3M spins off $8.6B healthcare business

The news: 3M will spin off its healthcare business and keep its material science innovator. The new 3M company will still offer industrial and consumer end products like office supplies.

Meanwhile, the healthcare division, which reported about $8.6 billion in sales in 2021, will concentrate on healthcare IT, wound care, oral care, and biopharma filtration. 3M will keep a $19.9% stake in the healthcare business. For context, 3M also split off its food safety business and expects to close that deal on September 1.

What’s happening in the background? On August 1, the company also announced it earned $8.7 billion in sales for Q2, which was down 3% year on year.

• 3M’s healthcare division reported $494 million in operating income in Q2, which was down 10% year on year.

How we got here: 3M beefed up its health tech business in the years prior to the spin-off.

• In 2018, it acquired M*Modal. 3M M*Modal Fluency Direct integrates with several leading electronic health record (EHR) platforms to incorporate natural language understanding (NLU) and computer-assisted physician documentation (CAPD) technology to help doctors analyze the clinical narrative.
• Last year, 3M’s health IT division partnered with healthcare payments platform Waystar to automate revenue capture.

Zooming out: 3M's move follows on the heels of other large companies shedding their healthcare divisions.

• General Electric (GE) plans to spin off into three divisions: aviation, energy, and healthcare. In early 2023, it will spin off GE HealthCare, which focuses on precision health to boost patient outcomes and solve patient and clinical challenges.
• In addition, IBM sold its Watson Health data analytics business to investment firm Francisco Partners. Watson Health is now called Merative.

What’s next? Companies that are not able to scale their healthcare businesses as we head into a possible recession may be considering deals to compensate for changing conditions. Meanwhile, 3M expects to complete the spin-off of its healthcare division by the end of 2023.