3M Co. announced that it has reached a definitive agreement to buy medical device maker, Acelity Inc. and its KCI subsidiaries worldwide for $6.7 billion, including debt, a deal which the industrial conglomerate said strengthens its medical solutions business.
3M announced that it was buying Acelity from a consortium of funds advised by Apax Partners, along with controlled affiliates of Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board (PSP Investments).
Mike Roman, 3M Chief Executive Officer, described the acquisition of Acelity as an excellent complement to the conglomerate’s health care business.
“This acquisition bolsters our medical solutions business and supports our growth strategy to offer comprehensive advanced and surgical wound care solutions to improve outcomes and enhance the patient and provider experience,” Roman said in a prepared release.
The acquisition of Acelity is seen as an aggressive push to expand 3M, barely a month after it announced that it was shedding 2,000 jobs worldwide as part of a restructuring exercise.
The deal for Acelity, with revenues of $1.5 billion in 2018, is expected to close in the second half of 2019 subject to customary closing conditions and regulatory approvals. 3M will finance the transaction with a combination of available cash and proceeds from the issuance of new debt.
Bloomberg reported that health care was 3M’s third-largest business segment last year, with sales of $6 billion.
Acelity CEO, R. Andrew Eckert, said KCI was embarking upon a new era in its long history as a pioneer in healthcare. “The combination of KCI with 3M will accelerate the reach of a business that is a leader in innovation, customer experience and clinical and economic evidence. Backed by the resources and expertise of 3M, KCI will be able to offer clinicians and patients even more compelling solutions designed to speed healing and improve outcomes.”
Acelity board chairman and partner at Apax Partners, Steven Dyson, said he believed “the business will have a great future with 3M.”
Details of the deal explained
3M explained that on a “GAAP reported basis, 3M estimates the acquisition to be $0.35 dilutive to earnings per share in the first 12 months following completion of the transaction, including financing costs. Excluding purchase accounting adjustments and anticipated one-time expenses related to the transaction and integration, 3M estimates the acquisition to be $0.25 accretive to earnings per share over the same period. As a result of this announcement, 3M now expects full-year 2019 share repurchases to be in the range of $1.0 billion to $1.5 billion versus $2.0 billion to $4.0 billion previously.”
Reuters news agency said the purchase price values Acelity at 15 times its 2018 adjusted earnings before interest, tax, depreciation and amortization.
With the acquisition, 3M is looking for a foothold in the advanced wound care market, which Reuters said is valued at more than $8 billion and is growing at an annual rate of 4 percent to 6 percent.
According to a U.S. Securities Exchange Commission filing, as late as last month, Acelity was considering relisting, but 3M, the makers of the famous Post-it notes, must have come up with an offer too tempting to resist.
Credit Suisse was financial adviser to 3M, while Cleary Gottlieb Steen & Hamilton LLP was its legal counsel. JP Morgan and Goldman Sachs are acting as financial advisors to the consortium, while Simpson Thacher & Bartlett LLP and Jackson Walker LLP are acting as legal advisors.
The Acelity business is well-known for creating and growing new segments based on its ability to identify and address unmet clinical needs with KCI-branded products that advance the practice of medicine, beginning with the introduction of V.A.C. Therapy – groundbreaking Negative Pressure Wound Therapy, the 3M statement said. The KCI product offering also includes advanced wound dressings and negative pressure surgical incision management systems.
3M said its medical solutions business is focused on applying 3M science to deliver safe and effective solutions that improve clinical outcomes and healthcare economics.
3M Medical Solutions offers a range of integrated products that include medical tapes, advanced and acute wound care dressings and products, sterilization products, and patient warming products that get deployed in effective solutions to specific conditions. These solutions cross the entire continuum of care, enabling better outcomes, improving the patient experience, and delivering strong economic value in today’s value-based care environment, the statement said.
The Acelity deal comes barely four months after 3M announced it had signed a definitive agreement to acquire M*Modal’s technology business for $1 billion, as it sought to boost its strategic focus of investing in the health information systems business.