Getting the balance sheet in better shape was an early goal laid out by CEO Larry Culp.
Sebastien Bozon/AFP via Getty Images
General Electric announced a health-care diagnostics acquisition on Friday. Ordinarily, a small deal wouldn’t mean much, but GE has been selling assets, lately, not buying them. It is also the first acquisition made by CEO Larry Culp.
General Electric (ticker: GE) is buying Prismatic Sensors, a Swedish start-up specializing in photon-counting detectors.Barron’s doesn’t know what those are, but they make CT scans better.
“We believe this technology has the potential to be a substantial step forward for CT imaging that will benefit millions of patients worldwide,” Kieran Murphy, CEO of GE Healthcare, said in the company’s news release. “GE Healthcare is committed to pioneering next generation technologies to achieve precision health and improve lives.”
Investors appeared to have been encouraged about what the deal signifies, sending the stock up 1% on Friday.
Since Culp took over in late 2018, GE has closed dozens of asset sales, including the $21 billion sale of its Biopharma division to Danaher (DHR). The money raised was earmarked for debt reduction. Getting the balance sheet in better shape was an early goal laid out by Culp.
With GE on track to hit debt reduction goals, management appears ready to start investing again. But investors probably shouldn’t expect large deals. Before being hired by GE, Culp ran Danaher and that company is famous for smaller, bolt-on deals that fit into existing business, funded from cash flow to enhance growth.
The deal for Prismatic Sensors is expected to close early in 2021. Terms weren’t disclosed, not unusual for small transactions.
GE shares were 4.7% higher to $10.22 Monday morning as the S&P 500 gained 0.3% and the Dow Jones Industrial Average added 0.6 %. Year to date, GE stock is down about 8%, but shares have gained 34% over the past month. News about Covid-19 vaccines has driven the stock. GE is a large commercial aerospace supplier and demand for air travel has been hammered by global pandemic. A vaccine is one thing needed for air travel to return to pre-pandemic levels.
Management’s goal is for debt in the industrial business to be no more than 2.5 time Ebitda, short for earnings before interest, taxes, depreciation and amortization. That is a level similar to other large industrial businesses. Hitting the goal might take a little longer than initially envisioned because of the deep downturn in the commercial aerospace business.
Write to Al Root at [email protected]
