Acquisitions by GE - Case Study

Nikhil Mittal, P A Jeetendra, Saurabh Bishit, Vineet Gupta (PGDIM 13, NITIE)

GE is a prolific acquirer of companies. The case study documents some of the recent acquisitions.

SONDEX
Announcement
U.S. conglomerate General Electric Co. has agreed to buy British maker of oilfield services equipment Sondex Plc a company listed on the London Stock Exchange on 3rd September 2007. The announcement was made in London UK.

Sondex is headquartered in Hampshire in the UK and specializes in the design, manufacture and sale of electro-mechanical downhole tools and surface equipment to oilfield service companies who run well-site operations on behalf of oil and gas production companies.

Sondex makes flow-meters and other electronic instruments to measure the quality of oil and gas in wells, and had revenue of 68.5 million pounds in the year ended Feb. 28. Fairfield, Connecticut-based GE will combine the unit with its energy division, which has sales of $19.1 billion and products such as turbines and solar equipment.
``Sondex is one of the best niche players in oilfield services and with GE's global clout that immediately becomes a worldwide proposition,'' said Mark Breslin, an analyst at McCall Aitken McKenzie in Stirling, Scotland, with an ``accumulate'' rating on Sondex. ``GE has been steadily moving up the chain to more high-value devices.''
Sondex develops and manufactures electro-mechanical equipment used in oil and gas fields such as drilling and transport tools as well as more sophisticated devices that measure well performance and the quality of the oil being mined. The company has embarked on a series of acquisitions since it listed in 2003, including the Aberdeen-based Geo-link, Bluestar in Canada and the Texan company Ultima Labs.
The integration into GE's business will enable the company to tap into fast-growing markets around the world, in particular China where the company has a fledgling operation, and Russia.

The company's existing management team led by Mark Perry, the chief executive of Sondex, will stay on after the acquisition is complete. Last year Sondex notched a 33 per cent increase in revenue to nearly £70m, with pre-tax profit rising 14 per cent to £8.5m. In June, it said that orders had risen 20 per cent on the previous year due to strong demand in China and Russia.

In contrast, GE's Optimization and Control unit, which has never acquired a company outside the United States before, recorded revenue of $1.1bn.

Valuation

General Electric, whose interests span technology, media, energy and financial services, will pay 460 pence a share for Sondex, which designs, makes and markets electro-mechanical based equipment for oilfield service companies. That is 35.5 percent above Sondex's closing share price on Aug. 30, the day before it announced it was in takeover talks. The total valuation of Sondex stands at 288.7 million pounds ($583.1 million).

The price being offered by GE is ``fair and reasonable,'' says industry analysts.
Sondex said June 20 that orders were 20 percent ahead of last year, helped by demand in China and Russia. Fiscal 2007 profit through February increased to 5.7 million pounds from 5.1 million
pounds on revenue 33 percent higher at 68.5 million pounds. The U.K. company last year
acquired Ultima Labs Inc. to add the Houston-based company's technology used to measure the
fluid content of rock formations.
Synergies and Benefits claimed:
“Sondex will be an important addition to GE Energy's portfolio of businesses, complementing
our existing Tensor product line. The company brings to us a broad range of advanced products
and technologies, as well as employees with a deep understanding of the customers they serve.
We expect the combination to form a substantial growth business for GE going forward.” said
Brian Palmer, Vice President of GE Energy’s Optimization and Control business.
"The acquisition of Sondex by GE is an exciting move for our company and employees. With
GE, we will have greater resources to further develop innovative new technologies and together
with one of the world’s most respected companies, we will be able to provide an enhanced level
of global support to our customers.” said Martin Perry, Chief Executive of the Sondex Group.
Sondex, with operations in the U.S., the U.K. and seven other countries, will operate as part of
GE Energy's Optimization and Control business. Sondex makes products to monitor reservoir,
well and production conditions. GE's Tensor division makes oil and gas sensors. "Sondex will be
an important addition to GE Energy's portfolio of businesses, complementing our existing Tensor
product line," said Brian Palmer, vice president of GE Energy's Optimization and Control
business.

