LM Wind Power
On October 11, 2016, General Electric (GE), an industrial behemoth, said that it was set to acquire LM Wind Power for $1.7 billion. LM, a Denmark-based manufacturer, supplies rotor blades to the wind power industry.
With LM Wind Power, General Electric added another feather to its acquisition cap. Almost a month ago, GE acquired two European 3D Printing companies, Arcam and SLM Solutions, for $1.5 billion to cut production costs in the aerospace and healthcare segments.
About the proposed deal
The $1.7 billion—or 1.5 billion euro—purchase consideration is based on 8.3 times LM Wind Power’s 2016 estimated EBITDA (earnings before interest, tax, depreciation, and amortization).
General Electric anticipates completing this transaction in 1H17. The company also expects the transaction to be EPS (earnings per share) accretive in 2018. Even though the $1.7 billion LM acquisition is a drop in the bucket for GE, it’s a step toward GE’s increasing focus on its core industrial base.
GE’s close peer, Illinois Tool Works (ITW), acquired the Engineered Fasteners and Components business of ZF TRW for $450.0 million in early 2016. GE’s other industrial peer, 3M Company (MMM), acquired the Separations Media business of Polypore International for $1.0 billion in August 2015.
In August 2016, Honeywell International (HON) purchased Intelligrated, a supplier of warehouse automation systems, for $1.5 billion. It’s worth mentioning here that United Technologies (UTX), a provider of technology products and services to the aerospace and construction industry, rejected HON’s $90.0 billion takeover bid in March 2016.
Investors interested in indirectly holding GE can opt for the iShares Global Industrials ETF (EXI). GE makes up 7.2% of the portfolio holdings of EXI.
In this short series, we’ll discuss the rationale behind GE’s LM Wind Power acquisition. We’ll also take a closer look at GE’s renewable energy segment’s future business prospects.