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The real winners from GE’s two-decade-long decline

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Investment bankers take the GE gravy train to the end of the line

General Electric has faced ups and plenty of downs throughout its decades as America’s best-known conglomerate, culminating in its decision to split into three companies this week.

But despite years of turmoil and a plunging share price, things have always been rosy for one constituency working with the company: its investment bankers.

General Electric logo on Wall Street
GE spent $2.3bn on mergers and acquisition advice alone as it built a sprawling empire through hundreds of deals © FT montage; Bloomberg

Since the start of the century, they’ve enjoyed $7.2bn in fees — the most from any US company — as the industrial behemoth frantically bought and sold hundreds of assets and raised billions of dollars worth of debt.

Eagerly pursuing acquisitions, GE spent $2.3bn on M&A advice alone as it built a sprawling empire spanning jet engines to refrigerators. Further cheques for Wall Street came through GE’s $3.3bn spending on fees related to bonds, according to Refinitiv data, and its $800m and $792m laid out on loan and equity fees, respectively.

The top four banks to the conglomerate — JPMorgan, Morgan Stanley, Citi and Goldman Sachs — each reaped more than $700m since 2000.

Bar chart of Fees paid since 2000 by product ($m) showing GE’s top 10 banks netted huge fees

Critics claim the hefty fees show how bankers care more about finalising lucrative deals than acting in the best interests of their clients, who perhaps shouldn’t buy so many companies in so many different sectors.

Yet bankers don’t do deals. Ultimately, the chief executive and company’s board pull the trigger. GE entered the 21st century with a triple-A rated balance sheet that was the envy of corporate America. It proved a curse, allowing chief executives like Jeff Immelt to waste tens of billions of dollars on M&A and build an unwieldy empire.

As the 2008 financial crisis exposed the financial risks that GE took on with its high credit rating, a black hole of insurance and financial-related losses continues to plague the conglomerate. Meanwhile, its divestitures like the sale of its stake in television company NBCUniversal to Comcast in 2013 for $16.7bn didn’t create value. That capital was recycled foolishly in costly deals in the energy and power industries.

The disposals ultimately did little to resurrect GE’s declining value, which has plunged 75 per cent since 2000.

Aside from GE’s bankers, its rivals have also enjoyed the company’s unwinding.

Roland Busch, chief executive of Siemens, claimed this week his company is “years ahead” of GE after the German conglomerate sold its large energy and health divisions and spun off smaller units in recent years.

Joe Kaeser, who used to run the German company, took to Twitter to laud Siemens’ break-up and poke Larry Culp — “I was fortunate, our Board @Siemens trusted us to get ahead of the curve”.

The two groups have long been bitter rivals, with GE accusing Siemens earlier this year of stealing trade secrets and using them to win contracts.

Meanwhile, the fee bonanza for GE’s bankers is not over yet. The company is planning a $23bn bond buyback as part of efforts to cut its debt pile. Cue the champagne showers on Wall Street.

Paging private equity

The leveraged buyout follows a tried and true procedure: strip out costs, pump up leverage, and sever the limbs that no longer serve a purpose.

Private equity firms are increasingly taking the scalpel to the healthcare field, where a surplus of dry powder and increased projections on healthcare spending have created fertile ground for dealmaking. Annual private equity healthcare deals have surged from an estimated $42bn in 2010 to $120bn in 2019, before retreating to $96bn in 2020.

Column chart of Deal value by year ($bn) showing Private equity's healthcare binge

Groups including KKR and Blackstone have made lucrative plays in emergency care, where staff shortages run rampant, buying up staffing companies that hire doctors, then deploying them across multiple hospitals.

But critics within the healthcare system and in Washington say the slash-and-burn methods of private equity-owned physician staffing groups are putting patients at risk.

“There are fewer doctors on shift, fewer hours, pay cuts and benefit losses. All of this affects the safety of the patient,” Robert McNamara, head of the emergency medicine department at Philadelphia’s Temple University Hospital, told the FT’s Kiran Stacey.

The strategy can be highly lucrative for buyout firms, which take a share of the insurance or patient payment, which one doctor said can reach as high as 50 per cent.

Some doctors have begun pushing for more research into the fledgling emergency physician contracting industry, currently dominated by KKR’s Envision Healthcare and Blackstone’s TeamHealth, to determine whether the private equity-backed groups are helping — or hurting — the staffing shortages they were created to dismantle. Whatever the findings, private equity’s hospital residency has just begun.

