The medical technology company GE Healthcare explicitly has put acquisitions in the center of its business strategy. CEO Peter Arduini emphasizes that the focus is less on very large deals but more on expanding the ecosystem through adding smaller companies and partnerships. The goal is to combine the right components so that "one plus one plus one equals more than three." In the current year, the company, which was spun off from the conglomerate General Electric (GE), completed two smaller acquisitions: Imactis for the CT business and Caption Health. A larger deal was the acquisition of BK Medical, which specializes in surgical imaging, for $1.45 billion. It was completed in December 2021, shortly before Arduini's appointment.

In his conversation with Börsen-Zeitung, the CEO highlights the acquisition of Caption, a former private company specializing in artificial intelligence in healthcare. Its technology makes ultrasound examinations faster and easier, thus expanding the circle of users and enabling examinations to be conducted at the point of care.

"M&A is a very important part of our strategy," underscores Arduini. "I talk to our M&A team every week." A company like GE Healthcare has many opportunities for acquisitions. They continuously monitor 30, 40, or 50 companies to stay in touch with the market. Financially, Arduini sees the company well-prepared for acquisitions since the cash flow is stable and the leverage is low. Currently, the net debt is 2.4 times earnings before interest, taxes, and depreciation. The rating agencies S&P and Fitch rate the company as "BBB," while Moody's rates it as "Baa2," each with a stable outlook.

GE Healthcare operates in four segments: Imaging, Ultrasound, Patient Care Solutions, and Pharmaceutical Diagnostics. The company employs 50,000 people, and its annual revenue is around $18 billion. It competes with companies like Siemens Healthineers and Philips and manufactures computer and magnetic resonance tomography machines in addition to ultrasound and X-ray devices. GE Healthcare also covers diagnostic and invasive cardiology, as well as intensive care ventilation, and sells contrast agents and healthcare IT solutions.

Arduini is convinced that artificial intelligence (AI) represents a "significant transformation" for the healthcare sector. He believes that AI creates the opportunity to obtain more qualified information at an earlier stage. Currently, AI is used to change workflows and improve quality, which represents the first stage. Arduini emphasizes his point using the example of ultrasound: "It takes years of training to be qualified. With AI, the eye can learn ultrasound in just a few hours." This means that through an ultrasound examination conducted at the patient's location, signs of conditions like heart failure could be detected much earlier.

GE Healthcare currently has more than 40 applications approved by regulators that incorporate artificial intelligence: "We are leading in this regard." According to a GE Health study, the majority of surveyed doctors believe that AI can support clinical decision-making, enable faster treatments, and improve operational efficiency. However, there are still reservations in medical settings. For example, only 42% of doctors stated that they trust AI data. Additionally, there is limited trust among patients and doctors in new care models, such as clinical care outside the traditional setting, or examinations conducted by other healthcare professionals.

"Quicker and better results will build trust," says Arduini, who has been at the helm since the beginning of 2022. "That's part of the journey." Nevertheless, it will require a high level of trust in AI before a computer can make a diagnosis. "That will only happen at a later stage. But there are many things that can be done before that to make the system more effective," he adds.

Even though the stock price has slipped in recent weeks, the CEO is satisfied with the stock market performance since the spin-off in early January 2023. A 20% or 25% increase in the stock price is still a strong development, notes Arduini. He believes that a comparison of valuations with direct competitors and the broader Medtech industry indicates significant upside potential. The market capitalization currently stands at $32 billion. "We have some new technologies in monitoring, imaging, or ultrasound that will help us generate growth and progress in profitability," affirms the CEO. The company's capabilities in digitization sets it apart from competitors: "If we are seen as more than just a digital health company, our value will increase automatically over time."

The company aims to accelerate growth to a mid-single-digit percentage. Arduini says that they have already made a statement in the past quarter after the organic revenue increased by 9%, allowing the company to raise its annual revenue growth guidance by one percentage point to 6 to 8%.

GE Healthcare has set its 2023 margin before interest and taxes (EBIT) at 15% to 15.5%, with a mid-term goal ranging from the high teens to 20%. The CEO aims to achieve this target by making improvements in sales prices, production and procurement, saving costs in IT and services, and changing the capital allocation strategy, including expanding into high-margin businesses. "These are the three approaches that give us confidence in reaching an EBIT range of 17% to 20% in the medium term." Segments with strong margins include ultrasound with a 22.8% profit margin in the second quarter of the year and pharmaceutical diagnostics with 26.8%.

In the eight months since the spin-off, GE Healthcare has made good progress in terms of operational, financial, and cultural goals, claims Arduini. The current board includes many experts with a deep understanding of healthcare, enabling faster decision-making. Financially, there is more flexibility as healthcare within the GE conglomerate had been more of a contributor than a recipient in recent years. New shareholders include funds like Fidelity, sovereign wealth funds, and healthcare investors, while industrial investors have reduced their stakes. According to Bloomberg data, the former parent company GE still holds 13.5% after the spin-off, down from 19.9%. At the moment, Arduini plans to attract more long-term-oriented healthcare shareholders in Europe.