In a concerted effort to augment its presence in the oil and
General Electric Company
) recently inked a definitive agreement to acquire artificial
lift technology provider
Lufkin Industries Inc.
) for $3.3 billion. The transaction, expected to close in the
second half of 2013, would entail Lufkin shareholders to receive
$88.50 in cash for each share they hold.
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The acquisition will augment GE Oil & Gas' portfolio and
extend its global scale to better serve it customers than would
otherwise have been possible as a standalone company. The
transaction will enable GE Oil & Gas to expand its artificial
lift capabilities in all categories barring electric submersible
pumps, in which Lufkin currently does not operate. These include
rod lift, gas lift, plunger lift, hydraulic lift, progressive
cavity pumps and other state-of-the-art well automation and
production optimization controls and software.
Artificial lift technology is utilized in oil-producing wells to
bring hydrocarbons on the surface of reservoirs that do not have
sufficient pressure to lift the fluids. It is currently used in
about 94% of the 1 million oil-producing wells available globally
to improve efficiency at low operational costs. The artificial
lift technology has been the cynosure of advanced technologies
and drilling processes that are revolutionizing the oil and gas
industry in a world where demand for fossil fuels are increasing
in leaps and bounds. According to Spears & Associates, a
consulting firm catering to the global petroleum industry, the
worldwide artificial lift sector is slated to reach $13 billion
With a highly skilled workforce and world-class equipments,
Lufkin is well poised to capitalize on this segment. The
Texas-based company manufactures a wide array of industry-leading
artificial lift equipment and operates in over 40 countries
through 110 service centers and nine manufacturing facilities. In
addition, the company has three turbomachinery production
facilities and seven service centers to manufacture industrial
gears and engineered bearings for energy-related industrial
applications. The acquisition therefore brings on board unmatched
revenue-generating potential for GE Oil & Gas.
The purchase price equates to a multiple of 13.5x 2013 estimated
EBITDA (earnings before interest, taxes, depreciation and
amortization). In 2012, Lufkin reported record revenues of $1.3
billion, representing year-over-year growth of 37%, primarily
driven by a 47% rise in its artificial lift business. The
acquisition is further expected to reap synergistic benefits for
GE Oil & Gas and supplement its global platform of deep
service offerings and network of research labs, thereby
positioning it for significant top- and bottom-line growth.
Oil & Gas is the fastest-growing business segment of General
Electric. Serving over 100 million customers worldwide. General
Electric is one of the largest and the most diversified
technology and financial service corporations in the world, with
products and services ranging from aircraft engines, power
generation, water processing, and security technology to medical
imaging, business and consumer financing, media content and
Its segments include Power & Water, Oil & Gas, Energy
Management, Aviation, Healthcare, Transportation, Home &
Business Solutions, and GE Capital. GE Oil & Gas provides
highly developed technology equipment and services to onshore,
offshore and sub-sea oil & gas projects. Its portfolio of
turbomachinery equipment is used in mechanical-drive, compression
and power-generation applications such as liquefying natural gas,
moving hydrocarbons through pipelines or generating power via gas
turbines at a production or industrial site.
General Electric currently has a Zacks Rank #3 (Hold). Other
companies in the industry worth mentioning include
Honeywell International Inc.
), each carrying a Zacks Rank #2 (Buy).