GE Healthcare Spin-Off: “A Major M&A Chip Off the Table”

GE will separate its Healthcare division over the next two to three years in efforts to reduce debt. The news may disappoint acquisition-hungry life science rivals Thermo Fisher and Danahar, say analysts.

John Flannery, chairman and CEO of General Electric (GE) announced today plans to separate GE Healthcare, along with industrial services firm BHGE, in efforts to “unlock both a pure-play healthcare company and a tier-one oil and gas servicing and equipment player.”

The industrial conglomerate GE has struggled over the past few years, with falling profits and its recent removal from the Dow Jones Industrial Average being attributed to a bloated portfolio of businesses, poor strategy and slumps in key industries by some commentators.

GE Healthcare, the division that includes its life science tools and equipment business, has, however, remained profitable. The business brought in around US$19 billion (€16 billion) last year and saw a growth rate of around 5%.

The separation of the unit will take place over the next two to three years and is intended to make its parent company’s corporate structure leaner while substantially reducing debt.

Thermo Fisher and Danahar Disappointment

GE Healthcare executives would not comment on the proposed spin-off when contacted by BioProcess Insider, but a spokesperson told us the firm will: “Continue to focus on delivering precision health and improving clinical, operational and patient outcomes for our customers, offering great technology, underpinned by leading digital and analytics capabilities.”

The healthcare company has long been subject to M&A speculation, with rumors rival bioprocessing vendors could be looking to consolidate the space further through the acquisition of GE’s life science assets.

But the news GE Healthcare will be spun-off is likely to disappoint Thermo Fisher and Danahar (Pall Corporation’s owner), according to Evercore ISI analysts Ross Muken and Vijay Kumar.

“While the healthcare investment community gains another sizable new asset (Siemens is also in process of unlocking with Healthineers), a major M&A chip is now off the table most likely,” they said in a note.

“This has two major implications as Danahar and Thermo Fisher go back to normal hunting grounds for deals across the public and private markets but also now face another entrant in addition to Merck KGaA (post-2018) for assets.”

Germany’s Merck last year announced plans to restructure, with its life sciences division incorporating MilliporeSigma forming one of three major subsidiaries.

“Frankly, we would expect these new healthcare entrants [Merck and GE] to step up their activity post spin, given empowered leadership, solid balance sheets, and strong FCF generation.”