ABB has announced the acquisition of GE Industrial Solutions, a global electrification solutions business, for $2.7 billion. The deal further strengthens ABB’s global standing in the global electrification market while offering improved access to the lucrative US market.
“With GE Industrial Solutions, we strengthen our Number 2 position in electrification globally and expand our access to the attractive North American market,” said ABB CEO Ulrich Spiesshofer. “Combined with the long-term strategic supply relationship with GE, this transaction creates significant value for our shareholders.”
GE Industrial Solutions has what ABB describes as ‘deep customer relationships’ in more than 100 countries and an established installed base with strong roots in North America, ABB’s biggest market. The company is headquartered in Atlanta, Georgia, and has about 13,500 employees around the world. In 2016, GE Industrial Solutions had revenues of approximately $2.7 billion.
ABB will acquire GE Industrial Solutions for $2.6 billion; the transaction will be operationally accretive in year one. ABB says it will realise some $200 million of annual cost synergies in year five, which will be key in bringing GE Industrial Solutions to peer performance. As part of the transaction and overall value creation, ABB and GE have agreed to establish a long-term, strategic supply relationship for GE Industrial Solutions products and ABB products that GE sources today.
“This combination brings together two global businesses with a broad complement of electrical protection and distribution assets,” said John Flannery, CEO of GE. “ABB values our people, domain expertise, and our ability to operate in the segments where we have depth and experience. GE will also benefit through an expanded strategic supply relationship with ABB as the two companies work together.”
GE Industrial Solutions will be integrated into ABB’s Electrification Products (EP) division, resulting in an expanded global portfolio and very comprehensive offering for North American. Included in the acquisition is a long term right to use the GE brand. ABB will retain the GE Industrial Solutions management team and build upon its experienced sales force. After closing, this transaction will have an initial dampening effect to EP’s operational EBITA margin. ABB commits to returning EP to its target margin corridor of 15-19 percent during 2020.
Tarak Mehta, president of ABB’s EP division, commented: “This acquisition strengthens our position as partner of choice for electrification globally and in North America. We look forward to working with GE Industrial Solutions’ and ABB’s customers and channel partners to create new opportunities in this highly attractive core market for our division. We have a clear integration plan to realise the synergies of this combination and to bring our combined business back into the target margin corridor during 2020.”
ABB’s EP division delivers more than 1.5 million products to customers around the world every day through a global network of channel partners and end-customers. EP offers a comprehensive portfolio of low- and medium-voltage products and solutions for a smarter, more reliable flow of electricity from substation to socket.
The transaction is expected to close in the first half of 2018, subject to customary regulatory clearances. Credit Suisse and Dyal Co acted as financial advisors to ABB, and Davis Polk & Wardwell provided legal counsel.