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3M acquires Aearo; expands global PPE platform

January 8, 2008
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Unless you’ve been climbing Mount Everest for the past three months or somehow disconnected from the communications grid, you know by now that 3M acquired Aearo Technologies for $1.2 billion in a deal announced this past November and expected to be finalized in the first quarter of this year.

3M, of course, is a global goliath, with 2006 sales of $22.9 billion — international sales accounting for 61 percent of the total ($14 billion). Net income in ’06 totaled $3.851 billion, or 16.8 percent of sales, according to data provided on the 3M web site. The St. Paul, Minn.-based conglomerate employs 75,333 people worldwide (34,553 in the United States and 40,780 internationally).

3M is organized into six businesses, one being Safety, Security and Protection Services (SSPS). Occupational Health and Environmental Safety — where Aearo will fit in — is a business unit (one of 35 company-wide) within Safety, Security and Protection Services. In 2006, Safety, Security and Protection Services, which include security systems and building safety products as well as personal protective equipment (PPE), had net sales of $2.6 billion (about 11 percent of 3M’s total sales) and an operating income of $575 million. More than 60 percent of SSPS sales are outside the United States.

Aearo, based in Indianapolis, Ind., has 1,700 employees and sales of $508 million in 2007, according to a 3M presentation to investors posted on its web site. That’s up from $316 million in 2003, according to 3M, which said Aearo’s sales have a compounded annual growth rate of more than 12 percent during the past five years. In 2007, Aearo’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $107 million, or 21.7 percent of sales, according to the 3M presentation.

Aearo has been owned by funds managed by private-equity firm Permira, with offices across Europe and Tokyo and New York, since 2006, when Permira paid $765 million for the company, according to a report in The Indianapolis Star. In April 2004, private equity firm Bear Stearns Merchant Banking has paid $381 million for its majority stake in Aearo, according to the article.

Near-term plans
Aearo President and CEO Michael McLain and Aearo’s management team agreed to stay on as senior advisers for at least 12 months after completion of the acquisition, according to The Indianapolis Star. In the article, a 3M spokeswoman said it was too soon to discuss long-term staffing plans, adding that Aearo will retain its headquarters in Indianapolis as a wholly-owned, stand-alone subsidiary. Aearo’s sales force will remain as well, 3M Chairman, President and CEO George Buckley said in a conference call with analysts. Both 3M and Aearo sales reps will be able to sell each company’s products, he said.

Buckley called the deal “an absolute slam dunk for us.” 3M predicts Aearo sales to reach $818 million by 2012, with EBITDA adjusted earnings of $213 million, or 26 percent of sales. 3M’s “dream,” according to its presentation to analysts, is to grow its Safety, Security and Protection Services Business from $2.6 billion in sales to $10 billion, targeting business, government and consumer markets.

3M estimates the current size of the personal protective equipment market at between $16 billion to $19 billion in sales. According to the company’s analysis, 3M owns the number one share of market position both in the $3.5-$4 billion respiratory protection market and the $1.9-$2.2 billion visibility and protective clothing market. Aearo is the North American and European market leader in the $0.9-$1.2 billion hearing protection category, and number two in the $2.0-$2.2 billion head, eye and face market in North America and Europe. Aearo’s SafeWaze™ fall protection line is number three in North America, according to 3M.

Eying synergies
Aearo’s hearing protection, eyewear and fall protection product lines will give 3M “a broad platform for accelerated growth,” according to a joint 3M-Aearo statement, by expanding its core personal safety business of respiratory protection products. Today, Aearo’s strength is primarily in the U.S. and Western Europe, with limited international coverage and infrastructure, according to the 3M Wall Street presentation. 3M foresees “sales growth synergies” for Aearo products by leveraging its global infrastructure, specifically in the Asian Pacific, Latin American, Central East European and Russian markets.

3M also envisions “cost synergies” — approximately a one-percent reduction of the combined Aearo/3M cost base, or about $20 million per year — by eliminating redundant structure and corporate functions and use of sourcing and Lean Six Sigma manufacturing.

The company also has plans to integrate respiratory, hearing and communications technologies into full-face and head protection gear.

Comparing cultures
“Our two companies share a similar culture” in terms of product development and operations, said Aearo CEO McLain in the joint 3M-Aearo statement announcing the deal. Here’s a comparison, gleaned from information on both companies’ web sites:
  • Aearo lists approximately 18 models or styles of industrial safety eyewear; 3M offers about a half-dozen eyewear styles and four goggle types.
  • Aearo’s industrial hearing protection line includes roll-down foam ear plugs, push-in foam earplugs, premolded-resusable earplugs, banded protectors, earmuffs and custom-molded earplugs. 3M’s hearing protection line covers five ear muffs styles and seven ear plug styles, none possessing the brand equity of Aearo’s E-A-R® line.
  • 3M’s distributor locator for the U.S. contains 2,616 distributor matches by zip code and product category. A similar figure is not posted by Aearo. But in the state of Alabama, you can find approximately 60 3M distributors and about 85 Aearo distributors. Both companies sell through major national chains such as Airgas Safety (22 locations in Alabama for Aearo), Grainger, Fastenal (27 locations in Alabama for Aearo), Hagemeyer and Magid Glove & Safety, as well as local and regional safety supply houses.
  • Both companies’ safety products can be found nationwide at Home Depot, Lowe’s Menards, Ace Hardware and Sherwin-Williams stores. Target and Wal-Mart are mass retail channels for 3M safety gear. Aearo’s AOSafety® line is sold at mass retailer Sears.
Consumer markets for the AOSafety® line include DIYers, hobbyists, contractors, hunting and shooting enthusiasts (including the Cheaper Than Dirt, “America’s Ultimate Shooting Sports Distributor”), lawn and garden professionals, and health and beauty care (covering travel - Travel E-A-R® filters with NRR 22 dB, swimming, sleep and rest, study concentration - E-A-R® plugs with NRR 32 dB, and sports-concerts). According to Aearo’s web site: “Look for AOSafety® Personal Safety Products in the Health & Beauty or Pharmacy area of Grocery Stores and Drugstores everywhere.”

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