Prospects for GE’s spun-off health unit said to be strong
Despite transfer of $18B of debt and pension obligations to new standalone company, execs say health business and market position remain solid.
GE officials presented a bright future for GE Healthcare when they announced on Tuesday that the medical equipment unit will be spun off in a major corporate restructuring.
The health business, which last year reported more than $19 billion in revenues and posted 5 percent revenue growth and 9 percent segment profit growth, provides medical imaging, monitoring, bio-manufacturing and cell therapy technology to hospitals as well as laboratory supplies to biotech firms.
Under the corporate restructuring, Kieran Murphy—president and CEO of GE Healthcare—will continue to lead the business unit once it becomes a separate entity.
“It’s encouraging to see that GE Healthcare will maintain its current leadership—that should reduce some of the uncertainty that comes with a change like this,” says Mitch Josephson, vice president for strategic relations at KLAS.
“Of the 24 GE products where KLAS collects provider feedback, 16 have scores either trending upwards or holding steady, and it will be interesting to see if that changes moving forward,” Josephson adds. “We’ve heard from some providers that healthcare has seemed under-prioritized by GE corporate. Giving their healthcare arm a top-down focus on the industry may help them drive deeper, more focused innovation for their customers.”
Based on the valuation of peer companies, the new entity could have an enterprise value, which includes debt, of between $65 billion and $70 billion, according to Karen Ubelhart, a Bloomberg Intelligence analyst. That would rank it among the biggest healthcare companies in the world.
Also See: GE Healthcare sells Caradigm product line to Inspirata
However, the move did raise some questions, such as how the standalone business will handle a significant amount of debt. GE said it will sell 20 percent of the health business and spin off the rest to its shareholders. The parent company will add $18 billion of debt and pension obligations to the healthcare spinoff, but has yet to detail the breakdown between the two.
Despite the massive transfer of debt, GE executives insist that the standalone healthcare company will continue to serve customers by delivering “precision health solutions.”
“The healthcare leadership team is excited by the prospect of being a standalone company under the GE brand,” said Murphy on Tuesday’s conference call with analysts. “This is a business with scale. We lead the industry with revenues of close to $20 billion, and we’re market leaders in the segments in which we play.”
Murphy noted that GE Healthcare has the “largest install base of imaging and ultrasound equipment in the world,” and its $5 billion services business and digital presence in imaging and monitoring “ensures that we have long-lasting relationships with our customers.”
Murphy contends that GE Healthcare’s operating margin profile is strong and expects opportunities to further improve financial results “as we embark on our new journey” to leverage artificial intelligence and machine learning technology.
“Through the use of AI and machine learning, we see a future where the combination of in vivo and in vitro diagnostic datasets can provide new insights on the underlying causes of disease,” Murphy added. “Since we’re the biggest generators of in vivo data in the world, we start on this journey from a position of strength. In imaging, we co-invest with our customers in these exciting new areas, and we have demonstrated already that we can improve workflows for radiologists and provide clinical decision support tools for doctors.”
Steve Holloway, principal analyst and company director at Signify Research, contends that given the fact that GE’s Healthcare division has for some time been self-sufficient from its corporate parent in terms of business operation and profit and loss in its core market segments, he expects the short-term impact of the restructuring on business will be limited.
“That said, mid- and long term research and development in areas such as big data analytics and industrial IoT, which have been part of cross-division investment, may suffer,” says Holloway. “If anything, it could push GE Healthcare to expand their partnerships in these areas, becoming a more open source than before. For one of the biggest healthcare technology firms globally, that’s no bad thing for the wider market or GE’s customers.”
While analysts agree that GE Healthcare is a market leader, some observers are concerned about the timeframe for the business unit’s separation from the parent company.
“GE is expecting a 12- to 18-month separation period, which is an aggressive period of time for a business of its size,” says Brad Haller, managing director in M&A practice at West Monroe. “The ability to unwind from a conglomerate of GE’s size generally takes 24-plus months due to shared people, process and technology, especially as many of the systems will need to go through extensive FDA validation protocols.”
In addition, GE has yet to close its previous healthcare sale. In April, the company announced the sale of its enterprise financial management business (including revenue cycle and Centricity Business); ambulatory care management line (Centricity Practice Solution) and workforce management line (formerly API Healthcare) to Veritas Capital, a private equity investment firm, in a deal valued at $1.05 billion. The deal is expected to close in the third-quarter.
