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GE Completes ServiceMax Buyout, Boosts Industrial Internet


GE Digital, one of the operating units of industrial goods manufacturer General Electric Company GE, recently completed the acquisition of ServiceMax, a premier cloud-based field service management solutions provider, for $915 million. The transaction 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.

ServiceMax Attributes

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.

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 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 Payoffs

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 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 a win-win deal for both the companies.

Moving Forward

General Electric has been selectively acquiring assets to boost its Industrial Internet vision. Such opportune transactions are likely to improve the top line of the company as it lagged the Zacks categorized Diversified Operations industry in the last three months with an average return of 8.6% compared with 9.3% for the latter.

We remain bullish on the strategic acquisitions of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include Lydall, Inc. LDL, AO Smith Corp. AOS and ABB Ltd. ABB, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lydall is currently trading at a forward P/E of 20.0x.

AO Smith has a long-term earnings growth expectation of 10.7% and has beaten estimates in all the trailing four quarters for an average earnings surprise of 5.9%.

ABB has long-term earnings growth expectation of 7.6% and has beaten estimates in all the trailing four quarters for an average earnings surprise of 23.5%.

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