Portfolio Management: A Key Lever For 3M

3M (NYSE:MMM) has been very active on the M&A front in recent years, 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. Some of the big-ticket sales include that of its Static Control and Library Systems businesses, and Faab Fabricauto. In the last five years, 3M has gone from six sectors to five business groups, and has pruned its businesses or divisions from 40 to 26, thereby improving customer relevance, productivity, and speed, through a leaner operating structure. This has resulted in SG&A savings of around $250 million.

The company intends to carry on this strategy, and in this regard, it is investing $104 million in commercialization this year. On the basis of this, it expects 50 to 100 basis points of additional growth. This will be a result of expanding the company’s presence and garnering additional market share. Portfolio management will also help to optimize its footprint, and in terms of this, the company is targeting $125 million to $175 million in additional operational savings by 2020.

Portfolio Actions Taken In Its Transportation Safety Division

1. Sale of its Identity Management Business- On December 8, 3M announced its decision to sell its identity management business to Gemalto, the world leader in digital security, for $850 million. This sale was completed in the beginning of May. There are three components included in the business which will become a part of Gemalto’s Government Programs business – the biometric offerings that 3M got following the Cogent acquisition, a document reader line, and 3M’s secure materials business. On the whole, these three areas generate $215 million annually, and the yearly profit from the operations stands at $58 million. Headquartered in the US, and present on three continents, 3M’s Identity Management Business offers biometric end-to-end solutions, enabling identity verification and authentication. It is used by governments, law enforcement, border control, and civil identification bodies worldwide.

2. Sale of its Tolling and Automated License/Number Plate Recognition Business- In early May, 3M announced the sale of this business to Neology Inc., a provider of integrated solutions for tolling, electronic vehicle registration, and public safety applications, with the sale expected to close in the third quarter of 2017. 3M’s business, meanwhile, supplies tolling and license plate number recognition solutions, such as RFID readers and tags, automatic vehicle classification systems, lane controller and host software, mobile and fixed cameras. The business has annual sales of approximately $40 million, and is a growing business. However, the best way forward for the division was considered to be as a part of a company focused on this market.

3. Sale of its Electronic Monitoring Business- On June 1, 3M announced the sale of this business to Apax Partners, a private equity advisory firm, for $200 million. The business, which has annual sales of $95 million, provides electronic monitoring technologies to numerous correctional and law enforcement agencies around the world. This transaction is also expected to close in the third quarter of 2017.

Focus on Connected Roadways

The aforementioned divestitures have been undertaken by the company in order to improve its portfolio. According to John Riccardi, vice president and general manager, Transportation Safety Division, the company is focusing on the “rapidly changing trends in transportation safety and mobility, which includes connected roadways of the future.” This would entail safe, wireless communications among vehicles, the infrastructure, and personal communications devices (mobile phones). Such a technology has the potential to make traveling safer, smarter, and greener.

According to the National Highway Traffic Safety Administration, 94% of vehicle crashes are a result of driver error, and the presence of technologies, such as vehicle-to-vehicle communication and connected roadways, has the potential to avoid such crashes. A test of this technology conducted by them shows that it can address approximately 80% of crashes involving two or more vehicles. Furthermore, wireless networking devices along the roads could monitor traffic congestion, and help smoothen the traffic by directing cars to alternate routes. Vehicles would also have the ability to send data about potholes and hazards to local transportation agencies. As technology and innovation move forward, 3M would place itself in the midst of a key trend taking place in the transportation market by concentrating on this technology.

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

• 3M Delivers A Surprise In Its First Quarter
• R&D: One Of The Driving Factors Behind 3M’s Growth
• 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

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