3M to buy Acelity in record $4.3bn pact

Bloomberg

3M Co. agreed to buy medical-products maker Acelity Inc. for about $4.3 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, is spurring 3M to scale back share repurchases to conserve cash. 3M 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. The company valued the purchase at $6.7 billion including Acel-ity’s debt, which was $2.4 billion on December 31.
The maker of Post-it notes and touchscreen displays is turning to acquisitions as it struggles to grow in a number of markets. 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. Roman, who took the helm last year, told investors on a conference call last week that “we continue to stay active looking at acquisitions.”
The stock fell 1 percent to $184.20 before the start of regular trading in New York. 3M had declined 2.3 percent this year, while the Dow Jones Industrials Average climbed 13 percent.
3M’s purchase adds KCI-branded bandages and other surgical wound-care products to a 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,
according to the statement.
“3M’s credit ratings may be at risk following its agreement to acquire Ace-lity. That will likely push 3M’s adjusted leverage over the 2x range targeted by S&P and Moody’s,” said Joel Levington, credit analyst.
“This acquisition bolsters our Medical Solutions business and supports our growth strategy,” Roman said in the statement.
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 expe- nses, the transaction will add 25 cents a share over that period, the St. Paul, Minnesota-based company said.