General Electric (GE) has spent $11 billion in the past six months buying up companies that will strengthen its energy sector -- a business unit that has become an increasingly important revenue driver. But its latest acquisition -- $3.2 billion for a 90 percent share of Converteam -- will help it tap what GE Energy CEO John Krenicki calls a global 'mega-trend' in energy.
About 25 percent of the world's electricity is used to turn rotating machines used in industrial and power generating applications, according to GE. And an entire industry -- valued at about $30 billion last year -- has grown up around finding new ways to use electricity to make industrial processes more efficient.
Enter Converteam. The company's specialty is high-efficiency electric power-conversion components -- stuff like automation controls, generators and motors and are used in industries like offshore and onshore oil and gas; renewable energy; and power generation, all sectors GE just so happens to be heavily vested in.
In short, Converteam's components will make GE's products more efficient and reliable, which should help it save energy and reduce costs. Converteam's technology also will benefit GE's wind turbine and solar businesses. For example, Converteam's tech can take the direct current generated by solar panels and turn it into the alternating current needed by the power grid.
GE is hardly the only company jockeying for a position in the electrification (or power conversion) market. Earlier this month, Schneider Electric spent $268 million to buy Summit Energy, an energy management company. Other major industrial efficiency players include ABB and Siemens. Nor is Converteam's tech the only solution out there. Companies have taken a variety of paths including recycling waste heat into electricity; reducing the number of AC/DC (electrical current) conversions or making industrial equipment more efficient, Greentech Media noted. Even GE is seeking multiple angles. GE bought in March Lineage Power, a company that makes efficient power conversion equipment.
Despite all the competition, the acquisition makes sense for GE because it can be integrated into all of its other energy-related businesses. There's good reason GE is so focused on improving its energy sector, both clean and fossil fuel based. GE Energy generated $37.5 billion in revenues last year and $7.2 billion in profits, more than one-third of GE's segment profit take.
Photo from Flickr user tripp, CC 2.0