When Stratasys’ 100m USD buy-out of Origin was quickly followed by Desktop Metal’s 300m USD takeover of EnvisionTEC in January 2021, it seemed to represent the starting pistol on a period of consolidation for the additive manufacturing (AM) market.
Industry commentators had been expecting this for a while. The marketplace, many observe, has become saturated with a plethora of ‘me-too’ technologies offering the same promise and potential to address the same applications. What would follow was a wave of mergers and acquisitions (M&A). Competitors – like Desktop Metal and ExOne, Protolabs and Hubs, BEAMIT and 3T Additive Manufacturing – would merge; and the industry’s bigger fish would swallow up some of the smaller ones – say 3D Systems taking over Oqton, or Materialise acquiring Link3D.
That, and more, happened. But by IDTechEx Technology Analyst Sona Dadhania’s reckoning, the 3D printing market still isn’t consolidating. And as she looks across the 3D printing space – where there are new technologies still coming to the fore – she doesn’t expect it to consolidate ‘anytime soon’ either.
“While no single AM technology will be perfect, each innovative technology has strengths and weaknesses that enable AM to grow its footprint as an advanced manufacturing technique,” Dadhania expands. “Notably, these innovations come mostly from newcomers rather than longstanding market leaders. These newcomers and their technical advancements mean that the AM space isn’t yet consolidating to a small group of major players – rather, it’s growing.”
Fellow market analysis firm CONTEXT is placing a significant focus on analysing such growth – parsing out acquisition growth vs organic growth and looking at the entire industry as opposed to individual companies – throughout 2022. Compared to 2020, CONTEXT recorded that +39% more industrial printers (those selling for $100k+) were shipped globally through the first three quarters of 2021, an encouraging sign of organic growth, but suggests the market still ‘recessed -6% from the pre-Covid period of 2019.’
When evaluating the industry’s growth in the context of the recent M&A activity, CONTEXT’s VP for Global Analysis Chris Connery suggests there has been ‘great growth for specific companies, some of which was organic, but the better part of which was by way of acquisition.’
“Individual companies make up the total, so their individual performance is key, but we try to examine if M&A is just moving pieces on the existing chess board or if such company combinations help the industry grow,” he explains. “When a smaller company with a strong technical portfolio is taken over by a larger company with strong sales, marketing or distribution, then expectations are that one plus one can equal three – or four or five – and result in overall growth for the industry.”
Get your FREE print subscription to TCT Magazine.
Exhibit at the UK's definitive and most influential 3D printing and additive manufacturing event, TCT 3Sixty.
Indeed, when Stratasys made the 100m USD move to integrate Programmable Photopolymerisation technology into its business, Origin CEO Chris Prucha noted the company’s ‘go-to-market’ proficiencies were the most persuasive element.
IDTechEx
By IDTechEx’s calculations, this deal was just one of 40+ business combinations closed within the AM industry in 2021 alone. And while it has been many people’s assumption that the market is therefore consolidating, Dadhania points again to continued innovation, as well as external interest in the technology, to suggest otherwise.
“First, these recent M&A deals represent growing interest in AM from players outside the industry; about a quarter of these deals involved an acquiring company outside the AM space,” she says. “Second, M&A is nothing new to the AM space. Consider that 3D Systems alone acquired nearly 20 companies from 2011-2012, 30 companies total from 2011-2016. However, the growth of newcomers at the bottom has outpaced the acquisition rate of the leaders at the top, leading to overall industry growth. In our latest report, we see a very healthy growth rate of 22% for hardware revenue alone over the next five years.”
To explain the rise in interest in AM from outside of AM, as well as the sheer volume of investment (IDTechEx reports 950m USD of private funding being invested in 3D printing related companies in 2021), Dadhania proffers the supply chain disruptions caused by the Covid-19 pandemic.
Connery concurs, outlining such disruption has also seen machine orders increase: “The result has been the strong recognition by many end-markets that 3D printing can indeed help mitigate some of the pains they are seeing in their supply chains by pulling manufacturing closer to consumption resulting in strong sales activity leading into 2022. Such order strength then in turn makes certain companies attractive for mergers and acquisitions and/or causes investors to shift monies towards investing in AM, resulting in more public listings.”
In addition to the spike in M&A activity, as Connery references there has also been an uptick in 3D printing companies pursuing public listings, many of them via Special Purpose Acquisition Companies (SPAC). Essentium is one such company in the process of becoming publicly listed after combining with Atlantic Coastal. [EDITOR’S NOTE: This article was originally published in TCT Magazine's print publication in late Jan/ early Feb. As we went to press, it was announced that the merger of Atlantic Coastal Acquisition Corp and Essentium had been terminated, with the 3D printing company citing ‘market conditions.'] CEO Blake Teipel always intended to take Essentium public, but acknowledges the events of the last couple of years have helped facilitate the company’s next step this early.
“There’s an upthrust here, a structural tailwind, to the concept of factory-focused additive manufacturing which can offer supply architectures with different solutions,” Teipel says. “That’s why we believe Essentium, and others, have been able to go public. I think the institutional investors see it too and they say, ‘okay, supply chains of the future are going to look different from supply chains of the past.’”
