General Electric has closed a deal to sell its European private equity finance unit, according to the latest reports. The Japanese company Sumimoto Mitsui Banking Corp. (SMBC) bought the unit for around $2.2 billion. The industrial conglomerate has now nearly completed its retreat from the global banking industry.
Set to Sell
The company has been looking to shed its financial operations, as it hopes to restructure and streamline its business operations. Tightened government regulations in the US led to the company restructure its business focus. As regulations have increased, GE has found it much harder to make hefty returns, while market conditions have also increased competition. This led to the company to announce in April that it hopes to exit from at least $200 billion worth of assets.
Since the announcement, the company has managed to sell around $23 billion worth of financial assets, including the private equity unit. Furthermore, the company sold its US private equity unit earlier to Canada’s biggest pension plan. The deal was valued at $12 billion.
According to Reuters, the company’s Japanese commercial finance operations are also part of the sale process. The news agency reported these could be worth $5 billion.
While announcing the private equity deal, GE also announced the sale of other assets, such as the sale of its fleet management arm in the US, Mexico, Australia and New Zealand. The deal is valued at $6.9 billion.
Good Deal for SMBC
GE’s European private equity unit has a portfolio of around $2.2 billion of invested capital. The unit is known as the sponsors unit and it finances buyouts and other such deals for PE firms across Europe.
According to Reuters’ sources, the private equity portfolio has much wider spread margins to corporate loans, which makes it an ideal target for the Japanese firm. SMBC is a unit of Japan’s third largest bank, Sumimoto Financial Group, (SMFG) and it has been trying to find ways to diversify its operations in the competitive corporate lending sector.
Many other companies noted the lucrative opportunity as well. According to Nasdaq, the Japanese company was able to beat competition from other bidders such as the private equity firms Apollo Global Management and Ares Management.
The deal is therefore expected to be beneficial for both companies. SMFG has done a number of similar big deals in recent years. Earlier this year it bought the US and Canadian loan portfolio part of RBS. The deal stood at $3 billion.
Furthermore, the Japanese company has experience of the European leveraged-finance industry. SMBC entered the industry in 1997 and its unit currently has nearly $1.9 billion of outstanding commitments, according to the Wall Street Journal.
For GE, the sale of the private equity unit was an important milestone. According to Irish Times, GE Capital’s chief executive officer, Keith Sherin, has said the European PE unit, together with the US division and the healthcare unit have been the top units to shed off.
The deal is expected to close during the third quarter of 2015 and it will be subject to regulatory approval.