May 4, 2009
Strategic Buyer of the Year: 3M Corp. Buying Beyond Post-It Notes
By Ken MacFadyen
Mergers & Acquisitions Report

2008 was supposed to be the year of the strategic buyer. As it turned out, it was merely the year of two or three strategics, who managed to ramp up their M&A activity in spite of the economic unrest that sent all others to the sidelines. 3M Corp. was among those to take advantage, distinguishing itself with 18 separate acquisitions, paying an aggregate of $1.39 billion for all of them.

This activity was not necessarily out of the ordinary for the conglomerate, perhaps best known for its Scotch-brand tape and Post-It Notes. In 2006, for example, 3M spent $888 million on 19 new business combinations, according to its most recent 10K filing, and the company spent $539 million last year to complete 16 acquisitions. The strategy in 2008, similar to previous years, was to complement areas already being targeted for growth.

"3M is known as an innovation company; we see acquisitions as being complementary and adjunctive to organic growth," describes Mark Copman, a vice president at 3M, who heads corporate development and mergers and acquisitions for the company.

3M took a targeted approach last year, zeroing in on areas that could be considered recession resistant. In December, it acquired certain assets of Futuro, a company - formerly owned by Nivea skin-care distributor Beiersdorf - that makes wraps and braces to treat sprains and arthritis. A few months earlier 3M acquired car care product maker Meguiar's, which tops even Armor All in the automotive cleanser and protectant market. The deal reportedly took just five weeks, start to finish, to complete. In July, meanwhile, 3M acquired Quest Technologies, a maker of sound and heat monitors and gas detection equipment used in industrial settings.

If there is a common denominator in these purchases and others made last year, it's that they have some level of protection against outside cyclical pressures. Ankle sprains, for instance, occur in good times and bad, while car care products are often considered a hedge against a softening economy as consumers look to extend the life of their vehicles. Protective equipment is another area that is immune from cyclical worries, as safety standards have increased worldwide.

"We are always looking to participate in strong growth markets," Copman says. "For every deal, we ask the same questions: What is the strategic and financial fit? How will we integrate the acquisition? What are the key risk factors? And what does the acquisition do for our global portfolio?"

Another common thread is that all of the deals are distinctly middle market. For a company with a market cap of $34.9 billion, its appetite for deals is better suited for French cuisine (involving many plates with smaller servings) than a Texas chop house, home of the 64 oz. prime rib. Indeed, 3M's acquisition of Aearo Holding Corp., valued at $1.2 billion or $523 million (net of cash acquired), was its largest deal last year. This again supports Copman's statement that M&A is merely an adjunct to an existing blueprint.

3M has shown an ability to find and complete deals, but as with any strategic buyer, the heavy lifting comes during the integration. This too has become a science at 3M. The company operates a centralized integration team that tracks each deal, month by month, for three years. Of course, there's a 100-day plan, and another 180-day checkup, but the key, Copman states, is to "keep it simple." He adds, "We track revenue and operating income, but we won't use secondary metrics — those can be gamed."

It may sound simple, but then again, 3M has completed 53 acquisitions over the past three years — it's safe to say they've got it down.