Q&A WITH ESSENTIUM ON SPAC MERGER COLLAPSE
TCT: Can you explain why the business combination deal with Atlantic Coastal has been terminated?
Essentium: Unfavourable market conditions were impacting our ability to achieve certain business targets. Together with Atlantic Coastal Acquisition Corp, we agreed to terminate the transaction. Against this backdrop – it is important to remember that Essentium has built:
- a significant market leadership position;
- an IP portfolio of 150+ patents; and
- an AM platform adopted by a global marquee customer base – including the DoD.
We – and our market – know the future is additive. Our vision has not changed.
TCT: You were quoted in the announcement as saying that market conditions have prevented the parties consummating this agreement – can you elaborate on what those market conditions are?
Essentium: Unfavourable market conditions were impacting on our ability to achieve certain business targets.
TCT: The terms of the termination agreement include a right for Atlantic Coastal to receive payments subject to certain circumstances – is that typical of this kind of agreement and is Essentium comfortable with those terms?
Essentium: We reached mutually agreeable terms with Atlantic Coastal.
TCT: How has this development impacted the business, both in terms of your team and your product development efforts?
Essentium: We remain steadfast in our commitment to developing the most advanced materials and machines for industrial scale AM and fundamentally changing the way things are made.
- We have a world-class customer base.
- The adoption, deployment, and expansion of industrial scale AM amongst our existing customer base represents huge upside (for them, our industry, and Essentium)
TCT: Is it still Essentium’s intention to become a publicly listed company in the short-term or long-term?
Essentium: We are laser focused on our core business objectives – which are continuing to deliver world-class 3D printing platforms, industrial-grade materials, and support to our customers.
TCT: In the event that you do pursue a public listing, is it likely to take more of a traditional route now as opposed to a SPAC merger?
Essentium: Again, we are laser focused on our core business objectives – which is continuing to deliver world-class 3D printing platforms, industrial-grade materials, and support to our customers.
TCT: Is there any concern the termination of the agreement with Atlantic Coastal might affect future efforts to go public?
Essentium: No.
Over the past 18 months, Essentium has joined Desktop Metal, Markforged, Shapeways and VELO3D in pursuing a SPAC-enabled public listing. Teipel talks of a ‘SPAC phenomenon’ whereby investors – whether they be private, institutional or public – want access to early growth stage companies. The target companies, in turn, benefit from a quick and often significant influx of cash.
VELO3D CEO Benny Buller suggests, however, that ‘not all of the companies that went public, should have.’
“[What] is really important when you are a growth company is you have to have a very unique value proposition,” Buller says. “When you don’t, growth is going to be very speculative. You may be able to grow in the short term, but that doesn’t matter, because the value is based on a much bigger level of revenue that you need to grow a few years in a row very dramatically to accomplish that. And I think a lot of the companies that went public don’t really have something unique and jumped on the wagon.
“Additive manufacturing is at a place where there is a lot of expectation, but the technology today is at a point where, at least on the metal side, it’s the first time that capable manufacturing technology has been introduced, and the market will start to grow with this. But because our market share is relatively small, as we are growing, it will not show on the total market in additive manufacturing for a good amount of time. I think in the further future it will, but in the [short term] it will be hidden. There is a big gap between what the industry thinks about itself, what the industry can do, and how it’s valued.”
Monitoring, recording and dissecting that growth will be the job of Connery and Dadhania, with the former suggesting that publicly traded companies are a big help to analyst organisations as their public disclosures aid them in better quantifying market trends. Whether the overriding market trend in AM will be one of growth or consolidation over the next few years remains to be seen. But one thing for certain is that 3D printing technology is catching the eye and attracting investment. Now, it’s over to the technology providers.
“On one hand, [there appears to be] a clear belief amongst many major investors that 3D printing represents a long-term revenue opportunity,” Dadhania says. “That belief enables young, hot companies like VELO3D and Essentium to quickly raise funds through private investment and then through SPACs. On the other hand, many of these companies are still relatively in their infancy with a lot to prove.”
MATERIALISE’S CHIEF LEGAL OFFICER CARLA VAN STEENBERGEN ON THE M&A PROCESS
“In M&A, the first hurdle is assessing whether the target company will contribute to the achievement of the buyer’s strategy & goals. This will be evaluated on technology or business application rather than finances.
“This assessment is made with a business case preparation that will do a computation of the synergies post-acquisition, as well as consider alternative options, before a due diligence (DD) process is undertaken to familiarise the buyer with the company, technology, management and financial reporting. Discussions in DD are aimed at getting to know the company and understanding the potential risks in order to make a correct financial valuation of the target and a validation of the initial expectations for synergies.
“Company culture is important for the success of the transaction will also be determined by the likeliness of the target company and its employees to find their place in their new working environment.
“My tips for pursuing an M&A deal:
• “Start the process with the end goal in mind, and make all key team members aware of this end goal.
• “Go beyond the answers found in DD. Try to understand habits and operational reality.
• “Focus on people & culture. In tech, M&A more often than not are a way to gain access to specific know-how which is often tied to individuals. So, spend enough time on making the transaction an added value for the target company's employees.
• “Never forget, closing is not the end, closing is the start.”
