HomeMy WebLinkAbout2014 05-03 3M Company will consider multibillion-dollar deals STAR TRIBUNE *StarTribune
3M Co. will consider
multibillion-dollar deals
Article by dee depass
Star Tribune
May 3,2014-2:00 PM .. `
3M Co.says it wants to shop—more big-ticket,
less bargain-basement. Bair Hugger blankets traveled down a
packaging line at the Eden Prairie Arizant
Healthcare plant.Arizant.maker of disposable
Chief executive Inge Thulin reiterated that point blankets for surgical patients,was acquired by
recently as he released the company's financial 3M in 2010.
results.While the Maplewood-based maker of BRUCE BISPING•
bbisping @startribune.com,
Scotch Tape and Post-it notes has surely done
some big acquisitions over the years,Thulin said 3M can kick it up a notch and do deals that
exceed$1 billion.
"I think the biggest acquisition 3M had done... is a$1 billion or so,"Thulin told analysts during
3M's earnings call in late April."In some spaces,in order for us to be more relevant,we
maybe need to do slightly bigger than that as we move ahead."
The$30 billion conglomerate plans to spend anywhere between$5 billion and$10 billion on
acquisitions between 2013 and 2017,a move that could extend 3M's already vast reach and
fortify its existing businesses.So far,Wall Street has embraced the strategy.The stock has
jumped 8 percent since 3M announced quarterly earnings,and it hit a 52-week high on
Thursday of$141.49 a share.
3M officials have expressed a desire to expand its burgeoning energy and aerospace
business and increase sales in sub-Saharan Africa and Saudi Arabia.
But some Wall Street analysts have speculated that 3M will pursue companies that can foster
its security ID or its medical records software businesses,areas that are likely to see robust
growth given recent security breaches and the increasing desire by the medical community to
protect patient information.Other analysts say 3M will likely avoid chasing electronic product-
makers since the sector faces worldwide pricing pressures.
"I would imagine[3M's next large deal]will wind up being a technology grab rather than a
geography play,"said Matt Arnold from Edward Jones."They could try to use their global
reach to take whatever the acquired business is to different geographies and create value.To
me,that is probably the blueprint"
3M officials declined to comment in detail about its acquisition plans. But Thulin told analysts
that 3M is looking for relevant and interesting businesses that add value.
Exploration team
The company also said late last year that it had created a team of executives to explore
multibillion-dollar deals.Already,3M makes and sells more than 55,000 products in 200
countries and is divided into five key units: industrial; health care;safety and graphics;
electronics and energy, and consumer.
"We are working it for each business and let's see what is happening as we move ahead,"
Thulin told analysts during the call.
It's been seven years since 3M has done a pricey deal,snatching up eye and hearing
protection firm Aearo Technologies for$1.2 billion in 2007 when it was intent on expanding its
safety business. 3M also bought Cuno Inc.,a water filtration firm, in 2005 for$1.3 billion so it
could expand beyond its air-filtration capabilities.3M also purchased high-strength-ceramics
maker Ceradyne in 2012 for$860 million.
But of the 39 companies 3M bought in the past decade,only 11 were large enough to require
price disclosures.Of those 11,only three scratched$1 billion.
Meanwhile,other industrial giants have pursued multibillion-dollar purchases in recent years.
Ecolab jumped into the energy services business by buying Champion Technologies for$2.3
billion in 2013 and Nalco for$8.3 billion in 2011.Pentair got into fuel valves for massive oil
refineries via its$4.9 billion merger with Tyco Flow Controls in 2012.
Acquisitions are a quicker way to jump into a new business that offers high growth and profits.
But finding these large deals will require both caution and patience,particularly for a
conglomerate like 3M.
"Things have been bid up so highly—at sometimes 15 to 20 times earnings before taxes.So
it could be difficult to do these types of deals,"said Barclays Bank equity research analyst
Scott Davis.
It could be challenging for 3M to find large targets that already bear excellent profit margins
and growth.
"That is what we are watching for,"said Edward Jones equity research analyst Matt Arnold."It
will be a great use of their capital....But the tough part is going to be trying to find something
that looks like a 3M business."
3M profit margins exceeded 21 percent for the first quarter ended March 31.
Thulin acknowledged last month that 3M didn't execute on acquisitions last year because the
company couldn't find any deals that added real value.Still,3M has had some successes.
Quick results
Ceradyne added to 3M's results almost immediately after winning new military contracts to
make soldier body-armor plates and other products.The purchase also gave 3M the
company's line of windmill coatings,drill-motor bearings,pump bearings,ball valves,and
drilling telemetry tools that are sold to oil,gas and wind energy companies.
Investors want similar blockbuster deals for 3M,but wonder where they'll turn up.
Thulin insisted,"We've got a very good profile of where we should invest"
During the earnings call with analysts last month,3M chief financial officer David Meline
acknowledged investors'concerns that finding the right acquisition targets will take work,but
that won't stop 3M from doing a thorough search.
"We will look at targets.We'll identify how we can create value by bringing them into the
portfolio and leveraging either technologies or brands,or global distribution,"Meline said.
If a target passes that initial litmus test,he said,3M will then work to turn it into a 3M-like
performing business.3M has forecast that global revenues will grow 4 to 6 percent a year
between now and 2017,and finding the right acquisitions that can help achieve that growth is
"the challenge or the opportunity,certainly,"Meline said.
Dee DePass•612-673-7725
0 2014 Star Tribune