Honeywell International said it would buy the utility consumption meter business of Britain's Melrose Industries for 3.3 billion pounds ($5.14 billion) to boost its presence in high-growth regions.
Melrose shares jumped 16 percent in early trading on Tuesday, making it the top percentage gainer on the FTSE-250 midcap index.
The all-cash deal for Melrose's Elster division will have a minor dilutive impact on its 2016 earnings per share, Honeywell, a maker of aircraft parts and climate control systems, said in a statement.
Melrose, an engineering turnaround specialist that follows a buy-improve-sell strategy akin to private equity firms, said separately that it would return 2 billion pounds to shareholders after the sale.
"Elster's gas business offers products in high demand among natural gas customers and brings a strong, global distribution network and numerous cross-selling opportunities for existing Honeywell technologies," Honeywell said.
Elster, which also makes flow computers and regulators for the gas industry, is estimated to post sales of $1.8 billion in 2015. It employs about 6,800 people across the United States, Germany, the UK and Slovakia.
"Elster also creates a new platform for acquisition targets for Honeywell," Honeywell Chief Executive Dave Cote said.
The deal value was set at about 12.6 times Elster's estimated 2015 consensus core earnings, Honeywell said.