By Nick Zieminski
(Reuters) - 3M Co will expand its traffic safety division by paying $110 million for the electronic tolling business of Federal Signal Corp, a safety and transportation systems maker, sending Federal Signal shares up 18 percent in early trading.
Federal Signal, which had outstanding debt of $235.6 million as of March 2012, said it would use the proceeds to reduce debt.
The technology business, known as FSTech, contributes about 13 percent of Federal Signal's total revenue. Revenue at the business was $28.5 million for the first quarter of 2012.
FSTech, which employs about 500 people, develops hardware and software for applications used in electronic tolling, parking and access control, and electronic vehicle registration.
Electronic tolling, already a $3 billion market, is expected to grow by double digits as cash-strapped governments turn to tolls to fund highway infrastructure.
3M, which expects to spend $1 billion to $2 billion on deals this year, said the transaction should close by the end of the year. It has said deals are more likely to be small "bolt-on" acquisitions than transformative ones.
"I think the price and growth expectations right now are a little bit more realistic than they were over the last year or two," 3M CFO David Meline told an investor conference this month.
Jefferies & Co Inc advised Federal Signal on the deal.
Federal Signal's shares jumped 18 percent, or 86 cents, to $5.60 on the New York Stock Exchange, where they were the leading percentage gainer. 3M stock gained 0.9 percent to $88.32.
(Reporting by Nick Zieminski in New York and Bijoy Koyitty in Bangalore; Editing by Supriya Kurane and Maureen Bavdek)