Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

General Electric is getting a lot more than $5.4 billion out of the sale of its appliances business.

That's how much China's Haier is paying to take the refrigerator and washing machine division off the industrial conglomerate's hands. It's certainly not chump change. In fact, the price tag is about $2 billion higher than what GE was set to get from Electrolux before antitrust pushback forced it to scuttle that deal last month. But the actual dollar value is less important than what this deal means for the transformation of GE.

Selling the appliances division was vital to CEO Jeff Immelt's dream of a new GE that's focused on its industrial core -- with an eye to the future. The once-steady-as-she-goes conglomerate has played the maverick of late: shedding the bulk of GE Capital, completing the $10 billion purchase of Alstom SA's energy assets, investing in digital operations, moving its headquarters to the more tech-friendly Boston and now, getting rid of the lower-margin appliances business. 

Busy Year
General Electric has occupied itself with a massive acquisition, a massive breakup and a massive transformation.
Source: Bloomberg

These changes will allow GE's best-in-class business of building everything from turbines to airplane parts to get more of the credit it deserves and make way for new efforts that are more exciting and profitable than refrigerators. To that end, the deal with Haier had a second part to it that didn't get as much attention amid the hype over the $5.4 billion price tag. GE and Haier also announced a long-term strategic partnership centered on health care, advanced manufacturing -- and most important, the so-called Industrial Internet.

GE's Industrial Internet business is focused on providing big data analytics that can help lower operating costs, improve performance and lengthen asset life in the equipment it sells. If everything from thermostats to speakers are becoming digitized, it's only logical that industrial machinery should follow suit. GE is well ahead of its industrial peers on this, and it has no intention of letting anyone catch up.

The newly minted digital division is set to report $5 billion of revenue for 2015, according to the company. That's a small slice of GE's overall sales, but more revenue than the likes of Adobe Systems or Cerner can claim and not that far off from what Salesforce.com will bring in for 2015. Just let that sink in for a second. GE has only been advertising itself as a digital company for a hot minute and already it's giving some of the bigger players a run for their money.

GE's Coming for You
The industrial company is already in the software big leagues.
Source: Bloomberg
Data shows projected revenue for the fiscal year ended Dec. 31, 2015, or in the case of Salesforce, Jan. 31, 2016. Adobe's 2015 fiscal year ended in November, and it has already reported results.

GE says it wants to make the digital unit a top 10 software company by 2020. It's already planning on making acquisitions to augment the Industrial Internet business as part of a $10 billion M&A budget over the next two to three years. The partnership with Haier -- in which the Chinese operator will help execute GE's Predix cloud-based platform -- along with the freedom to focus on digital sensors rather than old-school toaster ovens, helps push GE further toward that goal. 

Things haven't turned out so well for other would-be dealmakers that ran into regulatory trouble.  GE is lucky it got a sale of the appliances unit done at all -- especially so quickly after the showdown with the Justice Department over the Electrolux transaction. Comcast and Sprint are stuck in dealmaking limbo, waiting for a more lenient antitrust regime after bumping up against regulators in their pursuits of Time Warner Cable and T-Mobile, respectively. Sysco is focusing on placating activist investor Trian Fund Management after it lost a legal battle over its $8.2 billion purchase of US Foods. Staples and Office Depot are still fighting things out with regulators in court. 

Approval of GE's deal with Haier is no guarantee. Chinese buyers often draw extra scrutiny in the U.S., and Haier does have a small presence in the American appliances market. But the odds are much better for what is arguably a better deal. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net