3M Company Acquires Acelity In $6.7B Transaction

Buyer: 3M
Seller: Acelity (AKA Kinteric Concepts - KCI)
Date / Year: May 18, 2019
Sector: Medical Device, Healthcare Management

Ok.  This one is a bit more personal.  The company that purchased mine a few decades ago, Kinetic Concepts and now known is Acelity, has been acquired for $6.7Billion.  I should have kept that stock!!! The M&A activity continues to escalate.  Are you ready to explore the strategic options for your healthcare business?  If your business and stakeholders are ready…. the planets have aligned nicely in 2019.    

3M Company Acquires Acelity Inc. for $6.7 billion or roughly 11.4x EBITDA

3m Company (NYSE: MMM), the global conglomerate, announced in early May it purchased Acelity Inc. for $6.7 billion, or roughly 11.4x EBITDA.  The target is a medical device consortium comprised of Apax Partners, affiliates of Canada Pension Plan Investment Board and the Public Sector Pension Investment Board, is selling Acelity. Acelity develops advanced wound care products and specialty surgical applications marketed under the KCI brand name. The company reported a revenue of $1.5 billion in 2018.

This acquisition bolsters 3M’s Medical Solutions business and supports its growth strategy to offer comprehensive advanced and surgical wound care solutions. The transaction is expected to close in the second half of 2019. Advanced Wound Care seems to be a growing demand in the market across sectors.

3M Co. agreed to buy medical-products maker Acelity Inc. for about $4.4 billion, its biggest acquisition ever, as new Chief Executive Officer Mike Roman takes a more aggressive approach to expanding the beleaguered company.

The purchase, from a group of funds advised by Apax Partners, adds bandages and surgical-wound care products to one of 3M’s most profitable businesses. The company valued the transaction at $6.73 billion including Acelity’s debt, according to a regulatory filing Thursday that provided details on the deal valuation.

“Health care for us has been a strong growth marketplace and portfolio, so we’ve been investing in a broader range of technologies,” Roman said on a conference call with investors. “Advanced wound care has been one of our priority growth platforms.”

The maker of Post-it notes and touchscreen displays is turning to acquisitions as struggles in markets such as automotive and electronics crimp the company’s growth prospects. 3M suffered its worst single-day stock decline in 31 years last week after revealing weakness across its business lines, announcing 2,000 job reductions and cutting its forecast for organic growth to as little as minus 1 percent.

The blockbuster deal tops the 2015 purchase of Capital Safety for $2.5 billion as 3M’s biggest, reflecting a greater willingness to consider transformational moves under former CEO Inge Thulin. The company also bought Scott Safety in 2017 for $2 billion. Roman, who took the helm last year and has already signed one billion-dollar deal, told investors last week that “we continue to stay active looking at acquisitions.”

3M fell less than 1 percent to $184.75 at the close in New York. The shares have declined 3 percent this year, while the Dow Jones Industrial Average climbed 16 percent.

Apax Return

The deal marks a change of course for Acelity. Apax, along with the Canada Pension Plan Investment Board and PSP Investments, had been speaking with advisers about a potential initial public offering of the San Antonio, Texas-based company, Bloomberg reported in December.

The sale will result in Apax achieving a return of more than three times its original investment, a person familiar with the matter said. A spokesman for Apax declined to comment on the return.

3M’s purchase is spurring the manufacturer to scale back share repurchases to conserve cash. The company will cut buybacks to between $1 billion and $1.5 billion this year from a previous expectation of as much as $4 billion, according to a statement.

What Bloomberg Intelligence Says

“3M’s credit ratings may be at risk following its agreement to acquire Acelity. That will likely push 3M’s adjusted leverage over the 2x range targeted by S&P and Moody’s.”

–Joel Levington, credit analyst
Click here to view the research

The acquisition adds KCI-branded products to a 3M portfolio that includes a variety of surgical, dental and hygiene-related items.  Health care was 3M’s third-largest business segment last year, with sales of $6 billion. Acelity had 2018 revenue of $1.5 billion.

“We see Acelity as adding scale to 3M’s existing Medical Solutions business, similar to how Capital Safety and Scott Safety added scale to 3M’s existing Personal Safety franchise,” John Walsh, an analyst at Credit Suisse Group AG, said in a note.

The deal, which is expected to close in the second half, will trim 35 cents a share from 3M’s earnings over the next 12 months, based on generally accepted accounting principles. Excluding accounting adjustments and one-time expenses, the transaction will add 25 cents a share over that period, the St. Paul, Minnesota-based company said.

What does this transaction mean for the strategic options for your healthcare business?

Contact Paragon Ventures for more information.  www.paragonventures.com  800-719-1555

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