3M Company MMM, on Oct 11, announced that it completed the acquisition of Acelity Inc and its KCI subsidiaries for an enterprise value of $6.7 billion. The transaction value includes debt assumptions and other adjustments. The other parties to the transaction were affiliates of Canada Pension Plan Investment Board, funds advised by Apax Partners, and the Public Sector Pension Investment Board.
Notably, the buyout agreement was originally announced in May 2019. Acelity specializes in specialty surgical and wound care applications. The main product brand is KCI. The firm generated approximately $1.5 billion in 2018. Also, its organic sales have expanded 5% for the first nine months of 2019.
It is worth mentioning here that 3M’s share price increased roughly 3.8% on Oct 11, closing the trading session at $158.10.
Inside the Headlines
As noted, 3M funded the transaction through debts and available cash. Acelity and its KCi subsidiaries will be integrated with 3M's medical solutions business, under the Health Care segment.
Notably, the company’s medical solutions products include medical tapes and wound care dressings, patient prep and warming stuff, and sterilization products. The buyout will likely be an added advantage as it enhances 3M’s offerings of advanced wound care products.
Also, as discussed in May 2019, the company predicts the buyout to prove accretive to adjusted earnings per share in the first year of the completion. Further updates are expected when 3M reports third-quarter 2019 results.
Strengthening Portfolio Through Buyouts
We believe that the above-mentioned transaction is consistent with 3M’s policy of acquiring businesses to gain access to new customers, regions and product lines.
In February 2019, the company acquired the technology business of M*Modal — a prominent healthcare technology provider of conversational Artificial Intelligence-powered systems. The buyout has been strengthening 3M's Health Information Systems business and will likely remain a boon over the long term. The acquired assets from M*Modal helped 3M generate an additional $75 million in revenues in the second quarter of 2019.
Zacks Rank, Estimates and Price Performance of 3M
The company, with approximately $91-billion market capitalization, currently carries a Zacks Rank #4 (Sell).
In the past 60 days, earnings estimates for 3M have been lowered. The Zacks Consensus Estimate for its earnings is pegged at $9.28 for 2019 and $9.89 for 2020, suggesting declines of 0.2% and 2.1% from the respective 60-day-ago figures.
3M Company Price and Consensus