Baker Hughes' Precision Move: Divesting for Energy Transition Leadership

Albert FoxMonday, Jun 9, 2025 11:33 am ET
57min read

The energy sector's evolution toward decarbonization and advanced technologies is driving companies to reevaluate their portfolios. Nowhere is this clearer than in Baker Hughes' $1.15 billion sale of its Precision Sensors & Instrumentation (PSI) business to Crane Co., a transaction that underscores the strategic logic of focusing on core strengths while capitalizing on high-growth adjacencies. For investors, this deal offers a lens into how industrial giants are aligning capital allocation with long-term value creation—and why both companies could benefit in the years ahead.

Ask Aime: Is now the time to buy Crane Co. with Baker Hughes selling Precision Sensors & Instrumentation?

Baker Hughes: Divesting for Focus and Growth
Baker Hughes' decision to sell PSI—a division specializing in sensors for pressure, flow, and radiation detection—is a masterclass in portfolio optimization. The transaction allows the company to pivot toward its core Industrial & Energy Technology (IET) segments, such as rotating equipment, asset performance management, and decarbonization solutions. By shedding non-core assets, Baker Hughes gains $1.15 billion in cash to reinvest in high-return opportunities, such as hydrogen infrastructure, carbon capture, and software-driven asset management.

The move aligns with CEO Lorenzo Simonelli's stated focus on “strategic discipline” to bolster shareholder value. With PSI's $390 million in projected 2025 revenue and $60 million in adjusted EBITDA now off the books, Baker Hughes can sharpen its focus on sectors with higher margins and scalability.

BKR Closing Price
shows investor confidence in this strategy, with shares up 1.03% on the news and a consensus target price of $47.02—a 24% premium to current levels.

Critically, this sale follows the prior divestiture of its Surface Pressure Control business to Cactus, signaling a pattern of capital reallocation. The result? A leaner, more agile firm positioned to capitalize on the energy transition. For long-term investors, Baker Hughes emerges as a buy, given its strengthened balance sheet and focus on high-growth decarbonization technologies.

Crane Co: A Strategic Bet on Aerospace and Nuclear Growth
Crane's acquisition of PSI is equally strategic. The company is acquiring advanced sensor technologies that directly enhance its aerospace, defense, and industrial segments. Specifically:
- Druck's pressure sensors boost Crane's aerospace electronics business, critical for aircraft systems and ground calibration equipment.
- Reuter-Stokes' radiation detection expands its nuclear capabilities, capitalizing on global investments in nuclear energy.
- Panametrics' flow measurement strengthens process industries like LNG and chemical production, where precision is paramount.

Crane aims to achieve a 10% ROIC by year five through operational synergies, including cost efficiencies and margin expansion via its proven “Crane Business System.” With PSI's projected 4-6% annual sales growth and 35% operating leverage, the deal is a growth catalyst.

CR Closing Price
highlights its resilience in industrials, but the upside hinges on seamless integration.

The financing—mixing cash and debt with a post-deal net debt/EBITDA ratio of ~1x—leaves room for further acquisitions. For investors, this signals confidence in Crane's ability to execute, though execution risks remain.

Valuation and Synergies: A Win-Win Transaction?
Baker Hughes' $1.15 billion cash windfall is a clear win, but the PSI valuation itself reflects its strategic value. At 3.5x projected 2025 EBITDA ($60 million), the price is reasonable given PSI's role in high-margin markets. For Crane, the acquisition is a prudent expansion into sectors with long-term demand: aerospace (driven by commercial and defense spending) and nuclear energy (bolstered by climate policies).

Risks include regulatory delays (the deal is pending approvals) and integration challenges, particularly in retaining PSI's 1,600 employees. Yet Crane's track record of value creation—its acquisitions have historically delivered on synergy targets—mitigates these concerns.

Investment Implications: Long-Term Value Creation
For Baker Hughes, the sale solidifies its position as a leader in energy transition technologies. With $1.15 billion in proceeds and a streamlined portfolio, the company is primed to deliver shareholder returns through dividends, buybacks, and strategic reinvestment. The buy recommendation holds, especially for investors with a 3-5 year horizon.

Crane Co's upside is tied to execution. While its stock rose 0.26% post-announcement, the full value will emerge only if PSI's synergies materialize. Investors should monitor integration progress and Crane's ability to leverage PSI's technologies across its core segments. The aerospace and nuclear sectors are growth engines, but execution must be flawless.

Final Take:
This transaction is a blueprint for strategic realignment in an evolving industrial landscape. Baker Hughes' focus on decarbonization and Crane's expansion into high-margin engineered products reflect a broader trend: companies are prioritizing capital discipline and sector-specific expertise. For investors, the pair offers distinct opportunities: Baker Hughes as a core holding for energy transition plays, and Crane as a leveraged bet on industrial innovation—provided execution risks are managed.

In a world where every dollar must work harder, strategic divestitures like this one are no longer optional—they're essential.