INDUSTRY SPOTLIGHT
GE, Johnson & Johnson, Philips, Siemens: Restructurings = Accelerating Focus and Investment
By Greg Benning and Susmita Roy, with Jonathan P. Gertler, MD
Boston-based General Electric recently announced it will split into three separate companies, focusing on healthcare, aviation and energy. GE Healthcare, in turn, will focus on precision healthcare, completing its spin-out in early 2023.
With these steps, GE joins other large conglomerate restructurings, including, Siemens, Johnson & Johnson and Philips, who have each completed or announced spinoffs, restructurings and strategic re-focusing. While GE’s aviation and energy businesses are gems, a healthcare investor looking to put $100M into a precision medicine investment doesn’t necessarily have the time, expertise or interest in understanding those industries, so a decision to buy GE stock today versus another more focused opportunity arguably goes in the other direction enough to create the valuation discount GE is now trying to address.
Valuing an asset like GE Healthcare is complicated, but estimates of 3x revenues would put it at roughly $60B—versus GE’s current market cap of $102B. Beyond this, depending on the growth, acquisition and expansion strategy of GE Healthcare, there is also a meaningful opportunity to improve this multiple.
From Back Bay’s perspective, this “large-cap” re-focusing is an upstream continuation of both accelerating innovation investment in biotechnology, medical devices and healthcare IT, as well as continued specialization and focus within large-cap equity investment.
Strategically, these restructurings have multiple implications for the healthcare space, including the attraction of new investment capital to GE Healthcare’s stock, but also more broadly to the sectors where they have strategic focus and partnering/acquisition interest. The growth potential in GE Healthcare’s core businesses of imaging, diagnostics, critical care equipment, imaging agents etc. will be meaningful drivers of enhanced value for the newly spun GE Healthcare. Significant innovation and investment in these same areas by many younger and smaller companies will also provide numerous acquisition opportunities for GE Healthcare and others.
In 2020, healthcare expenditures in the US alone were $4.5 trillion, and the global medtech market is projected to exceed $600B by 2023. This unsustainable growth in cost and economic burden opens the market to meaningful solutions that create greater efficiencies, higher quality and lower costs. This sector in which GE Healthcare is now firmly implanted further improves access and outcomes on a global level for disparate healthcare delivery systems.
The spinoff of GE Healthcare into an independent company is both strategically sound and creates the opportunity for investors to have a consolidated and focused opportunity to invest across critical medtech sectors embedded in one company. Although biotechnology often gets the bulk of press for innovation in this peri-pandemic era, the fundamental contribution of the medtech and healthtech sector is amply demonstrated by this exciting re-focusing of a healthcare giant.