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GE Digital Buys ServiceMax to Augment Industrial Internet

DHR GE MIC AOS

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GE Digital, one of the operating units of industrial goods manufacturer General Electric Company (GE - Free Report) , recently acquired ServiceMax, a premier cloud-based field service management solutions provider. The buyout will enable General Electric to automate and digitize the servicing of heavy-duty machinery as it aims to focus on core manufacturing businesses with a digital edge.

The transaction – worth $915 million – is expected to be completed by January, subject to the fulfillment of mandatory closing conditions and regulatory approvals.

The Acquiree

Based in Pleasanton, CA, ServiceMax offers end-to-end service to over 20 billion people across the globe for installation, maintenance, and repair of machines in varied industries. The company is one of the leading providers of field service management software, which reportedly has a $25 billion market worldwide.

With a full suite of applications – including inventory and parts logistics, scheduling and workforce optimization, and work order management – ServiceMax ensures smooth workflow through uninterrupted business operations. The connected field software of the company helps its customers to remotely keep track of equipment maintenance and schedule workforce optimization via mobile and cloud computing platforms. This in turn enables customers to improve efficiency, access untapped innovation, and unleash new revenue streams.

Transaction Rationale

The acquisition of ServiceMax is likely to accelerate the commercialization of the Predix software of General Electric. Predix is designed to add intelligence to the Internet of Things applications. It helps companies to connect their machines, data and people and run industrial-scale analytics. The combination of machine connectivity with a data lifecycle management platform powered by engineering simulation will help diverse firms to design their products for the Industrial Internet in the best way possible.

In addition to ServiceMax’s complementary capabilities and rich human capital, the transaction will augment GE Digital’s customer base. This would facilitate the acquirer to deliver its services across diversified industries through a single platform as well as provide critical expertise and technologies needed to accelerate GE Digital’s existing services solution roadmaps.

On the other hand, ServiceMax will gain access to General Electric’s rich domain expertise, broad and extensive industrial portfolio, and wide customer base to better serve its existing customers. The industrial servicing market is expected to be worth $1 trillion over the next decade with improved productivity and digitization of field services. Consequently, the transaction is likely to be a win-win for both the participating companies.

Moving Forward

General Electric has been selectively acquiring assets to boost its Industrial Internet vision. In September, GE Digital acquired Meridium, Inc., a global leader in asset performance management software and services for asset-intensive industries. Meridium combines real-time analytics with reliability-centered maintenance services to offer an integrated APM solution for its clients. The acquisition will facilitate GE Digital to augment its comprehensive APM offering by leveraging Meridium’s expertise in cognitive analytics, reliability-centered maintenance, operational risk management and asset health as well as intelligent asset strategies.

We continue to be optimistic about the strategic acquisitions of this Zacks Rank #4 (Sell) stock. Some better-ranked stocks in the industry include Macquarie Infrastructure Corporation (MIC - Free Report) , AO Smith Corp. (AOS - Free Report) and Danaher Corp. (DHR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Macquarie Infrastructure is currently trading at a forward P/E of 66.4x and has beaten estimates twice in the trailing four quarters for an average earnings surprise of 29.6%.

AO Smith has a long-term earnings growth expectation of 10.7% and is currently trading at a forward P/E of 26.2x.

Danaher has long-term earnings growth expectation of 11.8% and is currently trading at a forward P/E of 22.6x.

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