3M is looking to expand their wound care offerings and are willing to pay $6.7 billion for the privilege of doing so. They recently inked a deal to acquire Acelity Inc. and its KCI subsidiaries from the Apax Partners advised funds held by the Canadian Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board (PSP).
3M offers more than snazzy stationery supplies and ‘the good band-aids’ one goes for at the drug store. In fact, it’s a massive multinational conglomerate working in the industry, worker safety, healthcare and consumer goods sectors. They’ve recently been floundering under the burden of flagging first quarter earnings that missed projected targets. The stock took its biggest nosedive since 1987’s Black Monday and 3M was forced to slash guidance and cut 2,000 jobs through a restructure.
Acelity offers an attractive $1.5 billion in annual sales for their wound care products marketed under their KCI brand. The company recently received De Novo clearance for its Prevena negative pressure wound therapy devices and also offers an ActiV.A.C. portable device that allows patients to receive similar care within their home.
“Acelity is a recognized leading provider of advanced wound care technologies and solutions and an excellent complement to our health care business,” CEO Mike Roman said. “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.”
Lagging automotive and electronics sales has left 3M looking to their healthcare business unit to carry them forward to better things. As the only sector that reported growth at 2.4 percent in the first quarter, 3M’s purchase of the wound care company represents a bold gambit for their future. The Acelity purchase represents the biggest transaction the company has ever made – dwarfing the healthcare tech sector’s $1 billion purchase of MModal.
While Roman didn’t specify about the timing of the purchase, he stated that it “has been our top priority acquisition in this category to really build for the long-term.”
As Roman explained, the wound care industry represents an $8 billion industry with projected annual growth of 4 to 6 percent. The CEO pointed out that Acelity’s products will complement their own and give 3M a bigger piece of that market pie. It wasn’t the cheapest deal for 3M, priced at 15 times Acelity’s 2018 adjusted EBITDA. 3M states that price was only at 11 times the annual adjusted EBITDA, assuming they are able to fully capitalize on their cooperative efforts.
“We are excited to bring Acelity’s technologies and dedicated employees to our team,” Roman continued. “Together, we will apply 3M science to bring differentiated offerings to key wound and operative care solutions worldwide.
