U.S. buyout group Advent agreed to buy General Electric's distributed power unit for $3.25 billion, the companies said on Monday, marking GE's exit from a growing segment of the power business.
GE had put the unit, which makes Jenbacher and Waukesha brand reciprocating gas engines, up for sale as part of a three-year plan to exit about $20 billion in industrial assets. GE hopes to book as much as $10 billion in such proceeds this year.
The sale, expected to close in the fourth quarter, highlights the growing demand for reciprocating engines by utilities, which pair them with wind and solar generators. Because the engines start quickly, they can fill in when wind and sun falter and then be shut off when not needed, conserving fuel. Large power turbines cannot start as quickly and so must be kept spinning at partial power even when wind or solar electricity supplies are ample.
"Distributed Power is a terrific asset," said Ranjan Sen, managing partner at Advent International. "The business has significant growth potential on a global scale and talented employees all over the world."
Advent plans to "invest substantially" in critical areas such as the product portfolio, service network and digitization, he said, to build up the company's market position.
Advent prevailed against engine maker Cummins in the final stages of the auction. Engine makers Kohler and Wartsila and investor KKR, had dropped out earlier, people close to the matter said.
The sale announcement did not have much effect on GE's stock, but "checks the box on another divestiture-simplification action by (GE) CEO John Flannery," said RBC Capital Markets analyst Deane Dray.
GE's stock was down 1.5 percent at $12.85 in mid-day trading in New York, in line with the broader market.
Advent's purchase values the unit at about 11.2 times 2018 earnings before interest, tax, depreciation and amortization of just below $290 million, said a person close to the matter. Last year it posted revenue of $1.3 billion.
Faced with weak profits and calls to be broken up, GE is aggressively cutting costs, selling units and strengthening its balance sheet under a new board and managers.
Selling the industrial gas engine business is expected to help streamline GE's $35 billion-a-year power division, whose profit plunged last year as sales of power plants and services fell sharply.
Jenbacher and Waukesha engines range from 100 kilowatts to 10 megawatts. One of GE's key customers is the German port city of Kiel, which is using 20 Jenbacher engines to create a 190 megawatt plant, replacing a coal-fired plant opened in 1970, GE said.
The engines will supply heat and electricity to homes and buildings, with power supplemented by nearby wind turbines, GE said. The last of the Jenbachers was delivered in March and the old coal plant is due to shut down next year, GE said.
Finland's Wartsila, which makes similar engines, dropped out of talks for the unit several weeks ago, as it did not see enough synergies to allow it to pay the mooted price of as much as $3.5 billion, according to a source with knowledge of the discussions.