Jack Keough: 3M Ready For More Large Acquisitions

The manufacturing conglomerate says it has $24 billion to $29 billion set aside in the future for deployment into “strategic opportunities” and that some acquisitions could be larger than the company has been known for over the years.

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Industrial giant 3M made it clear during a recent presentation to investors and analysts that it intends to continue as a major player in mergers and acquisitions activity with some deals possibly being multi-billion dollar purchases.

The St. Paul Minnesota-based conglomerate says it has $24 billion to $29 billion set aside in the future for deployment into “strategic opportunities” and that some acquisitions could be larger than the company has been known for over the years.

Inge G. Thulin, 3M’s chairman, president and CEO, told analysts some of those acquisitions could be larger than the company has been known to complete over the years, but ones that would complement 3M’s existing core business groups.

Inge G. Thulin, 3M chairman, president and CEOInge G. Thulin, 3M chairman, president and CEO

“If it  (a potential acquisition) is the right asset for us, we have an integration team now in the company that can help us to execute,” he said according to a transcript of the meeting as provided by www.seekingalpha.com.

Thulin referred to the success 3M is already seeing from its $2.5 billion acquisition last August of Capital Safety, a specialist in fall protection. Fall safety has become one of the fastest-growing safety categories within the global personal protective equipment market.

Thulin said 3M could be involved in similar size purchases and also emphasized how pleased the company is with Capital Safety’s purchase.

Frank Little, executive vice president of 3M’s safety and graphics group, elaborated on that point by noting the Capital Safety integration is on track and is meeting the company’s profit expectations.

“We are building sales synergies across our global footprint as we expected to do and expanding our portfolio reach into new market verticals,” he said. “We also are integrating our manufacturing operations in the right geographies. And we are achieving R&D scale and leverage that we have never had before globally.”

The Safety and Graphics Group has been heavily involved in expanding its reach into the $33 billion personal protection equipment market. Demand for personal protective equipment is rapidly growing, driven by increasing regulatory focus on worker safety across both developed and developing countries.

When the purchase was announced, Thulin pointed to 3M’s interest in the PPE sector. “Personal safety is a large and strategically important growth business in the 3M portfolio,” he said in a release. “The acquisition of Capital Safety bolsters our personal safety platform and will build on our fundamental strengths in technology, manufacturing, global capabilities and brand.”

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Nine years ago, 3M purchased Aearo Technologies Inc., an international leader in hearing protection for $1.5 billion.

And last fall the Safety and Graphics Business Group acquired a minority equity investment in StrongArm Technologies Inc., a New York-based startup that is focused on creating innovative safety products for the industrial workforce. StrongArm designs and manufactures patent protected products aimed to increase the safety and productivity of workers engaged in manual lifting and materials handling.

“With leading technical depth and global reach now in multiple categories of protection, we are strengthening our capability to serve traditional industrial segments like manufacturing, mining, transportation and oil and gas,” Little said.

“And we are able to use the strength and leading position across categories to accelerate our capability to serve other segments like agriculture, utilities, construction and pharmaceuticals.”

All business groups of 3M have been active in mergers and new product development in the past few years. Acquisitions have been made in the health care sector as well as in 3M’s industrial business, which includes abrasives.

3M, known for its innovative products and its emphasis on R&D, touted the success of its precision shaped grain technology. The company describes the technology as acting like a cutting tool, slicing through metal like a knife. The material is continuously self-sharpening, as points break off during use to expose new sharp edges — slicing cleaner and faster, staying cooler and lasting many times longer. It also is said to substantially increase worker productivity.

The technology is described by company officials as “game changing,” not just for 3M’s industrial customers but also for its construction, home improvement  and automotive aftermarket collision repair end users.

This technology is also now being added to 3M’s non-woven Scotch-Brite, its surfaces conditioning types of abrasives.

During the presentation, 3M discussed plans to further strengthen and streamline its supply chain, as well as an elevated focus on lean six sigma to improve customer service, drive operational efficiencies and increase cash flow.

The company highlighted its newly opened state-of-the-art research and development facility — The 3M Carlton Science Center — which will house multiple 3M businesses and up to 700 scientists to foster innovation and cross-collaboration between businesses and with customers.

3M also reaffirmed its 2016 full-year performance expectations. The company expects 2016 earnings to be in the range of $8.10 to $8.45 per share with organic local-currency sales growth of 1 to 3 percent.

Thulin outlined the company’s five-year plan, including its three key levers of portfolio management, investing in innovation, and business transformation, which he says will make 3M more agile and competitive, resulting in stronger relationships with customers.

3M’s new five-year financial objectives — covering 2016 through 2020 — are:

                • 8 to 11 percent growth in earnings per share

                • 2 to 5 percent organic local currency sales growth

                • 20 percent return on invested capital

                • 100 percent free cash flow conversion

Those objectives reflect 3M’s confidence in driving strong, sustainable growth and premium returns well into the future, said Thulin.

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