GE Deepens Silicon Valley Push With $915 Million Cloud Deal

(Bloomberg) -- General Electric Co. agreed to buy ServiceMax, a cloud-based software company, for $915 million to expand its digital operations and enhance equipment maintenance.

The deal will help GE automate and digitize the servicing of heavy-duty machinery, the Boston-based company said Monday in a statement. GE expects the acquisition to close in January.

“It’s no secret our services revenue is the bulk of our earnings and is a key part of what makes us successful,” Bill Ruh, chief executive officer of GE Digital, said in an interview. “We’re moving away from where it’s all on paper to where it’s all becoming fully automated. Services are becoming a key part of the digital economy.”

GE is investing in software operations and attempting to position itself as a “digital industrial” company that makes equipment outfitted with sensors to improve productivity. CEO Jeffrey Immelt has sold off most finance and consumer businesses while focusing on industries such as energy and aviation.

GE Digital, established last year and based on the outskirts of Silicon Valley, may become a $15 billion business by 2020, the company has said. GE has developed an operating system called Predix to help run industrial equipment more reliably and efficiently.

“The addition of ServiceMax better positions GE Digital to accelerate the commercialization of Predix applications by combining GE’s industrial portfolio and domain expertise with ServiceMax’s field service expertise,” Deane Dray, an analyst at RBC Capital Markets, said in a note.

Siemens Deal

German rival Siemens AG also has been expanding its digital presence. The engineering company on Monday agreed to buy U.S. software maker Mentor Graphics Corp. for $4.5 billion.

ServiceMax provides field-service management software to remotely track equipment maintenance, create work orders and manage repair schedules. The Pleasanton, California-based company had raised more than $200 million from investors including GE’s venture arm.

GE considered developing its own ability to automate and digitize servicing, but opted to buy ServiceMax after using its products over the last two years, Ruh said. Industrial servicing, including maintenance and upgrades of previously sold equipment, could be a $1 trillion global market over the next 10 years, and digitizing the process could account for a significant percentage of that, Ruh said.

“This is a large opportunity,” he said.

Shopping Spree

The acquisition of ServiceMax extends a recent shopping spree for GE, including a tie-up between the oil division and Baker Hughes Inc., deals in the 3-D printer market and the purchase of a maker of wind-turbine blades.

ServiceMax also complements other moves GE has made to fill out its digital business, Ruh said. The company in September paid $495 million for Meridium Inc., a software developer focused on asset performance management, or the monitoring of equipment.

GE will continue to look for “tuck-in” acquisitions for the digital business, he said. “These things fit together as a string of pearls.”

Morgan Stanley was the financial adviser for ServiceMax and Gundersen Dettmer LLP served as legal counsel, according to the statement. King & Spalding LLP was legal counsel for GE Digital.

To contact the reporter on this story: Richard Clough in New York at rclough9@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Bruce Rule, Tony Robinson