ABB to Buy GE Unit for $2.6B
David Wagman | September 25, 2017
ABB says it is buying GE Industrial Solutions, a global electrification business, for $2.6 billion.
In 2016, GE Industrial Solutions had revenues of around $2.7 billion, with an operational EBITDA margin of approximately 8 percent and an operational EBITA margin of approximately 6 percent.
GE Industrial Solutions designs and sells electrical products that control electricity from the grid to its point of use.
ABB says it expects to realize approximately $200 million of annual cost savings in year five. As part of the transaction and overall value creation, ABB and GE have agreed to establish a long-term supply relationship for GE Industrial Solutions products and ABB products that GE sources today.
The acquisition is set to offer ABB wider access to North American markets.
GE Industrial Solutions will be integrated into ABB’s Electrification Products (EP) division. Included in the acquisition is a long-term right to use the GE brand. ABB will retain the GE Industrial Solutions management team and sales force. After closing, this transaction will have an initial dampening effect to EP’s operational EBITA margin. ABB says it plans to return EP to its target margin of 15 to 19 percent during 2020.
Given this transaction, ABB has decided to put on hold a previously announced share buyback program.
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.
