Categories
Select Country
Follow Us
GE Capital

Behind GE’s Capital Exit: Hard Work in a Yield-Starved World

GE is on target to divest banking assets valued at $100 billion this year, as it focuses on growing its industrial businesses, the company said today during its quarterly earnings announcement.

GE also said that the financial assets the company will retain, like its aircraft financing and leasing arm, GE Capital Aviation Services, boosted second quarter profits by 19 percent compared to the previous year, illustrating the value they bring to GE’s industrial core.

Last April, GE announced plans to sell most of GE Capital assets and focus on growing its industrial units that make everything from jet engines to MRI machines and blowout preventers for subsea oil wells. To date, the company has announced deals to sell a total of $68 billion in assets.

Aris Kekedjian, vice president and managing director of global business development at GE Capital and the person in charge of selling the assets, said in July he was pleased with the overall deal momentum. He said he was moving fast to get the job done while the conditions were just right for the sale of strong franchises with reliable revenue streams. “Our businesses, especially the deep franchise businesses we have, create yield in a yield-starved world,” Kekedjian said.

image

GE said in April it would focus on its core industrial units. It is spending billions of dollars on developing more efficient wind turbines, gas turbines, jet engines, medical scanners and other technology (see above and below). Image credits: GE Reports and CFM International

Kekedjian says he wants to complete most of the divestitures before the Federal Reserve starts raising interest rates. “I don’t want to wait six months for a new interest rate environment and see what happens,” he said. “Today we get maximum value for our businesses and maximum appreciation for our franchises. I wake up every morning paranoid that something is going to happen in the world and this liquidity-flush environment is going to disappear.”

image

We create yield in a yield-starved world, says GE Capital’s Aris Kekedjian. Image credit: GE Capital

After years of quantitative easing by the U.S. Fed, yields on U.S. Treasuries remain near historic lows. That has left global financial markets flush with highly liquid capital in search of high-quality assets capable of producing dependable yields. These circumstances make assets such as those being sold by GE Capital especially attractive to potential bidders.

One of GE Capital’s yield-creating businesses on the auction block is GE Capital’s Healthcare Financial Services unit, which expects to receive final bids from interested buyers in the coming month or so. The company is a leading provider of capital to U.S. healthcare companies, sponsors, developers and investors. The business has funded more than $70 billion in capital to the healthcare industry since 2001.

The unit’s Chief Executive Officer, Darren Alcus, said in an interview that his team is balancing selling the business with assessing and closing ongoing business financing deals for customers. “We are continuing to perform very well,“ he said.

Alcus has an upbeat view of the overall U.S. healthcare sector, which accounts for $3 trillion of U.S. economic activity, or 17.5 percent of the total economy. He says that with an aging population and rising demand for high-quality healthcare services, the need for financing should also increase in coming years.

“You’re going to see consolidation, you’re going to see growth, you are going to see increased demand,“ Alcus said. “All of those things point to a lot of activity that is going to grow financing and that’s where we come in. It‘s a space that is going to continue to grow and continue to need private capital from companies like us.”

Among deals already signed are GE Capital’s U.S. and European Sponsor Finance businesses, which are leading providers of mid-market and private equity-backed transactions, and its global Fleet operation, which provides commercial car and truck financing and fleet management services. Other major milestones this year include the sale of GE Capital Real Estate, the sale of UK Home Lending mortgage portfolios and the sale of GE Capital’s Hungarian Bank.

image

An employee inspects the compressor section of a GE 7F.05 turbine. Image credit: GE Reports

GE Chairman and Chief Executive Officer Jeff Immelt has said he wants to create a simpler and more valuable industrial company where the retained financing businesses will better support GE’s industrial core.

Those units, which include GE Capital Aviation Services, Energy Financial Services, Healthcare Equipment Finance and Working Capital Solutions, directly support GE’s industrial units and contribute the financing piece of what the company calls the GE Store, the sharing of ideas and expertise between its businesses.

GE Capital Chairman and Chief Executive Officer Keith Sherin says there are three challenges in structuring deals: the speed of getting the deal done within the announced schedule, getting the right value for GE and striving to retain jobs for existing GE employees.

As Kekedjian tries to get the right deals done to sell platforms such as the Healthcare Financial Services business, he describes his role as, “a little bit quarterback, a little bit symphony conductor, [and also] cheerleader and optimist,” he said. “A lot of my role is to clear roadblocks.”

Kekedjian says that while the numbers associated with transactions worth billions of dollars might seem huge and impersonal, it is often the personal touch that helps get deals over the finish line.

“People ask me why I go halfway around the world just to have dinner with someone and then come back the next day,” he said. “The reality is that institutions are not going to wire you billions of dollars because they like your voice on the phone.”

“Deals are done based on relationships and they are closed based on relationships,“ Kekedjian said.

image

GE Healthcare’s new 4D cardio ultrasound machine. Image credit: GE Healthcare

Subscribe to our GE Brief