3M In 2015: A Year Of Acquisitions, Sales, And A Prospective Spin-Off

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3M (NYSE:MMM) has been very active on the M&A front in 2015, having made significant acquisitions such as Capital Safety, Polypore’s Separations Media business, and Ivera. The company has also made an effort to slim down, through sale of its Static Control and Library Systems businesses and Faab Fabricauto. Furthermore, the company is also exploring the possibility of a sale or spinoff of its Health Information Systems, which, among other services, makes software for hospitals. The company considers acquisitions to be an essential aspect of portfolio management, as it complements organic growth and adds value for the shareholders.

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In 2014, Inge Thulin, chief executive of 3M, stated a desire to be involved in more big-ticket acquisitions, for prices exceeding $1 billion. The company plans to spend between $5 billion and $10 billion on acquisitions between 2013 and 2017. [1]

In the beginning of 2015, 3M completed the sale of its Static Control business, which provides products that help prevent, detect, and protect against electrostatic discharge events, to Desco Industries. After a meticulous strategic review, the company took the decision of a sale of this segment, which had annual global sales of ~$45 million and employed 175 workers. [2] The company also entered into agreements with One Equity Partners Capital Advisors for the sale of assets of its North American Library Systems and for the majority of its remaining global Library Systems business outside of North America. The sale ends 3M’s business in a segment in which it was prevalent for over 40 years and wherein it popularized products like book sensor tape, electronic checkouts, and digital uploading of library e-books. [3] 3M France also received a binding offer for 100% of the shares of Faab Fabricauto, which has annual sales of ~$30 million and is a leading French manufacturer of license plates and signage solutions. [4]

With the acquisition of Ivera Medical Corp., 3M is able to expand its vascular access product offerings at an opportune time, as healthcare facilities are looking for cost-effective solutions that improve patient health outcomes. Ivera, which has annual sales of $30 million, develops innovative products to reduce complications for patients with I.V. catheters. [5] According to Harris Williams & Co., the global infection prevention industry is currently valued at over $140 billion, and is projected to grow at 6.2% annually to reach $231 billion in 2023. [6] Healthcare has been one of the highest investment priorities for 3M in the past several years, and the company has made significant investments to bolster its presence in China, Germany, Poland, Thailand, India, the United Kingdom, and the United States.

 

Infection prevention market.png

Polypore International agreed to sell its Separations Media business to 3M for $1 billion, which will help the latter boost its purification business. 3M has benefited from stronger sales of its water-filtration products in China and other developing countries where pollution fears are growing. [7] 3M paid a price that is nearly five times the sales level of the segment ($210 million); however, the company has an opportunity to considerably expand its reach with a vast distribution and customer base.

The company was also involved in its largest-ever purchase when it struck a deal to boost its presence in the worker protection gear market by buying Capital Safety for a total enterprise value of $2.5 billion. [8] The global personal protective equipment market was valued at $33.68 billion in 2013, according to Grand View Research. Stringent regulations regarding health and safety are expected to fuel this market at a rate of 3% to 4% annually. [9] According to 3M, the market for fall-protection gear, that involves Capital Safety’s products, is $1.6 billion, but is rising at a higher rate of over 5%. [10] Such a deal is an example of how 3M utilizes strategic acquisitions to stay ahead of its competitors, and then improves the products through innovation.

Global personal protective equipment

 

A Sale, Spin-Off, Or Retention Of Health Information Systems Business

3M announced in September that it was exploring strategic alternatives for its global Health Information Systems business, as part of a broader plan to expand its life sciences unit. These alternatives, whether it’s a sale, spin-off, or retention with further investment in the business, are all focused on building upon the business’ strong foundation. This business works with providers, payers, and government agencies to provide healthcare data aggregation, analysis, and strategic services that assist clients in moving from volume-based to value-based health care. It counts, among its customers, over 5000 hospitals and is stated to have a trailing 12-month revenue of $730 million, boasting a compounded annual growth rate of over 10% over the past three, five, and ten years. [11] The company has hired Goldman, Sachs & Co. as its investment banker to assist the company in exploring its options and a decision is expected by the end of March 2016. The Health Information Systems business is part of its health care business group, which accounted for close to 17% of the company’s sales, and was the fastest growing unit for the company, among its five. A willingness to consider a divestiture extends Thulin’s reorganization strategy since taking the helm in 2012.

The healthcare technology business has developed into a highly competitive industry. A rise in regulatory requirements has warranted an increase in spending by companies and the U.S. government. 3M is not the only company considering divestitures of healthcare I.T. units, as can be seen by the rampant M&A activity in this sector in the last year. Xerox Corp. stated its intent to exit certain government health information systems businesses, including the management of state Medicaid, in order to focus on higher margin healthcare areas. Meanwhile, Cognizant Technology Solutions Corp. acquired U.S. healthcare I.T. services provider TriZetto Corp. for $2.7 billion, and as a result, augmented its healthcare revenue by 39% in the second quarter. Verisk Analytics is also contemplating a sale of its health care division, which provides data, services, analytics, and technologies targeted to several health-related areas.

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Notes:
  1. 3M’s 2015 Outlook Meeting- Transcript []
  2. 3M to sell Static Control business to Desco Industries []
  3. 3M completes sales of its global Library systems business []
  4. 3M to sell Faab Fabricauto []
  5. 3M to acquire Ivera Medical Corp. []
  6. Infection Prevention Market Overview, Harris Williams & Co., October 2015 []
  7. 3M to acquire Polypore’s Separations Media Business []
  8. 3M completes acquisition of Capital Safety []
  9. Personal Protective Market Analysis, Grand View Research, June 2015 []
  10. 3M makes its largest acquisition ever []
  11. 3M to explore strategic alternatives for its Health Information Systems business []