3M has agreed to acquire wound-care company Acelity from its private equity owners, which include Apax Partners, the Canada Pension Plan Investment Board and PSP Investments. The deal, which has an enterprise value of roughly $6.7 billion, would see the Minnesota-based maker of Post-it notes and other consumer products pay about $4.4 billion in cash and assume around $2.3 billion in debt. It’s 3M’s largest acquisition ever by a wide margin. Its second-largest, the 2015 purchase of Capital Safety, a maker of fall protection equipment such as harnesses, had a total enterprise value of around $2.5 billion.
The announcement of the Acelity deal comes just a week after 3M reported one of the worst quarters in its history, sending shares down nearly 13%—reportedly the greatest single-day drop for the company’s stock since 1988. Lower sales, litigation-related charges and a restructuring expected to lead to 2,000 layoffs were among the drivers of what CEO Mike Roman called a disappointing start to the year.
However, 3M’s healthcare division fared better than its others. The division’s $1.5 billion in sales accounted for nearly 20% of 3M’s total in 1Q, and while the other four business groups reported losses in sales—which in one case reached into the double digits—healthcare stood out by posting an actual increase, albeit a small one, of 0.3%.
It’s an out-of-character move for 3M, which devotes a hefty 5.8% of the company’s sales back into research and development, to grow one of its units through such a massive acquisition. The deal suggests a change of strategy under Roman, who took the reins last July, for a company that may be struggling to keep up through in-house innovation. That’s where Acelity fits in. Roman cited advanced wound care as one of 3M’s priority growth areas, per The Wall Street Journal, and Acelity brings a successful business to the table, with $1.5 billion in revenue last year.
The purchase also marks a significant shift for Acelity, which filed for an IPO less than two weeks ago, as KCI Holdings. News of the potential listing was first reported in December, but the Texas-based company has flirted with the public markets before, including pulling the plug on an IPO in 2016. It’s a fine ending for the company’s PE backers though: Apax, CPPIB and PSP Investments first bought the business, then known as Kinetic Concepts Inc., in 2011 in a deal valued at $6.3 billion, including debt. The sale to 3M will result in a return of more than 3x on the original investment, according to Bloomberg.
Featured image via Floortje/iStock/Getty Images Plus
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