GE agrees to sell healthcare business to Capital One for $9bn
October 2015 | DEALFRONT | MERGERS & ACQUISITIONS
Financier Worldwide Magazine
General Electric Co. (GE) announced that it reached an agreement to sell the healthcare financial services (HFS) of GE Capital, its US lending business, to Capital One for approximately $9bn.
GE Capital’s HFS provides financing to US healthcare companies, sponsors, investors and developers across various healthcare sectors including senior housing, hospitals, medical offices, outpatient services, pharmaceuticals and medical devices.
The disposition of these assets is part of a new GE strategy to focus on its high-value industrial businesses and create a simpler, more valuable industrial company – a decision ultimately determined by favourable market conditions.
When completed, the transaction, which represents about $8.4bn of ending net investment (ENI), will contribute approximately $1.5bn of capital to the overall target of approximately $35bn of dividends expected to GE under this plan, subject to regulatory approval. GE is on track to reduce total ENI at GE Capital by about $100bn by year end. With this transaction, the total for announced sales is approximately $78bn.
Although Capital One does not expect the acquisition of GE Capital’s HFS to impact its approved capital distribution plans in 2015, the company does expect the acquisition to provide a strong platform for future growth and returns.
“This is a strategic investment in a specialty industry segment that we have been building out for the past several years,” said Michael Slocum, president of Capital One’s Commercial Bank. “This addition will catapult us to a leading market position in providing financial services to the healthcare sector. The GE Capital, Healthcare Financial Services team shares our commitment to providing value-added advice and creative financing solutions to the healthcare industry. Together we will deliver a powerful combination of industry-leading expertise and expanded capabilities to our clients.”
Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels.
As a consequence of the sale, Darren Alcus, president and CEO of GE Capital, will join Capital One in a similar capacity. Furthermore, Capital One will also retain GE Capital’s HFS management team and employees.
“This transaction is another example of the value generated by GE Capital’s strong businesses and exceptional teams as we continue to demonstrate speed and execute on our strategy to sell most of the assets of GE Capital,” said Keith Sherin, GE Capital chairman and CEO. “We are on track to reduce our ENI by $100bn by the end of 2015 and expect to be substantially done with our exit strategy by the end of 2016.
“We’re pleased to sell the HFS of GE Capital to a company that is committed to expanding the business. Our customers, sponsors and employees will benefit from the synergies of combining Capital One’s existing healthcare lending businesses with the expertise, relationships and experience of our highly-regarded HFS team.”
However, under the terms of the sale, GE Capital will retain the financing ‘verticals’ that relate to GE’s industrial businesses, including a unit that provides healthcare equipment financing to GE Healthcare customers and others.
Expected to close in the fourth quarter of 2015, the transaction is subject to customary regulatory and other approvals. Citigroup Global Markets Inc. and J.P. Morgan Securities LLC provided financial advice to GE and Hogan Lovells US LLP provided legal advice. Credit Suisse and Wells Fargo Securities acted as exclusive financial advisers to Capital One, and Wachtell, Lipton, Rosen & Katz acted as legal adviser.
Looking forward to the new-look GE, Mr Sherin concluded: “This announcement is the next step in GE’s transformation to a more focused industrial company.”
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