General Electric Co. will sell its business-to-business e-commerce company GE Global Exchange Services (GXS) to the technology buyout firm Francisco Partners in a deal announced Monday worth US$800 million.
Francisco Partners announced that the boards of both companies have approved the deal, which will close by October. GE will retain a 10 percent ownership stake in GXS, which is based in Gaithersburg, Md.
Gary Reiner, senior vice president and CIO at GE, said that while GXS has grown to be a successful company, it "does not fit GE's core services and growth strategies."
Harvey Seegers, current president and CEO of GE GXS, will continue to lead the company, which will become part of the portfolio of technology businesses owned by Francisco Partners. GE GXS operates one of the largest business-to-business e-commerce networks in the world, with more than 100,000 trading partners.
GE's decision to sell GXS is likely rooted in the company's reliance on revenue from EDI, which is losing ground to Internet trading technologies, according to analysts.
"If you are an EDI company ... you face the reality that your customer base is looking at new technologies based on the Internet," said Richard Villars, vice president of internet research at IDC. "You're going to have to make adjustments in your own technology...build up partnerships with companies like SAP and IBM that are defining the technologies behind this. There's a lot of opportunity for the company that can put together the installed base and the commitment to the technologies."
David Dobrin, president of B2B Analysts in Cambridge, Mass., said GXS struggled to make the company highly profitable or market dominating because of its reliance on aging technology.
"They were running a value-added network on old technology, and it was very expensive to run and bill and maintain," Dobrin said. "Everybody was locked in, but they couldn't transform it to better technologies."
However, GXS' Seeger maintains that with the backing of Francisco it will be able to grow to take advantage of more Internet technologies to allow it to reach a wider customer base.
"We want to continue to expand the amount of collaboration, negotiation and transactions that take place between human beings over the Internet," Seegers said. "We will very tightly integrate those online communities with computers. Francisco is one of the most sophisticated investors in Silicon Valley. They acquire companies with huge potential."