Sweden-based Electrolux AB recently acquired General Electric’s (GE) home appliance business for $3.3 billion, its second attempt after the first failed in 2008.
IHS believes this is an excellent deal that will provide various advantages and synergies to Electrolux and GE as one company.
First, considering both companies have been in the business of manufacturing and marketing home appliances for more than a century, it is a great fit in terms of the profile of both of these companies, their culture, westernized style of management, financial capabilities, leveraging production and operational capabilities and future growth plans.
Second, GE brand complement Electrolux’s current product portfolio. While Electrolux, AEG and Zanussi are leading brands in the premium segment and Frigidaire in the medium/mass market, the acquisition of GE’s luxury brand Monogram and mass premium brands like Café and Profile would help Electrolux to widen its product offering further. More important, this deal also complements Electrolux’s established position within the residential/consumer segment of home appliance market with that of GE, which is the leader in the homebuilders market in the United States. The homebuilders market is considered to be the biggest growth driver for home appliance market. And to add further, Electrolux has obtained a long-term agreement to use GE’s brand names, which have a very high equity in the market.
Third, North America accounted for nearly 90 percent of GE’s appliance revenue. With the acquisition, Electrolux’s share of the home appliance business in North America is expected to increase to nearly 50 percent, up from 29 percent, based on GE’s revenues from North America in 2013. And the ace point is the inclusion of 48.4 percent stake in Mabe, a Mexican home appliance company with whom GE has had joint venture for the last 30 years.
This will at minimum add three more benefits for Electrolux. First, as home appliance market is getting price sensitive and with increasing competition from Asian player having competitive advantage in terms of producing low cost appliances, this deal will bring a cost-effective production opportunity for Electrolux in the low-cost Mexican market. Second, it will enable Electrolux to gain access and increase share in the growing Mexico market. And third, with the industry trending toward establishing regional production hubs closer to key addressable markets in every region as per IHS’ recent forecast, this will serve as a regional manufacturing hub serving the North American and European markets.
The fourth advantage to this deal is that it would place Electrolux head-on with the industry leader, Whirlpool, which has estimated revenues of $18.8 billion. Electrolux has lagged its Whirlpool in the United States in terms of market share, while being stronger in Europe.
The final advantage is purchasing power. Electrolux is expected to achieve cost savings of around $300 million, including savings occurring due to stronger purchasing power to negotiate with the suppliers now.
While Electrolux is expected to continue to grow through further acquisitions, possibly in Asia and Europe, with some expected within the technology platform, similar to Samsung’s acquisition of SmartThings, it would be interesting to understand Quirky’s position in this deal considering GE had made $30 million investment last November. And as mentioned in a previous IHS press release, GE had opened up thousands of patents to Quirky when the two companies formed a partnership last year to develop a line of smart-home devices, including an air conditioner controlled by smartphones.