In General Electric's (GE) quest to expand its industrial operations through bolt-on acquisitions, it looks like health care could be the next frontier.
On Friday, the Fairfield, Conn.-based manufacturer announced it has signed a two-year partnership with Uppsala BIO -- a nonprofit foundation associated with the eponymous university -- to search for new equipment and technology to expand GE's Life Sciences division.
Of GE's health care businesses, which raked in $4.2 billion in the firs quarter, up 3% year over year, its Life Sciences unit pulled in about a quarter of total sales. (GE stock is held in Jim Cramer's Action Alerts PLUS charitable trust.)
"Although we are a large, international company, it is rare that we form this type of active technology scouting partnerships," Jonas Åström, GE's department head of strategic technologies for GE Life Sciences.
The search to expand GE's industrial segments through acquisitions is part of CEO Jeff Immelt's broader strategy to return GE to its industrial roots while winding down GE Capital, its longtime lending arm that was largely responsible for the manufacturer's involvement in the 2008-09 financial crisis and comparatively stagnant recovery relative to peers such as Honeywell (HON) and United Technologies (UTX).
"The role of Uppsala BIO is to find researchers or smaller companies that need the support that an international company of GE's caliber has," Uppsala BIO's managing director Erik Forsberg said in a statement.."We have worked with the sector for nearly 15 years and want to find new ways, so that there would be more life science companies that can establish themselves, grow and take their products to the market."
GE's health care businesses comprised more than 10% of the company's $117 billion in total revenue last year, but reversing the trend of the segment's tightening profit margins has become a top priority in reshaping GE's image, according to John Flannery, CEO of GE's health care division, which booked $18 billion in sales last year and a $2.9 billion operating profit.
"The core issue is that we've not grown the operating profit and the operating margin of the business for a number of years," he said in a March presentation to investors. "There have been macro factors in the industry, at various points of time in the last five years. There were government funding issues really rippling out of the end of the financial crisis. The Affordable Care Act knocked the U.S. off its axis for a little bit," he added, noting GE could boost margins to 18% by 2018 from 16.3% last year.