Minnesota Mining and Manufacturing Co. (3M), whose St. Paul offices are shown in this photo.Randy Johnson/Reuters
3M Co. agreed to buy a safety-equipment maker from private equity firm KKR & Co. for about $1.8-billion (U.S.), the largest purchase in its 113-year history, as the company steps up a buying spree.
Known for small acquisitions while focusing on research spending to drive sales, 3M now has its second deal this year for $1-billion or more. The target is Capital Safety, which KKR acquired for $1.1-billion in 2012. In February, 3M said it would pay $1-billion for Polypore International Inc.'s filtration business, then the company's biggest transaction since 2007.
Capital Safety makes commercial fall-protection gear including harnesses and safety nets and had sales of $430-million for the year ending in March, St. Paul, Minn.-based 3M said Tuesday. That adds to $2.4-billion of revenue from 3M's personal safety business, according to a December slide presentation.
"Personal safety is a large and strategically important growth business in the 3M portfolio," chief executive officer Inge Thulin said in a statement. 3M's product line spans consumer products such as Scotch Tape and commercial goods such as films used in touch-screen devices.
Demand for safety equipment is growing quickly, especially in emerging markets as worker-protection regulations increase and multinational companies expand. Capital Safety has posted annual revenue growth of 10 per cent in the past four years, according to the statement.
$1.3-billion profit
KKR will earn profit of about $1.3-billion on its three-year ownership of Bloomington, Minn.-based Capital Safety, according to a person with knowledge of the transaction who requested anonymity because the details are private. During KKR's ownership, Capital Safety introduced more than 100 new safety products, acquired three companies and expanded sales in China, Brazil and the Middle East.
3M was little changed at $159.84 at the close in New York. The shares have dropped 2.7 per cent this year, trailing the 3.2 per cent advance for the Standard & Poor's 500 Index.
The Capital Safety transaction includes $700-million of net debt, according to 3M. It will be financed with existing cash and is expected to close in the third quarter, the company said. Lori Anderson, a spokeswoman, said the deal was the biggest ever for 3M, which was founded in 1902.
Price Tag
The price is about 14 times adjusted earnings before interest, taxes, depreciation and amortization – a measure of cash flow known as Ebitda – for the 12 months after the deal is concluded, said Steve Winoker, an analyst with Sanford C. Bernstein & Co. That implies annual Ebitda of $180-million and a margin on that basis of 42 per cent, he said.
3M had tried to buy Capital Safety in 2011 for $825-million, Winoker said, before KKR purchased it.
"Though the deal is expensive, we think it increases the overall attractiveness of 3M as a whole," Winoker said.
3M, which also completed the purchase of Ivera Medical Corp. and took a minority stake in VocalZoom Ltd. this year, has stepped up share buybacks and dividend payments since Thulin became CEO in 2012.
In the first quarter, 3M paid $652-million in dividends following a 20 per cent increase in the payout and repurchased $886-million of its shares.