Why Did 3M Acquire Johnson Controls’ Scott Safety?

Last week 3M (NYSE:MMM) announced that it has inked a deal with Johnson Controls (NYSE:JCI) to acquire its Scott Safety business for $2 billion. Scott Safety is a manufacturer of equipment such as self-contained breathing apparatus (SCBA) systems, respirators, thermal imaging cameras, escape equipment, communications gear, and other protective instruments. Scott Safety’s products provide protective solutions in industries such as fire services, chemical, construction, petroleum, industrial, and emergency services. The deal, which will be accretive to 3M’s business, is expected to close in the second half of the year. It also marks the second-largest acquisition in 3M’s history, and will make the company the largest player in the personal protection market in the U.S.

Click Here To See Our Complete Analysis Of 3M

A Mutually Beneficial Deal?

3M has worked hard to expand its worker safety products, and personal safety is considered a core growth business. In its largest deal to date, 3M bought Capital Safety for $2.5 billion in 2015, which helped it attain an immense presence in the fall protection and worker-harness arena. Meanwhile, the Scott Safety acquisition will aid in expanding its firefighter breathing equipment. The acquisition complements the company’s personal safety portfolio, which provides respiratory, hearing, and fall protection solutions, which help improve the safety and health of workers various industries.

According to Frost and Sullivan, 3M has “some gaps in its safety portfolio.” This deal should help to plug some of those gaps, as it provides 3M with safety products that cater to firefighters and the oil and mining industries, where breathing and gas detection are crucial. Furthermore, it also catapults the company to the number one position in the PPE (personal protection equipment) industry. The Scott Safety business had annual revenues of approximately $570 million in 2016, taking the combined revenue of the Capital Safety and Scott Safety acquisitions to over $1 billion for 3M. According to 3M CEO Inge Thulin, the Scott Safety acquisition is expected to contribute about 10 cents per share to 3M’s earnings, after the initial acquisition costs are accounted for.

Attraction Of The Safety & Security Market

The global personal protective equipment (PPE) market was estimated at $38.38 billion in 2015, per Grandview Research. As more nations – and companies – begin to adopt U.S.-style safety standards, in addition to the deployment of stringent health and safety regulations, growth in the PPE market is likely to be strong going forward. The growth in the manufacturing and construction industry in Asia-Pacific and the Middle East is also expected to fuel PPE growth.

The Fall Protection market – to which 3M gained access as a result of the Capital Safety acquisition – is expected to witness rapid growth, and reach in excess of $3.6 billion by 2024, driven largely by construction growth in Asia Pacific and the Middle East. Meanwhile, the Respiratory Protective Equipment (RPE) market is expected to grow at a CAGR of 7% over the next seven years, driven by RPE demand from verticals such as healthcare, mining, fire services & emergency response, and military forces.

According to 3M estimates, the key segments the company caters to in the personal safety market are expected to deliver profitable growth in the near future. These figures are outlined in the table below.

Have more questions on 3M? Have a look at these links below:

• Will The Industrial Segment Return To Positive Growth In The Fourth Quarter For 3M?
• As A Part Of Its Growth Strategy, 3M Divests From Some Of Its Businesses
• R&D: One Of The Driving Factors Behind 3M’s Growth
• 3M Trims EPS Guidance Amid Flat Sales
• 3M Teams Up With Alphabet’s Verily For Population Health Management Tools
• What Trends Will Ensure Growth For 3M From Developing Markets In The Future

Notes: