ABB announces acquisition of GE Industrial Solutions for US$2.6 billion

Swiss engineering group ABB has announced it will buy GE Industrial Solutions for a sum of US$2.6 billion ($3.3 billion).

GE Industrial Solutions is one of GE’s smaller divisions with about 13,500 employees worldwide, selling electrical-distribution products such as circuit breakers and switchgear.

The electrification market is worth about US$32 billion, and ABB is currently number two in the global electrification market. Headquartered in Atlanta, Georgia, GE has the ability to strengthen ABB’s foothold in North American market.

“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, which delivers more than 1.5 million products to customers around the world every day, including components for low- and medium-voltage electrical systems. ABB expects to invest US$400 million over five years on integrating GE’s industrial solutions unit, but its acquisition of GE has the potential to save around US$200 million a year in cost synergies within five years.

GE will also benefit from leveraging ABB’s technology leadership and ABB Ability, stabilising and growing its US market share and realising its margin potential. ABB Chief Executive Ulrich Spiesshofer suggested that part of the transaction agrees that the two companies will establish a long-term, strategic supply relationship.

In 2016, GE Industrial Solutions had revenue of US$2.7 billion and a profit margin of around 8%. While it will initially dampen profitability at ABB’s EP division, the aim is to return EP to its target margin corridor of 15–19% during 2020.

“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,” said Tarak Mehta, President of ABB’s EP division.

Due to this acquisition, ABB decided to put the three-year US$3 billion share buyback program on hold that it had announced last year. The deal is expected to close in the first half of 2018.