General Electric (NYSE: GE) has announced plans to expand its oil and gas business by acquiring Lufkin Industries (LUFK) in a $3.3 billion deal that boost its market share for oil and gas equipment and strengthen its turbo-machinery supply chain.
GE announced last week that it would acquire Lufkin, whose primary business is providing artificial lift technology used in almost all oil wells worldwide, and whose secondary business is industrial gears and bearings used in energy applications.
The acquisition significantly boosts GE’s oil and gas portfolio, which was worth $15.2 billion of its total $147 billion in revenues for 2012. Over the past three years, GE’s oil and gas segment has realized annual growth of 16% due to an ambitious acquisition drive. (Related article: GE to Buy Oil Pump Makers Lufkin for $2.98 Billion)
For Lufkin, we’re looking at $1.3 billion in revenues last year, up 37% from the previous year. The $3.3 billion acquisition price tag on Lufkin represents about 13 times its 2013 estimated earnings before interest, taxes, depreciation and amortization, according to Forbes.
It will be pointed out that the purchase price for Lufkin represents only 1.25% of GE’s market cap, and therefore isn’t likely to have a huge impact on GE’s earnings overall. But we’re concerned here more with GE’s ongoing and longer-term strategy, which demonstrates a voracious appetite for oil and gas equipment diversity and a solid path towards increased market share.