ABB to Acquire GE Industrial Solutions, GE’s Global Electrification Solutions Business

ABB announced the acquisition of GE Industrial Solutions, GE’s global electrification solutions business. GE Industrial Solutions has customers in over 100 countries and an established installed base with strong roots in North America, ABB’s biggest market. GE Industrial Solutions 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, with an operational EBITDA margin of approximately 8 percent and an operational EBITA margin of approximately 6 percent. ABB will acquire GE Industrial Solutions for $2.6 billion; the transaction will be operationally accretive in year one. ABB expects to realize approximately $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.

GE Industrial Solutions will be integrated into ABB’s Electrification Products (EP) division, resulting in a unique portfolio and comprehensive offering for North American and global customers. This will result in ABB’s technologies and the ABB Ability digital offering coupled with GE Industrial Solutions’ complementary solutions and market access. 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 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.

ABB’s EP division consists of over 1.5 million products serving its customers through a global network of channel partners and end-users. EP offers a portfolio of low- and medium-voltage products and electrical solutions ranging from the substation to the socket.

Given this transaction, ABB has decided to put the previously announced share buyback program on hold.

The transaction is expected to close in H1 2018, subject to customary regulatory clearances. Credit Suisse and Dyal Co. acted as financial advisors to ABB, and Davis Polk & Wardwell provided legal counsel.

Keywords: Electrification, Industrial Solutions, ARC Advisory Group.