3M Continues Spending Spree

Intent on broadening its product base beyond Post-It-Notes and Scotch Tape, manufacturing conglomerate 3M is spending $810 million to purchase a company that makes temperature management devices.

The acquisition of Arizant Inc. is expected to close during the fourth quarter. The Eden Prairie, Minn.-based company has been majority owned since 2004 by Court Square Capital Partners, a private equity firm headquartered in New York City. Court Square’s $255 million deal for Arizant included at least $140 million in debt, according to published reports. Most of that debt, however, has been paid off through sound business decisions and a 2009 refinancing deal that raised $75 million.

Arizant credits itself with introducing to market a therapy that helps patients undergoing surgery maintain a normal body temperature (known in medical circles as normothermia). Its first devices—marketed under the name Bair Hugger—launched in 1987; the product line has since grown to include warming blankets and units, accessories such as hoses, filters and drapes, and a blood/fluid warming set. The company also sells a single-use adjustable warming gown that gives patients control of the temperature.

Arizant executives estimate the patient warming market to be worth about $1 billion and growing at an annual rate of 10 percent. Such earning potential indubitably helped attract 3M to the sector (and Arizant) as it seeks ways to diversify its product line. The St. Paul, Minn.-based company has developed infection prevention products in recent years that includes sterilization and monitoring systems, hand hygiene systems, perioperative preps and surgical drapes.

“Patient warming is a highly strategic adjacency for our business and integral to infection prevention,” said Debra Rectenwald, president and general manager of 3M’s Infection Prevention Division. “In addition to Arizant’s products, its intellectual property portfolio and technology platforms expand 3M’s infection prevention offerings and will help to drive growth internationally, as well as provide a platform of innovative wound care technologies.”

Arizant President and CEO Gary Maharaj said his company’s technology and applications in wound healing will help solidify 3M’s footprint in the infection prevention market. He called the union of the two firms “a natural fit.”

“Arizant’s product development and commercialization capabilities will draw on the strength of 3M’s global resources in healthcare and its technology expertise to provide solutions that help prevent perioperative hypothermia,” he noted in a prepared statement.

Arizant employs 375 people in the United States, United Kingdom, Germany, France, Spain, Austria, Belgium and Japan. Executives expect the firm to post about $200 million in sales this year, with 40 percent of those sales going to international customers. Under private equity ownership, Arizant has grown its revenue at an annual compounded rate of 14 percent, Maharaj said. The firm grew mostly organically, launching new versions of its products and expanding its customer base.

3M expects the acquisition to have little, if any, effect on its earnings. The company, which makes thousands of products ranging from furnace filters to power lines, ended the summer with a pricey shopping spree, spending $1.17 billion on two companies that will augment its high-tech security product lines. On consecutive days at the end of August, 3M announced its purchases of Cogent Inc. for $943 million (though it will end up paying less than half of that due to Cogent’s large cash reserves) and Attenti Holdings SA for $230 million.

Attenti manufactures remote people-monitoring technology for tracking people awaiting trial or probation, as well as those in elder care facilities. Formerly known as Dmatek, the Israeli firm was acquired by private equity firm Francisco Partners in March 2009 for $81.8 million.

Cogent provides automated fingerprint identification systems and other fingerprint biometric solutions to governments, law enforcement agencies and other organizations worldwide.

The Cogent deal triggered a lawsuit just days after the acquisition was announced on Aug. 30. Bryce Bell, a Cogent shareholder, claims the $943 million buyout of the Pasadena, Calif.-based firm is undervalued. “No rival bidder is likely to emerge and act as a stalking-horse because the merger agreement unfairly assures that any auction will favor 3M,” Bell said in his lawsuit, filed in Delaware Chancery Court. Both Cogent and 3M are named as defendants in the suit.

A 3M spokesperson claims Bell’s lawsuit is “without merit.”

3M agreed to buy Cogent for an 18 percent premium to the share price on Aug. 27, the last day of trading before the announcement. But three of Cogent’s largest investors, including Iridian Asset Management LLC, an investment management firm in Westport, Conn., accused 3M of underrating the deal, according to Bloomberg News.

Demand for Cogent’s technology generated $25.4 million in revenue in the second quarter, according to Bell’s lawsuit. Consequently, analysts were bullish about the company’s prospects. “Given the company’s recent performance and future prospects, the consideration shareholders are to receive is inadequate,” the lawsuit states.

Bell’s attorneys claim 3M and Cogent have built unfair provisions into the acquisition to discourage other bids. The deal includes a $28.3 million termination fee and a “no solicitation” provision that prevents Cogent executives from soliciting other offers, according to the lawsuit.