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ABB buys GE Industrial Solutions for $2.6bn

25 September, 2017

ABB is buying GE Industrial Solutions, GE’s electrical systems business, for $2.6bn, securing its second position in the $32bn global market, behind Schneider Electric, and ahead of Eaton and Siemens. It also expands ABB’s access to the North American market via GE’s large installed base and extensive distribution networks.

In 2016, GE Industrial Solutions had revenues of around $2.7bn, with an operational EBITDA margin of about 8% and an operational EBITA margin of 6%. It has customers in more than 100 countries and strong roots in North America, which is ABB’s biggest market. ABB says that the deal will deliver $200m of annual cost synergies by year five.

The long-rumoured deal includes long-term use of the GE brand, and the establishment of 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” global portfolio and a comprehensive offering for North American and global customers. Users will benefit from ABB’s technologies and its ABB Ability digital offering, coupled with GE Industrial Solutions’ complementary solutions and market access.

ABB plans to keep GE Industrial Solutions’ management team and to build on its sales force. After closing – expected in the first half of 2018 – the transaction will have an initial dampening effect on EP’s operational EBITA margin, but ABB is committed to returning EP to its target margin of 15­–19% during 2020.

GE Industrial Solutions has its headquarters in Atlanta, Georgia, and employs about 13,500 people worldwide. It has 29 manufacturing sites, and nine r&d centres. Almost two-thirds of its business is in North America, where it has more than 1,000 distributors. But IS’s share of the US market has been declining, its portfolio is ageing, and its margins have been lower than some of its rivals.

GE Industrial Solutions’ products – such as circuit-breakers, automatic transfer switches, surge protectors and uninterruptible power supplies­ –control electricity from the grid to its point-of-use. It also supplies engineered systems such as busbars, MV switchgear, DC power systems and distribution transformers, as well as configured systems such as switchboards and load centres. In addition, it provides embedded power supplies.

ABB’s EP division has revenues of around $9.9bn, employs about 42,500 people, and has more than 100 manufacturing sites. At present, some 37% of its revenues come from Asia, the Middle East and Africa, 36% from Europe and 27% from the Americas.

Every day, ABB EP delivers more than 1.5 million products to customers through a global network of channel partners and end-customers. The division offers low- and medium-voltage products and systems for a smarter, more reliable flow of electricity from substation to socket.

Combining GE Industrial Solutions with its own Electrification Products division, will reinforce ABB's number two position in the $32bn global market for electrification products
Source: ABB

“With GE Industrial Solutions, we strengthen our Number 2 position in electrification globally and expand our access to the attractive North American market,” says ABB CEO, Ulrich Spiesshofer. “Combined with the long-term strategic supply relationship with GE, this transaction creates significant value for our shareholders.

“Together with the GE Industrial Solutions team, we will execute our well-established plans in a disciplined way to bring this business as part of the global ABB family back to peer performance,” he adds. “With this next step of active portfolio management, we continue to shift ABB’s centre of gravity, in line with our Next Level strategy, by strengthening competitiveness, mainly in the North American market, and lowering risk with an early-cycle business.”

GE regards Industrial Solutions as a “non-core” business. According to its CEO, John Flannery, the deal “brings together two global businesses with a broad complement of electrical protection and distribution assets. 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.”

Tarak Mehta, president of ABB’s EP division, says: “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 realize the synergies of this combination and to bring our combined business back into the target margin corridor during 2020.”

The GE IS acquisition will reinforce ABB's product portfolio and expand its access to the North American market



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