GE earlier this month also shed its Caradigm data analytics and population health unit in a sale to Inspirata, a developer of cancer informatics and digital pathology solutions. Details of the acquisition terms were not released.
Bloomberg News contributed to this report.
The health business, which last year reported more than $19 billion in revenues and posted 5 percent revenue growth and 9 percent segment profit growth, provides medical imaging, monitoring, bio-manufacturing and cell therapy technology to hospitals as well as laboratory supplies to biotech firms.
Under the corporate restructuring, Kieran Murphy—president and CEO of GE Healthcare—will continue to lead the business unit once it becomes a separate entity.
“It’s encouraging to see that GE Healthcare will maintain its current leadership—that should reduce some of the uncertainty that comes with a change like this,” says Mitch Josephson, vice president for strategic relations at KLAS.
“Of the 24 GE products where KLAS collects provider feedback, 16 have scores either trending upwards or holding steady, and it will be interesting to see if that changes moving forward,” Josephson adds. “We’ve heard from some providers that healthcare has seemed under-prioritized by GE corporate. Giving their healthcare arm a top-down focus on the industry may help them drive deeper, more focused innovation for their customers.”
Based on the valuation of peer companies, the new entity could have an enterprise value, which includes debt, of between $65 billion and $70 billion, according to Karen Ubelhart, a Bloomberg Intelligence analyst. That would rank it among the biggest healthcare companies in the world.
Also See: GE Healthcare sells Caradigm product line to Inspirata
However, the move did raise some questions, such as how the standalone business will handle a significant amount of debt. GE said it will sell 20 percent of the health business and spin off the rest to its shareholders. The parent company will add $18 billion of debt and pension obligations to the healthcare spinoff, but has yet to detail the breakdown between the two.
Despite the massive transfer of debt, GE executives insist that the standalone healthcare company will continue to serve customers by delivering “precision health solutions.”
“The healthcare leadership team is excited by the prospect of being a standalone company under the GE brand,” said Murphy on Tuesday’s conference call with analysts. “This is a business with scale. We lead the industry with revenues of close to $20 billion, and we’re market leaders in the segments in which we play.”Murphy noted that GE Healthcare has the “largest install base of imaging and ultrasound equipment in the world,” and its $5 billion services business and digital presence in imaging and monitoring “ensures that we have long-lasting relationships with our customers.”
Murphy contends that GE Healthcare’s operating margin profile is strong and expects opportunities to further improve financial results “as we embark on our new journey” to leverage artificial intelligence and machine learning technology.
“Through the use of AI and machine learning, we see a future where the combination of in vivo and in vitro diagnostic datasets can provide new insights on the underlying causes of disease,” Murphy added. “Since we’re the biggest generators of in vivo data in the world, we start on this journey from a position of strength. In imaging, we co-invest with our customers in these exciting new areas, and we have demonstrated already that we can improve workflows for radiologists and provide clinical decision support tools for doctors.”
Steve Holloway, principal analyst and company director at Signify Research, contends that given the fact that GE’s Healthcare division has for some time been self-sufficient from its corporate parent in terms of business operation and profit and loss in its core market segments, he expects the short-term impact of the restructuring on business will be limited.
“That said, mid- and long term research and development in areas such as big data analytics and industrial IoT, which have been part of cross-division investment, may suffer,” says Holloway. “If anything, it could push GE Healthcare to expand their partnerships in these areas, becoming a more open source than before. For one of the biggest healthcare technology firms globally, that’s no bad thing for the wider market or GE’s customers.”
While analysts agree that GE Healthcare is a market leader, some observers are concerned about the timeframe for the business unit’s separation from the parent company.
“GE is expecting a 12- to 18-month separation period, which is an aggressive period of time for a business of its size,” says Brad Haller, managing director in M&A practice at West Monroe. “The ability to unwind from a conglomerate of GE’s size generally takes 24-plus months due to shared people, process and technology, especially as many of the systems will need to go through extensive FDA validation protocols.”
In addition, GE has yet to close its previous healthcare sale. In April, the company announced the sale of its enterprise financial management business (including revenue cycle and Centricity Business); ambulatory care management line (Centricity Practice Solution) and workforce management line (formerly API Healthcare) to Veritas Capital, a private equity investment firm, in a deal valued at $1.05 billion. The deal is expected to close in the third-quarter.
GE earlier this month also shed its Caradigm data analytics and population health unit in a sale to Inspirata, a developer of cancer informatics and digital pathology solutions. Details of the acquisition terms were not released.
Bloomberg News contributed to this report.
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