Additive Manufacturing Merger Craze Doesn’t Add Up to Big Payouts
A year ago, it was merger mania with companies offering nearly $2 billion to buy each other. Now, the remaining players in the additive manufacturing space are finally poised to complete some mergers, for less than $200 million as the industrial 3D printer market struggles to earn any money.
Earlier this week, Nano Dimension, the No. 4 player in additive, received regulatory approval in the United States to buy Desktop Metal, the No. 3 company in the space, marking the first deal likely to close after nearly two years of jockeying between the major players.
If you haven’t been paying attention to the merger mania drama, here’s a quick catch-up:
- March 2023, Nano Dimension bid $1.2 billion to buy Stratasys, the largest company in the space (Stratasys largely ignored the effort).
- May 2023, Stratasys bids $1.8 billion to buy Desktop Metal.
- June 2023, 3D Systems (No. 2 in the additive market) bid $1.2 billion for Stratasys.
- September 2023, shareholders rejected all of the deals and no one merged with anyone.
- December 2023, Nano got a parting shot off at the end of last year, bidding $1.1 billion for Stratasys, $100 million less than it bid at the beginning of the year.
That’s where everything sat until early July when Nano Dimension and Desktop Metal announced that they would merge in a deal worth $135 million to $183 million. (Yes, Desktop Metal leaders agreed to a deal worth less than one-tenth what Stratasys offered a year ago).
“We gave them nine proposals over the last two years to acquire them, ladies and gentlemen, nine proposals,” said Nano Dimension CEO Yoav Stern in announcing his company’s earnings earlier this month. “The last proposal, which is the one they took, is the lowest proposal of all the lines. Think about it traditionally, when you bid for a house and you don’t get it, you increase your price you increase your price until you get it. Well, here’s the opposite we reduced the price on every new proposal that we made because the market shrunk in valuations because the companies did not make money and were not growing at the right place. So, we waited for this moment in time to start the acquisitions of the larger companies.”
Valuations for additive companies have been in flux for far more than a year – as evidenced by Stratasys bidding more for rivals than the rivals were bidding for the larger company – but the direction has inexorably been downward. The simple reason? These companies are burning through cash with industry profitability always far out on the horizon.
In the past 12 months, the four largest publicly traded additive companies – the four mentioned as the ones trying to buy each other – have collectively lost just under $1 billion (-$986.2 million) with Stratasys announcing a $26 million quarterly loss on Thursday, Aug. 29.
In discussing that deal, Nano Dimension leaders said they’ve dropped their bid for Stratasys, and Stratasys has gone into cost-cutting mode, saying Thursday that it will shed 15% of its workforce in the coming months in a bid toward reaching profitability.
Profitability has been the industry’s problem for a very long time. Over the past four years, Stratasys has had two profitable quarters, losing $662 million in that timeframe. 3D Systems has had two profitable quarters out of the past 16 financial reports, losing $329 million in four years. Combined, the four publicly traded additive companies have lost a combined $3.1 billion over four years, again with one-third of that loss coming in the past year.
More troubling, buyers are less interested in investing in additive technologies that can make complex plastic and metal parts. Sales peaked for the four companies at $379 million in sales in the final quarter of 2021. Since then, sales have fallen 24% to $296 million in the most recent quarter.
Desktop Metal Founder and CEO Ric Fulop said those financial pressures led to its decision to merge with Nano Dimension, despite an offer that would have looked like a rounding error a year ago.
“While we believe additive manufacturing has incredible potential and will continue to grow over the next decade, the past one-and-a-half years has been very challenging, putting significant pressure on our financial position. As a result, we’ve seen our balance sheet continue to be under pressure, limiting our ability to invest in growth and innovation,” Fulop said in a conference call earlier this year. “Towards the end of the second quarter, [customers became] hesitant to engage in closing deals due to our weakening financial outlook, making it more difficult to reach our profitability targets…. [It became] increasingly apparent that remaining a stand-alone company with a constrained balance sheet was not a viable long-term strategy.”
While Nano Dimension and Desktop Metal try to solve the industry’s financial turmoil by merging, Stratasys and 3D Systems are slashing costs as quickly as possible.
In announcing a $16 million quarterly loss earlier in August, 3D Systems President and CEO Jeffrey Graves said ongoing restructuring efforts and general administrative cost cutting should push the company closer toward profitability by year end. Though he also noted the same declines in unit sales, driven in part by high interest rates, that prodded Desktop Metal into a merger.
And Stratasys CEO Yoav Zeif said in announcing his company’s $26 million quarterly loss Thursday that Stratasys would cut 15% of its workforce in an effort to slash expenses by $40 million by the first quarter of next year. He called the cuts part of a larger effort to streamline the company and focus only on its fastest growing products and services. As with many manufacturing equipment producers, Zeif said he’s holding out hope that rate cuts as early as next month could spur industrial spending on new equipment.
“This realignment is critical to ensure that we can achieve our objectives to deliver sustained profitability and cash flow, while remaining ready to capture opportunities when the spending cycle improves, positioning Stratasys to deliver outsized shareholder value,” Zeif said in the company’s earnings release.
In discussing Nano Dimension’s upcoming purchase of Desktop Metal, CEO Stern acknowledged that Nano has dropped its bid to buy Stratasys, but he added that there could be opportunities to partner on technologies or projects in the future.
“Yoav Zeif and myself are talking regularly. So, wait for future news. When the time will come, I believe there’s a strategic cooperation due between two companies like that,” Stern said.
But, he added that the industry as a whole needs to consolidate. The demand for industrial-grade additive manufacturing isn’t large enough to support the number of players still on the field. The amount being spent on research and development and manufacturing of machines is completely mismatched to what customers are paying.
“The people who [are] manufacturing products using our machines are making money, and 95% of the people who manufacture and develop the machines and the materials are losing money,” Stern said. “That’s not a normal circumstance, not a normal situation. It cannot hold.”
