Sunday, May 5, 2019

3M's Acquisition Of Acelity Is Too Much 'Business As Usual' For Me

The more things change, the more I guess they stay the same. After a sharp drop in the wake of its worst quarterly report in years, and growing investor concern about the direction and fundamental growth capacity of the business, 3M (MMM) has chosen to spend almost $7 billion of shareholders’ money on a medical technology business that isn’t growing all that fast and doesn’t have exceptional margins. I can see how this deal for Acelity could produce above-average synergies and become a stronger deal over time, but to me, this seems all too familiar of a deal with 3M overpaying for an asset that doesn’t really add much of what the company really needs.

Worse still, 3M announced that they’ll be pulling back on share buybacks. Coupled with concerns about possible long-tail pollution-related payouts, this is not what 3M’s generally more conservative investor base wants to hear, and I’m concerned that future divestitures could further compromise short-term FCF generation capacity. I don’t believe this fundamentally alters the 3M investment argument (yet…), but it’s another thumb on the wrong side of the balance scale.

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3M's Acquisition Of Acelity Is Too Much 'Business As Usual' For Me

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