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3M Company (MMM - Analyst Report) is all set to acquire business of Federal Signal Technologies Group (FSTech), a provider of electronic toll collection and parking management hardware and software services, from Federal Signal Corp. The purchase consideration has been fixed at $110 million cash and is subjected to certain adjustments at the time of closure. 

Currently, the electronic tolling industry is valued at $3 billion and is growing rapidly. The government agencies have increased their expenses on roadway infrastructure, construction and maintenance, which is expected to boost the electronic tolling industry by 12% annually.

The government will be able to effectively collect tolling and parking fare from motorists with the combination of FSTech’s solutions for electronic tolling, vehicle identification and classification, toll management software, license plate recognition, and parking lot fare collection systems and 3M’s traffic management solutions. 3M has an experience of above 70 years in traffic products, systems and services for transportation safety, traffic management, vehicle registration and commercial transportation markets. FSTech offers its technologies through five business units: IDRIS – vehicle detection and classification solution; PIPS – fixed and mobile automatic license plate reading hardware and software; Federal APD – parking management and fare collection solutions; Sirit – active and passive RFID transponders and readers; and VESystems – toll account management and violation processing software and services.

The acquisition is strategically sound for 3M as it will expand its offerings for the Department of Transportation, the Department of Motor Vehicles, toll authorities, and law enforcement agencies, and will increase its core traffic products for motor vehicles and roadways, and license plate validation materials. Further, the acquisition is expected to be $0.02 dilutive (on GAAP basis) to earnings in the first 12 months following completion of the transaction, scheduled in the second half of 2012. The closure is subjected to customary approvals and conditions.

3M is globally recognized for its innovations, which are supported by some of its well-known brands, such as Nexcare, Post-it, Scotch, Scotch-Brite, and Scotchgard. We believe that continued capital expenditure with new product launches should bolster its prospects across most end markets.

However, the company’s growth objectives are largely dependent on timing and market acceptance of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points. Further, the results have been impacted by worldwide economic and capital market conditions.

3M Company, together with its subsidiaries, operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide. It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, and Safety, Security and Protection Services Business. The major competitors of 3M are Avery Dennison Corporation (AVY - Analyst Report), EI DuPont de Nemours & Co. (DD - Analyst Report) and Johnson & Johnson (JNJ - Analyst Report).

We continue to maintain a Neutral rating on 3M Company for the long term and a Zacks #3 Rank (Hold recommendation) over the next one- to- three months.

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