Private equity buyers keen to carve up General Electric

Nov 15, 2021 | News

General Electric’s decision to split into three companies has set the stage for a feeding frenzy among private equity buyers looking to carve the industrial conglomerate into more pieces, say people at several large private equity groups.

“I suspect everybody will be shopping at the GE Store for the next couple of years,” said the head of one large multinational buyout firm, referring to the “GE Store” slogan coined by former chief executive Jeff Immelt. “I think there’s going to be a whole host of really attractive things that get sold.”

Larry Culp, GE’s chief executive, last Tuesday announced the decision to break the company into separate companies focused on healthcare, energy and aviation. The split, he said, would give each GE business freedom to chart its own strategy.

Free Webinar: Cashing in – Examining Private Debt Investments into 2022

Learn More
  • In the current market, what areas within private debt should get the attention?
  • How has technology reshaped investor relationship management?
  • How has LP’s attitude towards private debt changed due to the pandemic and how can this change be accommodated by GPs?

It was the latest in a wave of corporate restructurings that include IBM jettisoning its technology services business and the planned splits at Japan’s Toshiba and US healthcare company Johnson & Johnson.

The split is expected to be completed in 2024, at which time GE will join United Technologies, DowDuPont, ABB, and Siemens in ditching the conglomerate structure.

GE on Tuesday said it would spin off its healthcare business, which generates more than $17bn in annual sales and sells MRI and ultrasound machines.

It will carve out its combined renewable energy and power divisions, which contain units that do everything from manufacture gas turbines to manage nuclear facilities, hydroelectric dams, and offshore wind farms.

It will leave shareholders owning an aviation company that manufactures jet engines and also holds long-term care insurance liabilities.

The company sold policies covering assisted living and nursing home stays as part of its GE Capital financial services division, which is being unwound. The policies, like many of GE’s financial forays, have lost the company billions.

But the long time frame of Culp’s plan will offer interested buyers the ability to pick assets off GE, which carries a $118bn market capitalisation. “It’s gonna take them forever to spin off healthcare in 2023 and power in 2024,” said the executive, who said Culp’s announcement “takes some of the friction out of possible sales”.

GE’s avionics business, which makes navigation systems for commercial and military aircraft, and its GE Unison division, which makes electrical equipment for aircraft, are units of particular interest.

“We are sharpening the pencils,” added another executive at a large, global alternative asset manager. “I think everything else other than healthcare may be able to sell for a better price in the private marketplace than when it goes public.”

This executive foresaw the possibility of private equity buyers attempting to buy GE’s jet engine business. “The jet engine business properly capitalised is an amazing business,” he said. However, some analysts questioned whether that unit’s size with $22bn in annual revenues and its value would put it out of reach for financial buyers.

GE’s largest business is energy, with $33bn in revenues in 2020, and could be sold off piecemeal. “Any business in the power portfolio is considered non-core. Those would be perfect candidates for private equity,” said Deane Dray, an analyst at RBC Capital Markets.

Added on private equity executive: “There would definitely be some chunky businesses to buy.”

Source: The Real Entrepreneur

Can’t stop reading? Read more