"With GE Energy, we will have greater resources to further develop innovative new technologies
and provide an enhanced level of global support to our customers," said Sondex CEO Martin
Perry.
Structuring of the deal
General Electric has bought Sondex in an all cash deal.
Financing of the deal
General Electric will finance the deal from its reserve and surplus.
Advisors to the Buyer and Sellers
Sondex, headed by Chief Executive Officer Martin Perry, is being advised by Investec. Credit
Suisse advised GE.
Subsequent Performance
On 3rd September Sondex shares were up 7.5 percent at 454.25 pence by 0752 GMT.
GE’s share rose by 0.17 dollars (+0.4%) to 39.04 dollars at that time.
Smiths Aerospace
Announcement
Global giant GE Aerospace announced on 12th January, 2007 that it was acquiring
Smiths Aerospace which is a manufacturer of aircraft control & diagnostic systems.
Smiths is a global technology company, listed on the London Stock Exchange.
Smiths Group is a world leader in the practical application of advanced
technologies. Its products and services make the world safer, healthier and more
productive. Smiths Group has four divisions: Aerospace, Detection, Medical and
Specialty Engineering. It employs 32,000 people and has over 250 major facilities in
50 countries. For more information visit www.smiths.com
Smiths Aerospace is a leading transatlantic aerospace systems and equipment
business, with more than 11,000 employees and $2 billion revenues globally. The
business holds key positions in the supply chains of all major military and civil
aircraft and engine manufacturers and is a world-leader in digital, electrical power,
mechanical systems, engine components and customer services.
Valuation
Smiths Aerospace is the largest division, with sales of £1.3bn. It is a tier-one
supplier to the world’s major aircraft and engine manufacturers, such as Boeing,
Airbus and Rolls-Royce. Although exposed to the delayed Airbus A380, otherwise
known as the superjumbo, Butler-Wheelhouse said that “this program will have
minimal profit effect in the early years. On the other hand, the Boeing 787, which
we’ve invested in heavily, has gone extremely well.”
And the outlook for the sector is buoyant. “For both military and commercial
aircraft, we see continued strength at least through 2009.” With this level of
earnings visibility, I think the unit is worth some £2.3bn, representing a 2005/2006
EBIT multiple of 15 times, which is in line with its peers.

Synergies and Benefits claimed :
The acquisition will broaden GE’s offerings for aviation customers by adding Smiths
innovative flight management systems, electrical power management, mechanical
actuation systems and airborne platform computing systems to GE Aviation’s
commercial and military aircraft engines and related services.
“This acquisition is consistent with our strategy to invest in high-technology
infrastructure businesses that deliver strong growth, earnings expansion and
higher margins,” Immelt said. “GE Aviation is growing about 10% a year and this
acquisition gives us a technology growth platform that will be accretive to our net
income and will deliver immediate and future value for our investors.”
GE Aviation President and CEO Scott Donnelly said, “The acquisition will broaden
our collective expertise. Smiths has made significant investments in its aerospace
technologies with resulting success on several exciting new aircraft. Together, we
will bring greater product scope and value to our customers.”
Financing of the deal
General Electric will finance the deal from its reserve and surplus.
Advisors to the Buyer and Sellers
Smiths financial advisors in the deal were Evercore Partners Limited, as well as
Credit Suisse Securities (Europe) Limited and JPMorgan Cazenove Limited.
Brunswick is their PR adviser.
Subsequent Performance
Smiths shares rose 109.50 pence to £10.945 in London after the company said it
planned to return £2.1 billion, or $4.1 billion, to shareholders. GE shares fell 3 cents
to $37.89 .
Smiths aerospace has been doing really after the acquisition by GE. Some
highlights after the deal are shown below.
Smiths Aerospace awarded Performance Based Logistics C-130J\K contract
worth $52m
Smiths Aerospace and Boeing reach milestone in successful refueling hose
deployment for KC-767 Italian Tanker
Smiths Aerospace partners with HCL to open development centre in India
Smiths Aerospace grows engine components business in North Carolina

