The Company

3M Co. is a technology company founded in 1902 by Henry S. Bryan, Hermon W. Cable, John Dwan, William A. McGonagle, and J. Danley Budd. Headquartered in St. Paul, MN, it specializes in manufacturing industrial, safety, and consumer products across distinct segments: Safety and Industrial, Transportation and Electronics, Health Care, Consumer, and Corporate and Unallocated.

The Safety and Industrial segment includes personal safety, industrial adhesives and tapes, abrasives, closure and masking systems, electrical markets, automotive aftermarket, and roofing granules. Transportation and Electronics encompass electronics, automotive and aerospace, commercial solutions, advanced materials, and transportation safety. Health Care offers medical and surgical supplies, skin health, infection prevention products, oral care solutions, separation and purification sciences, health information systems, inhalation and transdermal drug delivery systems, and food safety products. The Consumer segment covers consumer healthcare, home care, home improvement, stationery, and office products like consumer bandages, braces, supports, respirators, cleaning products, retail abrasives, picture hanging, and consumer air quality solutions. The Corporate and Unallocated segment refers to special items and other corporate expenses.

With a market capitalization of $52.86B, 3M is led by Chairman and CEO Mike Roman, driving the company as a prominent science leader. He assumed the role in 2018, following his tenure as chief strategy officer, chief operating officer, and various other positions since joining the company in 1988.

Regarding 3M’s ownership structure, the major shareholders include The Vanguard Group, Inc. (8.41%), SSgA Funds Management, Inc. (6.04%), BlackRock Fund Advisors (4.70%), Charles Schwab Investment Management (2.18%), and Geode Capital Management LLC (2.15%).

Acquisition History

3M has acquired a total of 77 companies, with 4 of those acquisitions occurring within the last 5 years. Notably, 10 of these acquisitions were facilitated through private equity firms. These acquisitions span diverse sectors such as Enterprise Tech in the US, Healthcare IT, Enterprise Software, among others. 3M’s acquisitions have spanned 23 US states and 17 countries and the expenditure for these acquisitions amounts to over $13.3 billion.

Some recent acquisitions include Acelity in June 2019, M*Modal in January 2018, and Scott Safety in November 2017.

In 2019, 3M Co. finalized its purchase of medical-products manufacturer Acelity Inc. for approximately $4.3 billion, marking its largest acquisition to date. This move, initiated under new CEO Mike Roman, signifies a more assertive approach to expanding the company’s offerings. The acquisition, from a group advised by Apax Partners, notably enriches 3M’s profitable segment with bandages and surgical-wound products. 3M valued the transaction at $6.7 billion, encompassing Acelity’s debt of $2.4 billion as of December 31, 2018.

“Healthcare has been a robust growth area for us, and we’ve strategically invested in a broader array of technologies,” Roman stated in a conference call with investors. “Advanced wound care remains a priority growth platform.”

This landmark deal surpasses 3M’s prior largest acquisition, the 2015 purchase of Capital Safety for $2.5 billion, signaling a shift towards more transformative moves following former CEO Inge Thulin’s tenure. Previous significant acquisitions include the $2 billion acquisition of Scott Safety in 2017.

In another healthcare-oriented acquisition, 3M acquired M*Modal’s technology business in 2019, with a total enterprise value of $1 billion. M*Modal’s cloud-based, conversational AI-powered systems complement 3M’s Health Information Systems, enhancing physicians’ efficiency in capturing patient narratives and providing higher-quality care. The estimated annual revenue of M*Modal’s technology business is approximately $200 million.

Acquisition Methods

3M aimed to fund the transaction primarily using existing cash reserves, potentially supplemented by funds from outside the U.S. This approach was employed during the Capital Safety acquisition. However, for the acquisition of Acelity Inc., 3M adopted a different strategy, combining cash reserves with new debt to finance the deal. Consequently, the company curtailed its anticipated share repurchases in 2019 to preserve cash, reducing planned buybacks from $2-4 billion to a range of $1-1.5 billion. The financial implications of these acquisitions were discussed during the company’s earnings conference call.

It is unclear if 3M has a preferred financial advisor to support in these transactions. In the Acelity Inc. acquisition, Credit Suisse acted as the financial advisor. In the Capital Safety acquisition, Morgan Stanley served as the exclusive financial advisor to 3M, while Goldman Sachs & Co. acted as the exclusive financial advisor to KKR.

Post-merger Integration Approach

The company has its own corporate development and strategy department. Most of the significant deals we discussed took place during Jerry Will’s tenure as VP and Senior VP in the corporate development department. However, after more than 13 years with the company, Jerry Will departed as Senior VP of Corporate Development in June 2023. Jerry has joined Wesco as their Senior VP of Corporate Development.

At the moment, Kevin England, with over 5 years of tenure in the company, currently holds the position of VP of Enterprise Corporate Development and Strategy. He assumed this role around the time of Jerry’s departure.
The change in senior leadership within the corporate development department may also result in a shift in preferred integration partners. However, it is unclear at the moment if they hold any preferred partnerships.

Divestitures

In addition to acquisitions, 3M underwent divestiture of 19 assets. One notable transaction was the 2019 sale of Kindeva Drug Delivery to Altaris Capital Partners for a total of $650 million.

3M recently disclosed its plan to separate its Health Care business, paving the way for the creation of two distinct public entities poised for individual growth trajectories. The New 3M will continue its legacy as a premier global material science innovator catering to industrial and consumer markets, while Health Care will emerge as a diversified global healthcare technology leader, focusing on wound care, healthcare IT, oral care, and biopharma filtration. 3M has officially designated Solventum as the name for the prospective independent healthcare company post-spin-off. Derived from ‘solving’ and ‘momentum,’ Solventum reflects the company’s commitment to pioneering solutions. Goldman Sachs & Co and PJT Partners are acting as financial advisors, while Wachtell, Lipton, Rosen & Katz is providing legal counsel for 3M’s Health Care business spin-off.

The Future

After a period of reduced acquisition activity post-2019, the company’s recent trend in its latest acquisitions reveals a strategic shift, particularly towards fortifying its healthcare division. This strategic move aligns with the recent completion of spinning off their healthcare business, now known as Solventum. The decision to spin off the healthcare business aims to enable both entities to concentrate on their specific industries, consequently streamlining their sourcing strategies and acquisition approaches. I anticipate that this shift will pave the way for future acquisitions. The advantage lies in the potential for more targeted acquisitions: fostering expansion and development for Solventum while simultaneously driving growth for the remaining or ‘New’ 3M.