3M, the maker of Post-it, will acquire Scott Safety from Johnson Controls for $2 billion to build up its safety division. This is the second largest acquisition for 3M after its purchase of Capital Safety, a maker of fall protection equipment such as harnesses, lanyards, and self-retracting lifelines, from KKR & Co. for $2.5 billion in 2015.

Scott Safety’s products include respiratory-protection products, thermal-imaging devices, and other products for firefighters and industrial workers. The company will become a part of 3M’s safety division, which accounts for 18% of the company’s sales in 2016 and is the second largest division.

3M is using acquisitions to boost slow growth in the US and to combat industry challenges in the consumer and electronic sector. In 2016, 3M executed a number of acquisitions and divestments as part of its realignment strategy. The company sold its temporary protective films business, safety prescription eyewear business, and pressurized polyurethane foam adhesives business. 3M also purchased Semfinder, a medical coding technology company.

Here are two lessons for leaders who are thinking about company growth.

1. Acquisitions can jumpstart growth.

When organic growth options such as, opening a new store or adding new products, fail to grow revenue significantly, it may be time to look at external growth. Strategic leaders evaluate shifting industry dynamics to anticipate future demand and then use acquisitions to reposition their companies to capture a share of the high-growth market. When completed, the acquisition of Scott Safety will add 1,500 employees, $570 million in revenue, and a slew of products immediately to 3M’s safety division.

2. Acquisition isn’t just about getting bigger.

Acquisition is truly about recalibrating your business and focusing on strategy. Although 3M is acquiring Scott Safety, the company also divested of a number of businesses in 2016 and is paring down from 40 business units to 25.

On the other hand, the seller, Johnson Control is also realigning their business with this divestment. “Consistent with our priority to focus the portfolio on our two core platforms of Buildings and Energy, we continue to execute on our strategic plan.” said Johnson Controls Chairman and CEO Alex Molinaroli.

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News in from Coca-Cola reminds us that growth is more about recalibration than it is about adding size. According to the Wall Street Journal, Coke plans to sell off all of its US manufacturing plants by 2017.

Why would they do that?

Coke has struggled with its asset heavy distribution over the past couple of years and is now reversing a decision it made in 2006 to acquire its largest bottler for $12.3 billion. Divestment enables the soft drinks behemoth to focus on its more profitable concentrate business, and on being a brand manager and IP manager rather than a bottling manufacturer. After this divestiture, Coke’s operating margins will increase from 23% to 34%

Business is inherently cyclical. An asset-heavy strategy may be needed in certain market conditions. Other times may demand a lighter approach. In this case, for Coca-Cola today, the sum of the whole is worth less than the individual pieces. Its assets hold higher value when they’re separated. And Coke knows it has to take action to avoid becoming an acquisition target. There have been rumors that Anheuser-Busch InBev could try to buy the company.

What lessons can middle market companies learn from Coke’s dramatic pivot? Perhaps the most important point is that M&A is not about simply getting bigger. It’s about strategic recalibration and seizing opportunities to refocus your business to best leverage the market and future demand. Practically speaking, progress for your business may not always mean expansion. Pruning can also be a stimulus to long-term growth.

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The polyolefins industry, like so many others, is evolving significantly. Growth in emerging markets and Asia has skyrocketed while European and North American markets have matured.

Last week I was invited to speak at the Future of Polyolefins Conference 2014 in Dusseldorf, Germany, where top executives from key industry players such as Borealis AG and Clariant gathered to discuss industry dynamics and trends.

A resounding theme throughout the conference was the seismic shifts in demand and production the polyolefin industry. In the near future Europe will move from a net exporter to a net importer as it closes several polyolefins facilities and reduces capacity.

If regulations change, the U.S. will export more polyolefins to fill part of this gap in production. China is also ramping up its polyolefins production to match growing demand in Asia, but even with additional capacity demand will soon outstrip production over the next ten years.

Several speakers also stressed the need for diversification in order to smooth over volatility in the industry.

In this new paradigm leaders are reassessing their growth strategies and are considering external moves like strategic alliances, joint ventures and acquisitions.

In my presentation, “Strategic Alliances, Joint Ventures and M&A – the Route to Success,?” I encouraged conference attendees to consider their five options in building their growth strategy:

  1. Grow Organically
  2. Exit the Market
  3. Be the Low-Cost Provider
  4. Do Nothing
  5. Pursue External Growth

It’s important to realize you have a choice when it comes to planning your growth strategy. By evaluating all five options, you are better equipped to make the right decision and confidently execute your plan.

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Pharmaceutical companies are using acquisition to become “pointy,” or more focused.