“I don’t think that’s going away,” CVC’s head of healthcare Cathrin Petty told DD’s Kaye Wiggins of the healthcare labour shortage earlier this week during the FT Global Dealmaking Summit, adding that it is “going to drive more and more technology solutions coming into the industry”.

Taylor Swift serves private equity with a break-up anthem

“We are never ever, ever getting back together” — the Taylor Swift lyrics rumoured to have been written for a former Hollywood flame almost a decade ago have returned with a vengeance.

This time they’re a message for her estranged private equity overlords. The song, part of Swift’s 2012 album Red, is being meticulously re-recorded along with the rest of her musical catalogue in her latest gambit against Shamrock, a Los Angeles investment fund that owns the rights to her life’s work.

But the firm made a critical mis-step when it acquired old masters for $300m, the FT’s Anna Nicolaou writes: the star’s determination for revenge.

Taylor Swift
One of the most commercially successful artists of the past decade, Taylor Swift is painstakingly creating a copy of each of her first six albums © AP

To recap: Shamrock purchased the rights to Swift’s music from Big Machine, the Nashville music label acquired by the music mogul Scooter Braun and backed by the private equity giant Carlyle.

Braun, eager to rid himself of the catalogue following a years-long feud with the singer, had managed to convince Shamrock that Swift wouldn’t follow through on her threats to re-record her tracks from scratch.

As millions of frenzied fans on TikTok can attest, that wasn’t the case. The new recordings, backed by her powerful record label Universal, will face off against Shamrock’s tracks on audio streaming platforms.

It’s not clear if Red (Taylor’s Version) and the albums to follow will affect Shamrock’s $300m investment, which includes an earnout payable to Braun and Carlyle if the asset hits certain targets.

Swift boasts the French media billionaire Vincent Bolloré in her corner, who has remained a major shareholder of Universal following its initial public offering and happens to be a master on the corporate battlefield.

Job moves

  • The British venture capitalist Ian Osborne has brought in Nextdoor co-founder Nirav Tolia as executive chair of his investment group Hedosophia as it prepares for a fresh push into the US tech market next year.

  • Apollo has named Toby Myerson as a senior adviser in Japan. He was previously chair and chief executive of Longsight Strategic Advisors, and before that, helped to build the Japan practice at Paul, Weiss.

  • The hedge fund AQR Capital Management is removing five partners from its ranks and trimming its bond arm, continuing to retrench operations after several lean years for many systematic trading strategies.

  • Robert MacLeod is stepping down as chief executive of the UK chemicals group Johnson Matthey. He will be succeeded by Liam Condon, who is departing his role as president of Bayer’s crop science division.

  • Neil Evans is rejoining Clifford Chance as a private equity partner, based in London. He originally practised at the firm before moving to Simpson Thacher Bartlett, and then Mayer Brown.

  • The law firm Covington & Burling has named Taisuke Kimoto as a co-head of its Japan initiative and a partner in its corporate group, based in Los Angeles. He was previously a partner at Pillsbury Winthrop Shaw Pittman.

Smart reads

Lost in translation A Chinese meat company’s $4.7bn takeover of a Virginia-based pork producer was supposed to be the highlight of former slaughterhouse manager-turned dealmaker Wan Long. Instead, the deal has estranged him from his eldest son. (Wall Street Journal)

Greenwashing in Glasgow The COP26 summit was swarming with executives eager to push their companies’ climate policies. But critics say the pledges are too vague to foster real change, and argue that it’s the bankers who hold the power. (FT)

Off the grid The cryptocurrency trading platform Binance has become the world’s fastest growing financial exchange. Yet it has no headquarters, offices or licences to operate for the countries in which it operates. Regulators are looking to change that. (WSJ)

News round-up 

Wall Street is offering eight-figure pay packages to woo top talent (Bloomberg)

Ozy Media faces federal investigations (New York Times)

Icahn threatens legal action as Southwest Gas spat intensifies (BBG)

Sika/MBCC: speciality chemicals groups are sticking together (Lex)

Swedish oil executives charged with complicity in Sudan war crimes (FT)

UK rejects plans to build Tulip tower in the City of London (FT)

Bond ructions intensify risk of ‘downward spiral’ for Chinese property groups (FT)

26-year-old CEO takes his autonomous truck company public in $5bn deal (BBG)

Japan refiner Eneos, Goldman to launch tender offer in $4.2bn Nippo deal (FT)

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