General Electric Co. said Tuesday it will spend $3.2 billion for a 90 percent stake in French equipment developer Converteam as it continues to position itself as a major player in what's expected to be a 20-year boom in oil and natural gas demand.
Converteam, which serves a variety of industries, including oil and gas companies, is the latest of $11 billion in acquisitions by GE's energy business. GE also has acquired Dresser Inc., Wellstream Holdings, Lineage Power Holdings and Well Support in the past six months.
GE Energy CEO John Krenicki said the Fairfield, Conn., industrial giant wants to take advantage of a rebound in petroleum drilling and natural gas exploration. Demand for natural gas, which emits less carbon dioxide than other fossil fuels, is expected to climb in coming years.
The Energy Information Administration said natural gas consumption should grow by 44 percent from 2007 to 2035 to 156 trillion cubic feet. Oil consumption is expected to rise by 28 percent in that same period to 111 million barrels per day.
"People are going to use gas," Krenicki said. "We anticipate that. We want to be positioned on that."
Oil and gas companies have ramped up efforts to find new fields during the past few years. Crude oil, which has jumped 32 percent in price since October, has become increasingly attractive for drillers. And recent technical advances in onshore drilling have enabled companies to tap vast underground shale gas deposits that were previously tough to reach.
Converteam, based in Massy, France, designs high-efficiency systems that reduce energy consumption and greenhouse gas emissions. Besides oil and gas companies, it serves a variety of other energy industries, including power generation, wind and solar energy. GE officials said the company's expertise will be particularly useful in high-growth markets in Brazil, Russia, China, India and the Middle East.
Converteam employs 5,300 people and operates in 80 countries. It posted pretax earnings of $239 million in 2010.
Morningstar Inc. analyst Daniel Holland said it makes sense that GE would beef up its energy business after agreeing to sell its stake in NBC Universal for $6.5 billion. The move bolsters an area that's firmly rooted in the company's tradition, he said, and it's a safe bet that energy demand, and the need for more efficiency, will grow in the future.
Holland said the only drawback is that GE now seems to be pressing into new territory with the acquisition of Converteam, and increased competition from companies like Siemens could make the venture less profitable than expected, at least initially.
"The deal looks a little expensive to me," Holland said. "The payback might be a little down the road."
GE said its energy business will purchase the stake from a controlling group of shareholders that includes Barclays Private Equity and LBO France. The deal is expected to close during the third quarter.
GE plans to buy the remaining 10 percent from Converteam's senior management during the next two to five years for an amount that will depend on factors such as the time of sale and business performance.
GE said it doesn't expect to pay more than $480 million for that remaining stake.
GE shares rose 11 cents Tuesday to $19.86.