MINNEAPOLIS -- When news surfaced that 3M Co. is reportedly selling its drug delivery business, it wasn't exactly surprising that 3M would sell one of its homegrown successes. The company sells businesses all the time.
But why this one? 3M has not confirmed it's even selling the business, so it's not exactly explaining its rationale. But we already know why -- and finding the right assets to sell is one of the underappreciated arts of good management.
Buying and selling companies is more or less a core business activity of companies organized like Maplewood-based 3M, handled by staff generally organized under the heading of corporate development. A quick search on the networking site LinkedIn turned over quite a list of 3M staffers doing corporate development jobs.
In fact, the list of businesses 3M has formally disclosed as having sold in the recent past seems to be as long as the list of things it has bought.
Among the divestitures disclosed this year includes a gas and flame detection business and a pending deal to sell what 3M called its "advanced ballistic-protection business," which does about $85 million a year selling helmets, body armor and the like.
It hasn't been a good year for 3M, of course, with a lot of its business in sectors or regions that have been having an even worse year. Its stock has slipped about 12% so far this year, with most of the damage coming in April and May. The broader market averages, meanwhile, have surged more like 25 % this year.
The drug delivery unit had sales in the first three quarters of the year of about $300 million, down more than 10 % from the same period of 2018. It's not exactly a distressed operation, though, as Bloomberg reported that the unit could sell for $1 billion, citing people with knowledge of the deal.
The company isn't selling its drug delivery unit because it needs the money, either. It had $1.7 billion of free cash flow just in its most recent full quarter. The company did complete its acquisition of surgical wound care products company Acelity, Inc. this fall for about $4.5 billion plus the assumption of some debt, but this new business unit makes money.
So why sell drug delivery? It could be as simple as it's worth more to somebody else.
In a study a couple years ago by consultants Bain & Co., companies it described as "focused divestors," meaning most active in buying and selling, significantly outperformed the buy-and-hold crowd in total return to shareholders.