Polypore Acquisition Increases 3M’s Exposure To Filters Market

3M (NYSE:MMM) recently announced that it will be acquiring Polypore International’s Separations Media business for a total purchase price of $1 billion. ^[1] Polypore’s Separations Media business offers microporous membranes and modules for filtration, which are used in the healthcare and industrial sectors. The acquisition will be consolidated with 3M’s Industrials business segment, which also manufactures filtration and purification products for residential, automobile, healthcare and industrial use.

In 2013, Polypore generated $194 million in revenues from its Separation Media segment with an operating margin of 27.8%. ^[2] In the first nine months of 2014, the segment’s revenue grew 11% to cross $155 million with an operating margin of 28.7%. ^[3] However, in comparison to 3M’s $31.8 billion revenues and operating income of $7 billion in 2014, Polypore’s revenue and income are negligible. ^[4] In its release, 3M pointed out that on a GAAP basis, the acquisition will be $0.03 dilutive to its earnings after a year of completion. However, on a non-GAAP basis, the acquisition will be accretive by $0.04. Again, given that 3M’s diluted earnings per share were $7.49 in 2014, the impact of the acquisition on 3M’s financials will be insignificant. The reason that 3M is acquiring Polypore’s Separations Media business is because it will help increase 3M’s exposure to the fast-growing filters market.

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The global demand for filters is forecast to grow to $80 billion, or 6.2% annually, through 2018, driven by growth in manufacturing activity and healthcare awareness in developing countries. ^[5] The use of filtration products has historically been much higher in developed countries such as the U.S. due to their higher disposable incomes and developed manufacturing infrastructure. Lately, awareness about water and air related health concerns have also been growing in developing countries leading to an increase in demand for filtration products used in residential and industrial water purifiers, vehicles emission filters and others. Also, with the emergence of a strong middle class, disposable income in developing countries has been increasing. This allows the population to consider spending on improving their living standards, thereby driving sales for filtration and healthcare products. China and India are prime examples of countries in which these trends will likely drive growth in demand for filters.

The filtration industry has been an important source of growth for 3M’s Industrials business segment. In the past few quarters, sales of 3M’s filters and purification products have grown double digits driving strong growth in its Industrials segment.  The acquisition of Polypore’s Separations Media business will help enhance 3M’s filtration products portfolio and increase its exposure to the fast-growing filters market. 3M is well positioned to capitalize on the growth due to its geographic presence and strong distribution network.

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1. 3M to Acquire Polypore’s Separations Media Business, wwww.3m.com [↩]
2. Polypore International’s 2013 Annual Report, www.polypore.net [↩]
3. Polypore International’s Q3 2014 Supplemental Financials, www.polypore.net [↩]
4. 3M’s 2014 10-K SEC filing, www.sec.gov [↩]
5. World Filters, July 2014, www.freedoniagroup.com [↩]