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GE to Roll Out New IIoT Entity, Sell ServiceMax's Stake

General Electric Company’s GE business arm — GE Digital — recently entered into a definitive agreement to divest majority stake of its ServiceMax business to Silver Lake, for an undisclosed amount. The deal, anticipated to close by first-quarter 2019, is currently subject to regulatory approvals and customary closing conditions.

The company also recently announced its plan to roll-out a $1.2-billion wholly-owned independently operated Industrial Internet of Things (IIoT) company, in a bid to strengthen its Digital business. The plan is currently subject to regulatory approvals.

Agreement With Silver Lake

GE Digital will retain only 10% stake of ServiceMax and transfer its majority equity ownership to Silver Lake.

ServiceMax provides premium cloud-based software productivity tools for field-service technicians. These tools enhance the productivity of equipment-centric and complex service business operations for more than 400 corporate end-users across different industries. Since its buyout by GE Digital in 2016, ServiceMax has significantly expanded its market reach into new regions, strengthened Field Service Management capabilities and unveiled state-of-the-art offerings to new industries. Moreover, GE Digital and ServiceMax had inked a reselling agreement to guarantee deep integration of their technology offerings and provide services to joint customers.

Post the sale of majority equity ownership, ServiceMax and GE Digital will continue working together, and assist the operational and industrial asset management activities of the companies. The two companies will maintain the integration of ServiceMax’s field service management solution with GE Digital’s Predix Asset Performance Management suite.

ServiceMax will likely build strategic partnerships and accelerate overall growth initiatives, and fortify its dedicated field service management capability with the combination of Silver Lake. Additionally, Silver Lake will be financing the company’s new technological investments and its upcoming business expansion programs in high growth industries, such as manufacturing, construction and medical devices.

New IIoT Company

General Electric’s new wholly-owned IIoT company will commence its operations with annual software revenues of $1.2 billion and will be targeting the company’s existing worldwide industrial customer base. The company will have a new brand name, its own board of directors, and comprise an independent equity structure. Notably, the new entity will include GE Digital’s existing IIoT solutions (like Asset Performance Management, Historian, Automation, Operations Performance Management, Manufacturing Execution Systems and Predix), along with GE Power’s Digital and Grid Software Solutions businesses.

The IIoT market is taking baby steps but is predicted to enjoy remarkable growth in the upcoming years. Stellar demand for connected and smart products will likely spur demand for artificial intelligence and advance analytics over the long term. In sync with this trend, General Electric expects that the formation of the new IIoT company will significantly strengthen its digital business. The new entity will develop advanced solutions which enjoy high demand in the asset-intensive industries, like renewable, oil & gas, chemicals, aviation, mining and consumer packaged goods.

Our Take

General Electric is poised to grow on the back of stronger innovation, strategic restructuring moves, solid international presence and robust end-market sales. The company pulled off a positive average earnings surprise of 3.53% in the past four quarters.

However, over the past month, this Zacks Rank #5 (Strong Sell) stock has lost 11.9%, wider than the 6.2% decline recorded by the industry it belongs to.

 

Weakening Power business remains the key cause of concern for General Electric.

Stocks to Consider

Some better-ranked stocks in the same space are listed below:

Crane Co. CR carries a Zacks Rank #2 (Buy), currently. The company pulled off a positive average earnings surprise of 5.04% in the past four quarters. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Federal Signal Corporation FSS also holds a Zacks Rank of 2, at present. The company delivered a positive average earnings surprise of 21.18% in the trailing four quarters.

ITT Inc. ITT carries a Zacks Rank of 2. The company delivered a positive average earnings surprise of 5.72% in the trailing four quarters.

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