Acelity sold to 3M in $6.7bn deal

July 2019 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

July 2019 Issue

Medical device manufacturer Acelity Inc, and its KCI subsidiaries, have been sold to 3M in a deal worth $6.7bn. The deal is expected to close in the second half of 2019.

3M will acquire Acelity, formerly known as Kinetic Concepts Inc, from a consortium of funds advised by Apax Partners, affiliates of the Canada Pension Plan Investment Board and the Public Sector Pension Investment Board for around $4.4bn in cash and will assume debt of around $2.3bn. The purchase price values Acelity at 15 times its 2018 adjusted earnings before interest, tax, depreciation and amortisation (EBITDA). The transaction is 3M’s largest by a significant margin; its previous largest deal was the acquisition of Capital Safety for $2.5bn.

Acelity’s owners had been planning to exit the company via a $100m IPO, having filed paperwork in April. The planned IPO would have seen the company go public for the third time in its history. However, the sale to 3M has signalled a shift in exit strategy. The consortium of funds took Kinetic private in a $6.5bn deal in 2011. Kinetic’s name was changed to Acelity in 2014 and a year later consideration was given to taking the company public, however given market conditions at the time, the decision was made to keep it private.

“Today, KCI embarks upon a new era in its long history as a pioneer in healthcare,” said R. Andrew Eckert, chief executive of Acelity. “The combination of KCI with 3M will accelerate the reach of a business that is a leader in innovation, customer experience and clinical and economic evidence. Backed by the resources and expertise of 3M, KCI will be able to offer clinicians and patients even more compelling solutions designed to speed healing and improve outcomes. I would like to thank Apax, CPPIB and PSP Investments for their close partnership and strategic direction over the years shaping KCI into a premier global advanced wound care company.”

“We are proud of our close work with management to successfully transform KCI through a range of growth initiatives, including an M&A programme, that enhanced the company’s strategic direction,” said Steven Dyson, chairman of Acelity and partner at Apax Partners. “We believe the business will have a great future with 3M. Lastly, we are grateful for the opportunity to have joined in this highly successful investment with CPPIB and PSP, two long-standing investors in the Apax Funds.”

“CPPIB is pleased to have supported KCI’s delivery of medical devices and products that benefit millions of patients around the world,” said Ryan Selwood, managing director and head of direct private equity at CPPIB. “During our investment, the company helped restore lives with the launch of innovative solutions and expansion into new geographies.”

“We are proud to have supported KCI and its management team during its exciting transformation journey, in partnership with Apax and CPPIB,” said Simon Marc, managing director and head of private equity at PSP Investments. “KCI has successfully invested into novel organic growth initiatives and we are confident about its continued growth prospects with 3M.”

Financially, 3M has endured a difficult couple of years and it is hoped that the addition of Acelity will give the company a welcome boost. In the weeks prior to the deal announcement, 3M reported one of the worst quarters in its history. It reported a lower-than-expected quarterly profit, cut its 2019 earnings forecast and announced plans to lay off 2000 employees. The staff cuts, the company argued, would result in estimated annual pre-tax savings of $225m to $250m, with $100m in the rest of 2019. 3M expects the deal to add 25 cents per share to its earnings in the first year following completion of the Acelity deal, excluding one-time expenses. The company’s full-year 2019 share buyback programme is now expected to be in the range of $1bn to $1.5bn, compared with a prior range of $2bn to $4bn.

Richard Summerfield