3M Heads To $97, Acquires Electronic Tolling Company

by Trefis Team
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Trefis
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3M (NYSE:MMM) has signed an agreement with Federal Signal Corporation (NYSE:FSS) to acquire its Federal Signal Technologies (FSTech) division for $110 million in cash, subject to post-closing adjustments. [1] FSTech focuses on developing and delivering transportation solutions, including hardware and software for electronic tolling, parking management and electronic vehicle registration.

The division employs approximately 500 people and has primary facilities in 8 U.S. states and in international markets such as the U.K., Dubai and Hong Kong. [2] The acquisition will complete in the second half of 2012, subject to regulatory approvals and closing conditions.

We currently have  a Trefis price estimate of $97 for 3M, nearly 12% above its current stock market price.

See our full analysis for 3M here

FSTech provides opportunity for revenue growth

The electronic tolling industry is approximately a $3 billion market and is projected to grow at double-digit growth rates as governments reeling under high deficit and low growth increase dependence on tolls to fund their roadway infrastructure projects. FSTech, which provides electronic tolling solutions, will enable 3M to leverage this situation and drive revenue growth for its Traffic Safety Systems division.

Federal Signal benefits from the deal as well

The deal is also a good one for Federal Signal, as it would provide the company with much-needed cash to improve its financial position. Federal Signal posted an operating loss of $13.3 million in 2011, second year in a row, with long-term outstanding debt of $287.2 million. [3]

FSTech: The picture that the numbers paint

However, the numbers of FSTech paint a mixed picture. While the company posted an operating loss of $2.8 million in the first quarter of 2012, its backlog and revenues grew at approximately 74% and 5% quarter-on-quarter, respectively, registering nearly $130 million in backlog and $28.5 million in net sales. [4]

Investors too reflected on the mixed picture as 3M’s stock gained slightly on the acquisition announcement and shed the gains by the end of the day.

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Notes:
  1. 3M To Acquire The Business of Federal Signal Technologies Group, June 21st 2012, www.3m.com []
  2. Federal Signal Corporation Announces Definitive Agreement to Sell the Business of FederalSignal Technologies, LLC to 3M for $110 Million, June 21st 2012, www.federalsignal.com []
  3. Federal Signal Corporation Announces 2011 Full Year and Fourth Quarter Results, March 14th 2012, www.federalsignal.com []
  4. Federal Signal Corporation Announces 2012 First Quarter Results, May 4th 2012, www.federalsignal.com []
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