Stratasys + Desktop Metal
A whirlwind 24 hours in which rumours began to swirl, and Bloomberg started to report, that two of the industry’s leading names were set to merge culminated in an official announcement, some ambitious revenue goals, and a hastily arranged investor call.
After TCT reported the news and provided some context to the merger between Stratasys and Desktop Metal, it also sat in on the Joint Transaction Investors Call to understand the thinking behind the business combination.
Here’s what we learned.
That the companies believe they’re not just transforming their companies, but the industry.
As Stratasys CEO Yoav Zeif and Desktop Metal CEO Ric Fulop presented their strategy and synergies, a group of Stratasys investors waited patiently to pose their questions to the men who will lead the combined business when the deal closes in Q4 2023.
The first question came from someone invested in the additive manufacturing market as well as Stratasys. ‘What does this merger mean for the industry overall?’
“It’s a transformation,” Zeif replied. “We’re reshaping the industry. I’ve been here three and a half years, and I’m struggling with the position of AM globally. We are the [one of the] only profitable company in this industry, so something doesn’t work. We ask ourselves, how can we solve it?”
The answer to that, the companies say, is to merge and take the lead in driving 3D printing into manufacturing.
“I’m excited about the technical synergies,” Fulop offered. “They’re significant. This merger will drive accelerated innovation. We have materials that will push PolyJet into mass production. We have synergies on software and go-to market, we have 7,000 customers that will be introduced to a distribution network much larger than ours. This is a fantastic combination. I can’t imagine a better partnership.”
Materials will be key.
Among all the hardware that is affected by this business combination, Zeif and Fulop were keen to highlight their materials capabilities, particularly on the polymer side of their businesses.
Combining the capabilities of the Covestro AM business acquired by Stratasys and the Adaptive 3D business acquired by Desktop Metal, users of DLP, PolyJet and SLA can take plenty of encouragement.
“We’ve got highly differentiated material science innovation,” Fulop noted. “This really turns us into a fantastic, highly complementary capability that will make our customers more successful in mass production.”
“We are sending more material [all the time] and that is the only way to finance the innovation [that is required] and remain profitable,” added Zeif.
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They had been in discussions for a year.
While the initial Bloomberg report this week had the sense of an early leak, there was nothing hasty about how this deal came about.
Last year, Zeif made it no secret that Stratasys would continue to look for inorganic opportunities to grow its offering, but stopped short of indicating that would include an expansion into metal AM.
But when asked whether there was a risk this deal would not get sufficient investor approval to close in Q4, Zeif sought to stress that this acquisition is part of a wider strategy.
“We believe in this transaction. Nothing here is an accident. We’ve been working on this deal for more than a year.”
Stratasys’ strategy under Zeif always included an expansion into metals.
Expanding into metals, however, was always part of the plan. You might remember that prior to Yoav Zeif’s arrival in December 2019, Stratasys had announced its intention to launch additive manufacturing products based on its Layered Powder Metallurgy technology.
The company had taken to giving interviews about what was to come at industry trade shows, and even came with boasts about the speed, quality and accuracy with which it was able to produce parts. But gradually, talk of the technology started to wane, and as the years passed the company adopted an approach centred on the polymer side of its business. This approach saw the company re-focus, acquired RPS, Origin, Xaar 3D and Covestro AM, and then begin to contemplate another try with metal 3D printing.
“I don’t do anything on the spur of the moment,” Zeif told investors. “Everything here is strategic. When I started, we put together a strategy, we said ‘stop the bleeding on our core tech, become the leading player in polymer,” and then, he went on, come back to consider metal.
At that point, the company commenced a search for a high-speed metal technology capable of yielding manufacturing grade parts. It received some approval of select customers, and then commenced discussions with the Desktop Metal hierarchy.
When asked whether there was anything left over from Stratasys’ previous metal AM activity that could be useful once Desktop Metal is integrated, Fulop offered: “There is a lot of IP and capabilities that Stratasys have from past activities that are also applicable to our projects. We have highest speed binder jet solutions, scale in inkjet, there are a lot of synergies here.”
They pushed back on the assertions Stratasys is handing Desktop Metal a lifeline.
One of the strongest questions posed by investors was about Desktop Metal’s numbers.
Some of those numbers look like this (2022):
- Revenue of 209 million USD
- GAAP net loss of 704.3 million USD
- Goodwill impairment of 498.8 million USD
- Acquired intangible assets amortisation of 38.7 million USD
- Non-GAAP net loss of 130.7 million USD
The company also went public at a valuation of 2.5 billion USD, but at the time of the business combination being announced its market cap was down to half a billion USD.
“I want to be more excited about this acquisition, but Desktop Metal’s numbers aren’t promising on the surface. It feels like Stratasys is acquiring a company that needed a lifeline.”
Fulop was quick to reassure investors that Desktop Metal is on track, with an expected revenue of between 210-260 million USD for 2023 and an expectation to achieve Adjusted EBITDA breakeven before the end of the year.
“We’re well into our process to hit our targets,” he said, “I’m bullish that we’ll remain on target.”
The ongoing consolidation of facilities was one example of an item currently burdening costs that won’t be in the future.
Stratasys will respond to Nano Dimension’s special tender offer.
Things had gone quiet when it came to the Nano Dimension/ Stratasys saga. After three takeover offers were rejected earlier this year, Nano Dimension announced it was prepared to launch a special tender offer directly to Stratasys shareholders if the company’s Board of Directors refused to negotiate.
That was nearly two months ago, and there hadn’t been a peep from either side. Until today, when Nano Dimension stuck to their word and commenced the special tender offer to purchase between 38.8% and 40.8% of Stratasys shares, which when added onto its existing 14% share in the company, would equate to between 52-55%.
Asked about the offer on the call, Zeif diplomatically said Stratasys would have discussions internally and provide a response to Nano Dimension in due course.
On May 26, Stratasys confirmed it would review the offer and advise shareholders of the Stratasys Board’s position regarding the Offer within ten business days by making available to shareholders a Solicitation/Recommendation Statement on Schedule 14D-9, to be filed with the U.S. Securities and Exchange Commission.
The combined company could be a platform for further acquisitions.
One of the final questions asked whether the combined company would be a platform for further acquisitions. Both Zeif and Fulop had their say.
The latter said: “This is going to make our industry healthier. Scale is the most important thing in reaching profitability. We have a vision of how this industry is going to evolve. We want to build the company through organic growth but will also look at inorganic opportunities.”
The former added: “We have the track record, we acquired five companies [in recent years], but we focus now on integration and capturing synergies.”
