3M To Acquire Private Medtech Company Acelity For $6.7B

3M Co MMM shares, which came under significant selling pressure following its disappointing first-quarter results April 25 and downward adjustment of full-year guidance, were seeing incremental weakness Thursday after the company announced a multibillion-dollar M&A deal.

What Happened

3M said it has agreed to acquire Acelity and its KCI subsidiaries worldwide from a private equity consortium — Apax Partners, the controlled affiliates of the Canadian Pension Plan Investment Board and the Public Sector Pension Investment Board — for about $6.7 billion, including the assumption of debt.

Acelity manufactures advanced wound care and specialty surgical applications that are marketed under the KCI brand.

3M expects the deal to be dilutive to its GAAP EPS by 35 cents in the first 12 months following the completion of the transaction, including the transaction costs. On an adjusted basis, the deal is accretive to EPS by 25 cents, 3M said. 

Why It's Important

3M has had a rough start to the year, with the manufacturer of Post-It notes and touchscreen displays reporting subpar first-quarter profits and reducing its full-year profit forecast. All five of its business units reported falling operating profits.

Citing headwinds in China and weak automotive and electronics markets, the firm also announced the elimination of 2,000 members of its workforce.

Against this backdrop, the deal relays optimism. In 2018, Acelity generated revenue of $1.5 billion.

"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," 3M CEO Mike Roman said in a statement. 

What's Next

3M expects the deal to close in the second half of 2019, subject to customary closing conditions and regulatory approvals.

3M now expects 2019 share repurchases to be in the $1 billion to $1.5 billion range, down from the previous $2 billion to $4 billion.

The company said it expects to finance the deal from cash on hand and proceeds from the issuance of new debt.

3M shares were down 0.17 percent at $185.76 at the time of publication Thursday. 

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