ICONICS
Announcement
WILTON, CONNECTICUT (November 24, 2004): GE Infrastructure, a unit of General Electric
Company (NYSE:GE), and Ionics, Inc. (NYSE:ION) announced today that they have signed a
definitive agreement for GE's acquisition of Ionics.
Ionics is a global leader in desalination, water reuse & recycling, and industrial ultrapure water
services. Ionics will join GE Infrastructure’s Water & Process Technologies business unit upon
completion of the transaction. Ionics, headquartered in Watertown, Mass., is a global leader in
water purification and wastewater treatment. The Company has over 50 years of experience in
the design, installation, operation and maintenance of water and wastewater treatment systems
and is a leading provider of emergency and long-term water purification services. More
membrane-based desalination systems have been designed and built by Ionics than any other
supplier worldwide. Ionics is also a leader in supplying zero-liquid-discharge systems, in
providing ultrapure water systems for the power and microelectronics industries, and in the
measurement and analysis of water impurities
GE Infrastructure, headquartered in Wilton, Conn., is a high-technology platform, comprised of
some of GE's fastest-growing businesses, including the Security and Water & Process
Technologies platforms. These global businesses offer a set of infrastructure protection and
productivity solutions to some of the most pressing issues that industries face.
Valuation
Ionics have signed a definitive agreement for GE's acquisition in an all cash merger for $44 per
share, valuing the transaction at approximately $1.1 billion plus the assumption of existing debt.
Synergies and Benefits claimed:
“Water is the lifeblood of industries and communities around the world, and scarcity, increasing
demand and rising costs are driving the need to conserve, reuse and identify new supplies of this
essential resource,” said Bill Woodburn, President and CEO of GE Infrastructure. “The
combination of Ionics’ technology, project experience, and services network with GE’s operating
and project finance expertise will accelerate the development of technology solutions for the
global water purification segment. We see significant revenue and cost synergies that will enable
us to focus our resources on developing technologies that increase access to safe drinking water
and provide industrial customers with greater access to ultrapure water sources."
Doug Brown, CEO of Ionics said, “Through this merger we create the opportunity to serve our
industrial and municipal customers in new and exciting ways. Both GE and Ionics are focused on
building the water services business. By combining our technology with GE’s and by accessing
GE’s financial expertise and world class international organization, we substantially enhance our
ability to deliver our water purification services globally.”
George Oliver, GE Infrastructure’s President of Water & Process Technologies said, “This
acquisition strengthens GE’s commitment to people, technology and solutions. There are great
synergies between the two companies – GE currently has more than 2,000 scientists and
engineers focused on improving water quality for industrial and commercial use, and the addition
of Ionics expands our ability to provide solutions to our customers’ most pressing water needs.
Ionics has established technologies, engineering resources and global desalination management
capabilities that gives GE a significant presence in the potable water segment.
“Because Ionics utilizes multiple technologies for its emergency mobile fleet, we will be able to
offer expanded services for our industrial customers who need immediate assistance treating
their water supply,” Oliver said. “The acquisition of Ionics reinforces our commitment to our
customers by providing the services they need to remain productive and profitable.”
Structuring of the deal
General Electric has bought Ionics in an all cash deal.
Financing of the deal
General Electric will finance the deal from its reserve and surplus.

Advisors to the Buyer and Sellers
Goldman, Sachs & Co. and UBS Investment Bank acted as financial advisors to Ionics.
Subsequent Performance

ZENON

Announcement
General Electric Co. agreed to buy Zenon Environmental Inc. for C$760 million ($655 million),
its second purchase of a water-filtration company in the past year on March 14, 2007.
ZENON is the world's largest manufacturer and system integrator of hollow fiber
membrane technologies and complimentary products. Since its inception in 1980,
ZENON has repeatedly demonstrated through hundreds of installations in more
than 45 countries, that its products and people have the proven experience to treat
virtually any water source.
ZENON employs over 1,400 skilled people around the world, each dedicated to
continuously improving our membrane technology, our systems, and our services—
ensuring that our customers can always rely on us for the best the industry has to
offer.
To meet global demand for our products, ZENON operates two state-of-the-art
manufacturing plants, one in Canada and one in Hungary, which have the potential
to generate the world's highest hollow fiber membrane output.
Valuation
GE, the world's second-biggest company by market value, will pay C$24 in cash for
each outstanding share of Oakville, Ontario-based Zenon, the companies said in a
statement today. Fairfield, Connecticut-based General Electric is paying 55 percent
more than Zenon's share price of C$15.50 in Toronto trading yesterday.
Synergies and Benefits claimed :
The purchase of Zenon, whose products are used to filter water for municipal and
agricultural use, will help GE boost revenue from its water-treatment unit about 25
percent to almost $2.5 billion next year, the company said. GE entered the industry
in 2002 and last year paid a 48 percent premium for Ionics Inc. to add desalination
and industrial customers.
``This is a good deal for GE,'' said Steven Isenberg, chief executive officer of M
Capital Partners Inc. in Toronto, which owns about 10,000 Zenon shares. ``Water is
an important new business for them.''
GE's water unit, based in Trevose, Pennsylvania, specializes in reverse osmosis
technology, which removes dissolved solids, such as salt, from water. Zenon's
products add to that line and give GE ``greater market share,'' said Michael
Gaugler, an analyst who follows water companies for Boenning & Scattergood Inc.
in West Conchohocken, Pennsylvania.

Financing of the deal
General Electric will finance the deal from its reserve and surplus.

Advisors to the Buyer and Sellers

Smiths financial advisors in the deal were Evercore Partners Limited, as well as
Credit Suisse Securities (Europe) Limited and JPMorgan Cazenove Limited.
Brunswick is their PR adviser.

Subsequent Performance
Shares of Zenon traded as high as C$27.10 in July before sliding in recent months
as changes to its manufacturing slowed production. They rose C$8.28 to C$23.78 in
Toronto.
General Electric shares rose 11 cents to $33.78 at 4:16 p.m. in New York Stock
Exchange composite trading. They have declined 6.7 percent in the past year.