Two recent examples are Bayer and Merck.  Bayer is focusing on over the counter medications by acquiring Merck’s consumer care business for $14.2 billion. On the other hand, Merck has become more streamlined through divestment.

As I’ve mentioned before, although divestment means becoming smaller, it can be pathway to growth. By trimming and pruning your company, you return to your core competencies and can more effectively focus on long-term strategic growth.

Not only are pharmaceuticals becoming pointier, they are also becoming bigger through consolidation. According to Bloomberg, there were $118 billion in healthcare deals announced in April 2014 compared with $175 billion in deals executed in 2013. By acquiring scale pharmaceutical companies can sell more products and have better leverage for negotiating with customers.

 

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If your company’s organic growth has hit a plateau or is in decline, leaving the current market may be your best option. If the odds against your success are rising steadily, I strongly encourage you to think about divestment.

After seven years, British supermarket chain Tesco is exiting the U.S. market. Tesco is selling its Fresh & Easy stores to Yucaipa, owned by American Ron Burkle. Since entering the U.S. market in 2007, Tesco has unsuccessfully sought to accelerate growth and reach profitability in its stores by changing store interiors and product ranges, and through stronger marketing. Tesco’s investment in the U.S. has cost about $2.85bn in losses.

Some executives find it hard to even consider divesting a business. They may feel the need to stay the course, given the time and effort spent or because they are emotionally attached to the business. It’s important to avoid using these “sunk costs” as a rationale for blindly continuing down a loss-making path. I recommend using measurable criteria to determine if the market is the best place for your business.

Remember, getting out of one market may allow you to enter another market better suited to your core competencies.

 

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“Growth” is not what typically comes to mind when we hear a company is selling a part of its business. Our natural intuition is to think growth is simply about getting bigger. But growth is about more than expanding – it’s about recalibration. Economies and markets continually change and, at times, contraction may be the best strategy for a company.

Divestment is exactly what DuPont is considering, reports The Wall Street Journal. The company is looking to sell its chemical business, which accounts for approximately one-fifth of its sales. As with acquisition, divestment can be a swift and powerful way to positively reinvest your company to meet new pressures and leverage new opportunities.

In this case, DuPont’s earnings for its chemical business dropped by over 50% from the same quarter in 2012. In response to a changing market, DuPont will shed its chemical business to refocus on more profitable markets such as agriculture and biotechnology. Although the company may be 20% smaller, it will be more focused and may become more profitable in the long term.

 

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On May 1, Pearson Candy Co., a regional candy manufacturer headquartered in St. Paul, bought one of Nestle’s smaller brands, Bit-O-Honey. The company plans to manufacture Bit-O-Honey at its existing plant in St. Paul along with regional favorites like the Salted Nut Roll.

When people think of acquisition, they often think of highly publicized megadeals that end up on the front page of the Wall Street Journal our New York Times. In fact, many acquisitions fly under the radar.

This deal illustrates what I call the “blocking and tackling” or the everyday acquisitions. It’s a win-win transaction that serves both companies’ strategic vision. With other large brands taking up more of Nestle’s resources, Bit-O-Honey was an orphan in a big company. At Pearson Candy, Bit-O-Honey will get the attention and resources necessary to revitalize an iconic old brand.

In a heavily saturated market, brand names are more important than ever. In March, Metropoulous and Apollo partners bought the Twinkies brand from a bankrupt Hostess in order to cash in on the brand’s popularity.

It’s likely that Pearson Candy sees a similar advantage. Acquiring Bit-O-Honey allows the buyer to leverage its core competency as a candy manufacturer while tapping into a new national network.  By pairing regional favorites with the nationally recognized Bit-O-Honey, Pearson Candy can introduce its products to stores across the nation.

Bit-O-Honey may be only the beginning for Pearson’s acquisitions. Backed by private equity group Brynwood Partners, Pearson Candy has both the resources and the appetite to make strategic acquisitions. In fact, the company is currently considering a second acquisition.

 

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If your company’s organic growth has hit a plateau or is in decline, leaving the current market is an option that should be seriously considered before you embark on any other growth solutions. As I previously mentioned, growth does not necessarily mean getting bigger. Sometimes the best pathway to growth is to get out of the market you are in. For example, last year, Nike divested Umbro and Cole Haan. This will allow Nike to focus on its core competencies and the areas they want to grow.

Nike

Divestment will allow Nike to focus on its core competencies

This post is part of a series on considering your options for growth. Read the introduction here. The five pathways to growth are:

  1. Grow Organically
  2. Exit the Market
  3. Be the Low-Cost Provider
  4. Do Nothing
  5. Pursue External Growth
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