3M Acquires Medical Tech Firm Acelity For $6.7bln

3M Acquires Medical Tech Firm Acelity For $6.7bln
May 3, 2019

 

3M (NYSE: MMM) today announced that it had inked a definitive agreement (private deal) to buyout the wound therapy company Acelity Inc. and its KCI subsidiaries worldwide in a deal estimated to be $6.7 billion, including debt. Based on the amount to be shelled out for acquisition, 3M slashed its net earnings outlook for the next 12 months but upwardly revised its adjusted earnings. Furthermore, the company also downwardly revised its share repurchase expectations for 2019. The stock closed at $184.75, down $1.32 or -0.71% from the prior close.

Maplewood, Minnesota-based company has stated that it would acquire Acelity from a consortium made up of funds advocated by Apax Partners (the Apax Funds), along with controlled associates of Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board (PSP Investments).

The deal is anticipated to end in the second half of 2019, subject to routine closing terms and regulatory clearances. As per the agreement, 3M aims to fund the deal with a combination of proceeds from the issuance of fresh debt and handy cash.

At the end of December 31st, 2018, Acelity had a debt of $2.4 billion. So, excluding the debt, the value of the acquisition is $4.30 billion.

While Credit Suisse played the role of a financial advisor to 3M, Cleary Gottlieb Steen & Hamilton LLP served as legal counsel to 3M.

Regarding the acquisition, Mike Roman, 3M chief executive officer, said “Acelity is a recognized leading provider of advanced wound care technologies and solutions and an excellent complement to our 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 further said: “We are excited to bring Acelity’s technologies and dedicated employees to our team. Together, we will apply 3M science to bring differentiated offerings to key wound and operative care solutions worldwide.”

On a GAAP basis, the maker of Post-it notes and touchscreen displays forecasts the buyout to be $0.35 dilutive to earnings per share in the initial twelve months following the completion of the acquisition, including funding expenses. Devoid of accounting adjustments related to purchase and expected one-time costs associated to the acquisition deal and integration, over the same twelve months, 3M expect the takeover to be $0.25 accretive to earnings per share.

Furthermore, following the completion of the buyout, effective enterprise value is anticipated to be roughly 11x annual adjusted EBITDA for the initial one year. The estimate includes anticipated run rate cost synergies. 3M now anticipates FY19 share repurchases to be in the range of between $1 billion and $1.50 billion, versus $2 billion to $4 billion projected previously.

Acelity is a world leader in medical technology, centered on sophisticated wound care and niche surgical programs advertised under the KCI brand.

Acelity is already well known for setting up and developing unique segments based on the capability to find and solve unfulfilled clinical requirements with KCI-branded products that improve medical practice, starting with the implementation of V.A.C. Therapy, a path-breaking Negative Pressure Wound Therapy. KCI’s product portfolio today also comprises of “advanced wound dressings and negative pressure surgical incision management systems.” KCI’s solutions help improve healthcare by strengthening wound recovery. Acelity had revenues of $1.5bn in 2018.

3M’s Medical Solutions business concentrates on implementing 3M science to offer secure and effective remedies that enhance healthcare and clinical outcomes. 3M Medical Solutions provides a wide range of integrated products, including medical tapes, sophisticated and severe wound care dressings and related products, sterilization items, and patient warming items that are employed in adverse situations.

Due to the downward revision of net earnings, the stock is expected to remain weak in the short-term.

Technically, the stock is trading below its 50-day moving average. Additionally, the MACD indicator’s reading has turned negative. As a result, we can expect the stock to move down in the short-term.

3M - technical analysis - 3rd May 2019

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Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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