3M Co. will consider multibillion-dollar deals

  • Article by: DEE DEPASS , Star Tribune
  • Updated: May 3, 2014 - 2:00 PM

Bair Hugger blankets traveled down a packaging line at the Eden Prairie Arizant Healthcare plant. Arizant, maker of disposable blankets for surgical patients, was acquired by 3M in 2010.

Photo: BRUCE BISPING • bbisping@startribune.com,

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3M Co. says it wants to shop — more big-ticket, less bargain-basement.

Chief executive Inge Thulin reiterated that point recently as he released the company’s financial results. While the Maplewood-based maker of 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.”

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