surged 70%, SeekingAlpha noted.

Johnson Controls: Evolving Toward Smart Building Technologies

Johnson Controls, based in Cork, Ireland, has roughly 100,000 employees worldwide. The company makes fire detection, refrigeration, security and HVAC equipment.

The firm is betting its business on smart building technologies that align with customers' energy efficiency, sustainability and decarbonization goals. Recent moves include hiring IBM veteran Chris Bontempo as chief marketing officer in May 2024.

The business evolution may involve selling off certain HVAC assets, and the ADT alarms unit, Reuters reported. During a May 2024 earnings call, CEO George Oliver didn't mention those business units by name, but he said the company continues to "make good progress on the exploration of alternatives for some of these assets." Translation: Discussions with potential suitors for certain businesses continue.

Johnson Controls and Smart Building Technologies: What's Involved?

The smart building strategy leans heavily on artificial intelligence (AI), Internet of Things (IoT) and cloud computing services that save energy and reduce emissions, while improving the overall building occupant experience, the company has emphasized.

Johnson Controls' data-gathering technology, known as OpenBlue, brings both IT and OT (operational technology) data together from across a building's ecosystem. The software can "break down silos" between third-party equipment, Oliver pointed out.

Chief Technology Officer Vijay Sankaran described the smart building technology strategy in this Sustainable Tech Partner podcast from March 2024:

On the partner front, the company will lean heavily on distributors and systems integrators to recommend, deploy and manage smart building solutions.

Business Performance, Data Center Momentum

Still, the business evolution is a work in progress. In May 2024, the company announced sales of $6.7 billion for Q2 of fiscal year 2024 -- essentially flat compared to the corresponding quarter last year.

At the time, Oliver said the company remains "confident in our ability to deliver on our financial and operational commitments as we continue our transformation into a comprehensive solutions provider for commercial buildings.”

Among the bright spots: Data center customer orders in the fiscal first half of 2024 have surpassed the $2 billion in orders for all of fiscal 2024, Oliver said during the May 2024 earnings call. Moreover, company executives mentioned the data center business segment 39 times during the call.

Note: Blog originally published May 20, 2024. Updated on May 21, 2024 to reflect Soroban Capital Partners also buying Johnson Controls stock.