Read time: 12 mins.
Key highlights:
- Merger Uncertainties: Stratasys faces potential mergers with both Desktop Metal and 3D Systems.
- Valuation Disparities: Discrepancies in company valuations raise questions about merger benefits.
- Industry Implications: The chosen merger will significantly reshape the 3D printing industry landscape. But how?
This article was first published via the Additive Insight Deep Dives newsletter on August 25th, 2023.
Since Stratasys and Desktop Metal made their joint announcement on May 25, a saga has been rumbling on ever since.
By year’s end, will Stratasys merge with Desktop Metal as intended? Will Nano Dimension’s all-cash offers prove too much to resist for Stratasys shareholders? Or will the product synergies of 3D Systems convince the Stratasys Board to ditch Desktop Metal, and align with its long-time competitor?
The alternate futures proposed by 3D and Nano potentially spell bad news for Desktop, but Stratasys has been in the unenviable position of selecting which deal is best for itself, its shareholders, and its customers. Everybody, not just them, has an opinion on the matter.
Valuation Discrepancies: A Closer Look
As pointed out by industry consultant Tali Rosman, who has a background in leading acquisitions and investments through a prior role at Stratasys, some companies in this palaver are being valued better than others when share value vs dollars generated in revenue is considered. The figures, as of June 21, suggested that Stratasys’ price-to-sales ratio was 1.4, while Desktop Metal was at 3.2 and 3D Systems at 2.4, therefore undervaluing the company at the centre of this saga.
This means Desktop Metal is getting roughly 2.1 times more shares per dollar of revenue than Stratasys, based on the 2022 revenue numbers for both firms. Speaking to TCT after the announcement, Stratasys CEO Yoav Zeif quipped that ‘if everybody is happy with the deal, then you didn’t do a good deal,’ but it could be argued that it is Desktop Metal who are getting the sweeter end of this transaction. It’s an opinion held by many as Desktop’s market cap has come down by around 2 billion USD since it went public at the end of 2020 and is now lower than what Desktop valued ExOne at when it acquired the company in 2021.
The Implications of the Proposed Merger
It is for that reason – plus the slow sales of, for example, its flagship P-50 Production System – that many see this deal as a ‘lifeline’ for Desktop Metal. Stratasys’ proposed merger offer, which has been approved by the Desktop Metal Board of Directors, will see Desktop Metal shareholders receive 0.123 ordinary shares of Stratasys for every one share of Desktop Metal they own. It was framed in a 59:41 split, with Stratasys shareholders having majority control of the combined company, which was said to have around 50 million USD in cost synergies. They had also set a target of achieving 1.1 billion USD in revenue by 2025.
From a product standpoint, this deal would see Stratasys finally add metal technology to its portfolio and provide Desktop Metal access to the largest distribution channel in the industry. There are gaps in both their offerings that the other can go some way to filling but there is additional context to this business combination, and that is that both companies find themselves under pressure.
Stratasys' External Pressures: Nano Dimension's Offer
Desktop Metal’s pressure stems from keeping to its revenue targets and finding a path towards sustained profitability, while Stratasys’ comes from an outside force. After acquiring 14.5% of the outstanding ordinary shares in Stratasys over the last year, Nano Dimension launched the first of several acquisition attempts of Stratasys in March. Nano, itself battling a discontented majority shareholder in Murchinson, has incrementally increased its all-cash takeover offers from 18.00 USD per share to 25.00 USD per share, with its most recent offer giving shareholders the chance to tender their shares at an approximate 93% premium compared to Stratasys’ share price.
Though this undoubtedly represents good value, the Stratasys Board has consistently urged shareholders to reject the proposal, with Nano recently standing down its attempts. Likely, Stratasys shareholders haven’t been enamoured by the conduct of Nano Dimension as it aggressively pursued this acquisition, but there has also been another factor: 3D Systems.
