Private-equity buyers enthusiastic about opening up General Electric

General Electric Decision Split Entering three companies has created a whirlpool of enthusiasm among private equity buyers seeking to divide their industrial conglomerates into more pieces, according to people from several large private equity groups. I am.

The head of a large multinational buyout company mentioned the slogan of “GE Store” devised by former CEO Jeff Immelt: “Everyone will shop at GE Store for the next few years. I think I’ll do it. ” “I think there are a lot of really attractive things to sell.”

GE CEO Larry Culp announced last Tuesday a decision to split the company into separate companies focused on health care, energy and aviation. The split gives each GE business the freedom to develop its own strategy, he said.

This was the latest in a wave of corporate restructuring, including IBM’s abandonment of its technology services business and planned splits between Toshiba in Japan and Johnson & Johnson, a US healthcare company.

The split is expected to be completed in 2024, at which point GE Joined United Technologies, Dow DuPont, ABB and Siemens to abolish the conglomerate structure.

GE announced on Tuesday that it will spin off its healthcare business, which sells MRI and ultrasound equipment, with annual sales of over $ 17 billion.

We will open up a combined renewable energy and power sector, including units that do everything from gas turbine manufacturing to management of nuclear facilities, hydropower dams and offshore wind farms.

This will allow shareholders to own an airline that manufactures jet engines and also has long-term care insurance debt.

As part of this, the company has sold a policy for living support and staying in long-term care facilities. GE Capital Unleashed financial services sector. This policy, like many of GE’s financial efforts, has cost the company billions of dollars.

However, Calpe’s long planning time frame provides interested buyers with the ability to select assets from GE with a market capitalization of $ 118 billion. “It will take forever to spin off health care in 2023 and power off in 2024,” Calpe’s announcement said, “removing some of the friction from sales potential.”

GE’s avionics business, which manufactures navigation systems for commercial and military aircraft, and GE Unison, which manufactures electrical equipment for aircraft, are particularly interesting units.

“We are sharpening pencils,” added another executive of the large Global Alternative Asset Manager. “I think everything but healthcare may sell at a better price in the private marketplace than when it goes public.”

The executive foresaw the possibility that private equity buyers would buy GE’s jet engine business. “A well-capitalized jet engine business is a great business,” he said. However, some analysts questioned whether the size and value of the unit, which earns $ 22 billion annually, would be out of reach for financial buyers.

GE’s largest business is energy, with revenues of $ 33 billion in 2020 and potential for gradual sales. “All businesses in our electricity portfolio are considered non-core. These will be perfect candidates for private equity,” said Dean Dray, an analyst at RBC Capital Markets.

He added to the Private Equity Executive:

Built through acquisitions by major French utility Alstom and others, the unit has low profit margins, and CreditSights analysts said it’s a total of this year’s total operations, what one buyout executive called a “mumble of independent companies.” Cash flow is projected to be only $ 1.3 billion.

The energy spin-off business includes power assets such as gas turbines and steam power, and a renewable energy portfolio that includes the manufacture of grid portfolios of onshore and offshore wind turbines, wind blades, energy storage systems and high voltage energy transformers. increase. Among dozens of companies, circuit breakers.

Other areas of opportunity include GE’s 45% stake in listed companies. Air capHolds this month after completing the $ 34 billion sale of its aircraft leasing business, GECAS. “I think it’s a good investment,” said one of the acquisition executives. “It’s probably feasible. They have a lot of debt to repay, so they’ll sell it off,” he predicted.

Analysts also pointed out potential financial buyers in the long-term care insurance business, which is GE’s biggest headache. It is expected to receive a total of $ 15 billion in cash injections to process future claims.

“They need to get rid of insurance. There is no way to add it to the aviation industry,” said Nigel Coe, an analyst at Wolfe Research.

“If you think these assets are more than enough to cover your debt, the deal is basically just a handshake and you leave with the key,” added Scott Davis, an analyst at Melius Research. ..

GE declined to comment on future sales.

The surge in private equity transactions to complete GE’s unwind effectively marks the end of one era of financial management and the rise of another. Already, private equity buyers such as Blackstone and Advent International are buying large companies from GE. Former executives such as Steve Bolze and John Klenitzki have also moved into the buyout industry, joining Blackstone and Clayton, and Davilier & Rice, respectively. Former CEO Jeff Immelt is NEA’s venture partner.

Alternative asset management giants such as Apollo, Blackstone, Brookfield, Carlyle and KKR are growing as strongly as GE peaked, but independently capitalizing and managing portfolio companies. Faraway holdings do not subsidize each other and have independent corporate boards and strategies. They are in many ways the opposite of conglomerates, where centralized management builds a diverse empire of assets and smoothes economic and geographical variability.

“This is a breakthrough,” said one private equity partner who called the dissolution of GE the “secret of death” of its conglomerate business strategy.

“If a single C suite could do that effectively, the Soviet Union would probably not have collapsed.”

Private-equity buyers enthusiastic about opening up General Electric

Source link Private-equity buyers enthusiastic about opening up General Electric

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