Partnering up at the Additive Ball
Have you kept up with the Stratasys + Desktop Metal + 3D Systems + Nano Dimension saga? It’s been a captivating will they/won’t they that the striking Hollywood writers might want to turn into a movie when they’re back in the office …
3D printing, aka additive manufacturing, has been poised to hit it big for over a decade. I remember Autodesk’s then-CEO Carl Bass excitedly rolling out the company’s Ember printer in 2014, which would revolutionize everything. We would have printers in our homes, making replacement parts for widgets of all sorts, creating jewelry and wearables, and even printing chocolates and cake decorations in the case of a 3D Systems acquisition. That consumer use never materialized, and many manufacturers are still trying to figure out what parts they can economically 3D print and whether they are better off sticking to printing fixtures for the manufacturing process rather than the end parts. Science has made significant advances in materials technologies to create higher quality parts, much faster than before — but even so, adoption is nowhere near what anyone once predicted.
But there are pockets of adoption: healthcare, for example, where many manufactured items, by their nature, are one-offs. Dentures, joint replacements, and organs are all high-value objects that are ready targets for additive since they can’t easily (or at all in the case of organs) be made using traditional means. But the big money in production for auto, aero, consumer electronics, and other massive, high-volume industries, where the adoption of additive still awaits material science, part size, and production speed enhancements.
This stall has, of course, massively affected 3D printer makers. Sales of printer systems and consumable materials race ahead and then lag, making it difficult for anyone to predict progress or plan investment. And it makes it difficult for these relatively small companies to operate globally across many target industries and material types. That’s led to consolidation, as printer makers seek to combine their strengths and reach.
Most recently, in May 2023, Stratasys entered into a definitive agreement to combine with Desktop Metal in an all-stock transaction valued at approximately $1.8 billion.
The players: Stratasys makes polymer 3D printing solutions for aerospace, automotive, consumer products, healthcare, fashion, and education applications. Desktop Metal makes metal, sand, ceramic, and dental 3D printing solutions — the first is an Israeli company, and the second is a US company.
The logic: this deal would cover the types of additive processes and materials in use now and position the combined entity for future innovation across industries and geos. Stratasys said the combination “is expected to generate more than $1.6 billion of revenue and more than $300 million of EBITDA in 2026 at base case, for a 20% pro forma EBITDA margin. This growth reflects a top-line compound annual growth rate (“CAGR”) of 19% from 2022 to 2026, compared to an estimated 14% CAGR for standalone Stratasys over the same period.” This deal is expected to close in Q4, 2023.
(Read more here: https://www.nextgenerationam.com/stratasys-combination-with-desktop-metal)
BUT BUT BUT
An escape clause in the Desktop Metal filings said that if Stratasys received a superior proposal, it could get out of that deal — for a hefty termination fee.
And that’s where the trouble started. At the same time the Desktop Metal deal was cooking, Stratasys announced that it was rejecting repeated offers to sell the company to Nano Dimension Ltd. In all, I think Stratasys rejected five offers starting at $18/share and ending last week with the rejection of a deal for some of its shares at $24.00/share.
Who is Nano Dimension? They make additive machines for electronic and electromechanical subassemblies (AME). I had never heard of them, but the company says its “machines serve cross-industry needs by depositing proprietary consumable conductive and dielectric materials simultaneously, while concurrently integrating in-situ capacitors, antennas, coils, transformers, and electromechanical components, to function at unprecedented performance. Nano Dimension bridges the gap between PCB and semiconductor Integrated Circuits.”
Stratasys truly didn’t want to deal with Nano and created a Shareholder Rights Plan that Nano sued to block in an Israeli court. Nano lost that bid, as the judge found that Stratasys’ Board acted in good faith to protect shareholders from a laundry list of evil-doing by a potential acquirer, including concern that “the offeror is a company torn by internal disputes,” is “the offeror is a company torn by internal disputes,” and is “traded at a significant discount, which may indicate the market’s lack of confidence in its management.” (Read more here: https://investors.stratasys.com/news-events/press-releases/detail/844/stratasys-issues-statement-on-legality-of-its-shareholder)
But there’s yet another suitor — Stratasys is the belle at this particular ball:
On 20 June 2023, 3D Systems told its shareholders that it had proposed a merger that would leave Stratasys shareholders owning approximately 40% of the combined company in exchange for about $540 million in cash.
Who is 3D Systems? You may know them because they bought GrabCad and Geometric Solutions — today, they sell hardware, software, materials, and services, for healthcare and industrial markets such as medical and dental, aerospace & defense, automotive, and durable goods. (I think they sold / ended the candy manufacturing line of business.)
At first, Stratasys said “absolutely not” to 3D Systems but then on 17 July 2023, Stratasys announced that 3D Systems’ offer to acquire Stratasys for $7.50 in cash and 1.5444 newly issued shares of 3D Systems common stock per ordinary share of Stratasys “would reasonably be expected to result in a “Superior Proposal” as defined in Stratasys’ merger agreement with Desktop Metal” and that it (Stratasys) needed more time to figure out if this was indeed a Superior Proposal; at the time, Stratasys’ Board of Directors was still recommending the Desktop Metal merger.
Last night (27 July), 3D Systems said (here: https://investor.3dsystems.com/news/news-details/2023/3D-Systems-Announces-Target-Date-for-Completion-of-Due-Diligence-Process-and-Merger-Agreement-Discussions/default.aspx)
that it thinks the companies will complete the due diligence for the Superior Offer by 4 August, and that it “expects that Stratasys would be in a position to agree with Desktop Metal to terminate their agreement, 3D Systems would pay the termination fee that Stratasys will owe to Desktop Metal, and Stratasys and 3D Systems would execute a merger agreement.” Stratasys (as of 8am US Eastern on 28 July) hasn’t said a peep.
So 3D Systems believes Stratasys will dance with it at the ball — but what about Nano, I hear you ask? This morning, Nano Dimension, which owns something like 14% of the shares of Stratasys, said (here: https://investors.nano-di.com/press-releases/news-details/2023/Nano-Dimension-Intends-to-Discontinue-its-Stratasys-Special-Tender-Offer-and-Withdraw-Director-Nominees-for-Stratasys-Board/default.aspx) that it believes its offer to acquire more shares is likely to fail, and that it is withdrawing its nominees for election to Stratasys’ board. It also said it will review its investment in Stratasys and may sell some or all of those shares.
Nano may have withdrawn from the fray, but that still leaves Desktop Metal (with whom Stratasys went to the ball) and 3D Systems, the new suitor. I don’t know what will happen with the court case in Israel or how Stratasys’ Shareholder RIghts Plan might affect a potential deal with 3D Systems — this story isn’t over yet.
Stratasys holds a shareholder meeting on 8 August and will announce Q2 results on 9 August. Desktop Metal reports earlier, on 3 August, while 3D Systems will announce earnings around 10 August.
Someone will win Stratasys’ hand at the additive ball, and a larger (and hopefully, capable) company will result. But there are costs to this wrangling: real cash out to the consultants, lawyers, and accountants working on these due diligence projects. Less quantifiable is the cost of the distracted management focusing on these deals instead of their customers. Manufacturers who want to pursue additive strategies need their vendors to focus — let’s hope this all ends soon.