Acelity Sells to 3M in Deal Valued at $6.7 Billion, Ending IPO Plan

Xconomy Texas — 

San Antonio — Acelity is being acquired by 3M, the maker of products like Post-it and Ace bandages, in a $6.7 billion deal just two weeks after an affiliate of Acelity had filed paperwork for an initial public offering.

The up-front cost to 3M will be about $4.3 billion because 3M (NYSE: MMM) will assume Acelity’s almost $2.4 billion in debt. Acelity had planned to pay down some of that debt with funds from the IPO it outlined in filings on April 18.

St. Paul, MN-based 3M is acquiring the company from a consortium of private equity funds that included affiliates of Apax Partners, Canada Pension Plan Investment Board, and the Public Sector Pension Investment Board, which acquired Acelity (then known as Kinetic Concepts) in a $5 billion buyout. That deal too had a higher value (at $6.3 billion) because it included assumed debt.

Acelity makes wound-care products, such as dressings and negative-pressure pumps that aim to help heal ulcers, burns, cuts, and gashes that can be anything from serious to small. 3M plans to incorporate San Antonio-based Acelity into its medical solutions business, which sells health care products like dressings, sterilization tools, medical tapes, and more.

While 3M is better known for its Post-it or Ace brand products, it has business interests in a wide variety of industries, from transportation to electronics to energy. The company had almost $32.7 billion in net sales company wide in 2018, including $3 billion from the medical solutions business.

CEO Michael Roman foreshadowed the acquisition earlier this week by telling Bloomberg his company would be taking aggressive actions after its performance during the first quarter sent its stock tumbling during the last week of April. The company attributed the decline to softening in the automotive and electronics markets, as well as in China.

After news of the acquisition broke Thursday morning, 3M’s stock sank to $185.39 per share as of 11 a.m. in New York, down 65 cents from yesterday’s close. That’s down from its annual high of $219.08 per share it hit on April 25 prior to the difficult earnings report.

“Health care for us has been a strong growth marketplace and portfolio, so we’ve been investing in a broader range of technologies,” Roman said on a conference call after announcing the deal, according to Bloomberg. “Advanced wound care has been one of our priority growth platforms.”

Acelity made some big moves while under private equity ownership, including the rebranding from Kinetic Concepts in 2014. In December 2016, it announced it was selling a business unit called LifeCell to Dublin-based biopharmaceutical company Allergan for $2.9 billion. LifeCell sells a bevy of products used to help damaged human tissue repair or regrow.

Acelity was founded in 1976 and has been taken public twice previously, once in 1988 and again in 2004. (It was taken private in 1997, according to the San Antonio Express-News.) The company had considered an initial public offering in 2016.

As of December 31, Acelity had almost $1.5 billion in total revenue and $441 million in adjusted earnings before interest, taxes, depreciation, and amortization. Its total debt dropped by about $2.4 billion from 2016 to 2017, after the LifeCell sale.