Word that General Electric (GE) could spin off some of its holdings into standalone entities is an interesting development to those following mergers and acquisitions, as the move is a sign of changing times. According to a November 2017 article from Forbes magazine, the “global industrial conglomerate” that’s worth $175 billion could possibly spin off its transportation and healthcare businesses into separate publicly traded companies. However, Forbes also cites media reports that say the company may instead sell off a portion of its transportation operations – which were just four percent of GE’s 2016 industrial revenue. To Todd Katz, Quest Integrity’s former chief financial officer (CFO), these moves are examples of how large conglomerates seek to create value when the sum of the parts is potentially greater than their value as a whole.
According to the article, GE could continue to build diesel-electric hybrid locomotives after the spin-off. It’s oversight role could also include advising the business, data analytical and repair, per the article, which adds that the “wide array” of GE-made products include aircraft engines, medical imagine tools as well as the more familiar household appliances sector. Another reason to possibly expect these spin-offs to take place is the recent shuffling of personnel. According to the article, GE appointed a new CEO in June 2017 and he revealed plans to “reduce expenses by $2 billion by 2018” while responding to investor concerns over profitability.
As Todd Katz, formerly of Quest Integrity, will tell you, spin-offs can be an excellent way to unlock shareholder value. As a former Director in healthcare mergers and acquisitions for Merrill Lynch, Katz worked to help corporate clients create value using a variety of strategic M&A structures. As a frequent leader of teams of investment bankers and attorneys, he oversaw many mergers and spin-offs. Earlier in Katz’s career, he also had an opportunity to work on the crisis management team that managed bankrupt cable company Adelphia Communications after it filed for Chapter 11 bankruptcy protection, in what was at the time one of the largest bankruptcies ever – valued at $18 billion.
Later during his three years with Merrill Lynch, Katz earned the title of Director and later joined Quest Integrity, an international pipeline inspection company as its CFO. At Quest Integrity, Katz was instrumental in transforming the company into a profitable and fast-growing niche energy services company. By the time of his departure in 2016, Quest Integrity has revenue of $75 million compared to the mere $14 million in 2008 when he first came aboard. Katz’s former experience as an M&A advisor — along with the efforts of the entire team at Quest – enabled Quest to sell itself for $45 million to a public company. In the process, Quest grew from roughly 50 employees to almost 300. Not bad for what was formerly a small mom & pop pipeline inspection company.