Makers: Objet and Stratasys merge

Last week, 3D Systems acquired My Robot Nation as it continues to broaden its reach to the consumer maker market. Today, Stratasys and Objet further heated up the 3D printing market on news that they would merge their two companies into the Stratasys brand. It’s a complicated deal that needs to meet shareholder and regulatory approval, but the terms of the transaction call for Stratasys’ stockholders to exchange each of their common shares for one in the new entity. They will wind up owning 55% of the company with Objet’s shareholders owning the rest. Using the closing price for Stratasys shares on Friday, April 13, as the multiplier, the deal will result in a company worth about $1.4 billion. The new company will be headed by Objet’s CEO, David Reis. Scott Crump, current Stratasys CEO, will stay on as Chairman. The logic given by Stratasys and Objet for the combination can’t be faulted. They expect the merger to create “a global leader in 3D printing”, with a portfolio of generally complimentary products, that will be able to drive market expansion and broaden customer reach. They see significant potential from combining the sales and marketing functions of both companies, cross-selling complementary product lines. The new Stratasys will go to market through a network of over 250 resellers and agents globally; too, the merger will create an R&D team that, logically enough, will not duplicate efforts — so the same level of investment will yield more results. Objet had revenue of $121 million in 2011, growing at an average of 34%/year from 2009 to 2011, and growing its base of installed systems at about the same rate. Objet’s products range from entry-level to high-end printers and, according to Stratasys, Objet’s PolyJet is the only technology currently on the market that offers multi-material 3D printing capability. Stratasys is publicly traded, so assured Wall Street that the deal is expected to be accretive within 12 months after the closing, projected now to be in Q3 2012. Furthermore, the company expects to see annual revenue growth of at least 20% in the longer-term. As part of the announcement, too, Stratasys announced preliminary results for Q1 that beat analysts’ expectations. Revenue is expected to be about $45 million, versus a consensus of $42 million. The merger announcement and Q1 results preview sent shares of Stratasys up 23% and also sent 3D Systems up 12% at around 11:30 ET. Clearly, investors see the greater reach of Stratasys/Objet as a good thing, bringing more visibility to a market that has enormous potential. By my calculations, if the new Stratasys is worth $1.4 billion, 45% of which is owned by Objet shareholders, then that gives Objet a valuation of $630 million — a multiple of 5x revenue. I am no expert in hardware company valuations, but that seems expensive … Industry analysts play a perpetual game of “who is going to buy whom next”. I must confess that I didn’t see this one coming. I saw it as much more likely that Autodesk would snap up one of these players to grow its manufacturing business into new areas and branch out into consumer and other non-traditional markets. Of course, hardware carries risk of owning inventory that may be difficult to move, different sales channels from software and so on, so maybe this type of acquisition was too far removed from its core operations. But Autodesk is moving strongly in this direction, so I still expect something to happen in its rapid prototyping adventures.