Stratasys, Desktop Metallic, 3D Techniques, and Nano Dimension merger transaction

June started with information that plans for 3D Techniques’ merger with Stratasys have been now public. Since then, 3D Printing Business has spoken with various individuals accustomed to the continuing course of. With Nano Dimension and Desktop Metallic drawn into this four-way M&A, the continuing transaction is in contrast to something they’ve seen earlier than, in response to one particular person I spoke with.

This text will try to carry you up to the mark on the newest developments. Nonetheless, I can’t promise that extra information won’t be introduced earlier than you end studying. 

A quick timeline of latest occasions within the 3D Techniques, Stratasys, Desktop Metallic, and Nano Dimension takeover battle/merger

20 June 2023 Credit score Suisse’s Shannon Cross points seven-page analysis bulletin on the rejection of newest 3D Techniques bid for Stratasys.

27 June 2023 – 3D Techniques will increase supply to purchase Stratasys. The brand new proposal entails changing every Stratasys atypical share into $7.50 in money and 1.3223 newly issued shares of 3D Techniques widespread inventory. This implies Stratasys shareholders would personal roughly 41% of the mixed firm and obtain round $540 million in money. Mixed fairness and money worth the deal at $20.72 (DDD SP $10 x 1.3223 = $13.22  + $7.50 = $20.72).

27 June 2023 – Nano Dimension will increase partial tender money supply to amass Stratasys from $18.00 to $20.05.

28 June 2023 –  Lake Avenue Capital Markets’ Troy Jensen publishes a five-page report entitled Merger Mania Half II – The Good, The Dangerous, and The Ugly. 

29 June 2023 –  Donerail, a 2.3% shareholder in Stratasys, publishes an open letter supporting the 3D Techniques takeover of Stratasys.

30 June 2023 – Stratasys points responses to Nano Dimension and 3D Techniques, saying provides are usually not superior to Desktop Metallic deal.

Keep in mind right here that J.P. Morgan is performing as monetary advisor to Stratasys with Goldman Sachs aiding 3D Techniques, fairness analysis firms, analysts, and shareholders are usually not uninterested events. With this in thoughts, I’ll run by means of the important thing factors of every timeline occasion and add a brief level to contemplate for every.

That is in all probability the precise time to placed on the kettle and put together a cup of tea.

Credit score Suisse Analysis Bulletin on Stratasys, Desktop Metallic, and 3D Techniques 

On this analysis, it’s instructed that 3D Techniques might doubtlessly improve the alternate ratio to ~1.7 and supply ~$24/share whereas sustaining ~51% management, a rise that beforehand led to a optimistic inventory response. Stratasys has basically set a ground worth of $30/share for its personal worth when mixed with Desktop Metallic. In previous years, 3D Techniques submitted a number of bids to amass Stratasys; nonetheless, due diligence processes didn’t end in an acquisition.

A merger between Stratasys and Desktop Metallic is seen as offering better long-term alternatives, together with the scaling of Desktop Metallic’s know-how and integration with Stratasys’ mature operations. Regardless of a possible short-term improve in profitability from a merger with 3D Techniques by means of value reductions, long-term progress is seen as restricted, in response to the analyst.

Credit score Suisse proceeds to set out its goal costs, rankings, valuation methodology, and the dangers related to these rankings. For ease of reference, the rankings and goal costs and people from Lake Avenue Capital are offered under.

3D Techniques’ underperform score and $7 goal worth relies on 1.3x EV/2024 gross sales, in comparison with the present 1.8x EV/2024 gross sales valuation.

The present valuation might take into account long-term bioprinting initiatives, that are thought-about troublesome to worth resulting from restricted financials and an unpredictable timeline. Dangers to the score, i.e. that an alternate score could also be extra applicable, embrace elevated consciousness and schooling of additive manufacturing, the potential for M&A, {industry} consolidation, alleviation of the macro atmosphere and provide chain challenges, and success in printing organs and tissues.

Desktop Metallic will get a impartial score and the $2.00 goal worth relies on 2.2x EV/2024 gross sales in comparison with the present 2.1x valuation. DM may very well be seen as a possible takeover candidate, however first, the portfolio would have to be cleaned up resulting from a number of disparate belongings acquired in recent times, in response to the analyst.

Dangers embrace the shortcoming to enhance the money burn fee, deterioration within the macro atmosphere, adjustments within the tempo of additive manufacturing adoption, {industry} consolidation, and overachievement of cost-reduction targets with out impairing income progress.

Stratasys receives an outperform score and $20 goal worth, that is based mostly on 1.5x EV/2024 gross sales, in comparison with the present 1.1x EV/2024 gross sales valuation. Credit score Suisse says Stratasys is believed to deserve a premium resulting from decrease buyer focus and administration’s technique that targets cross-selling and leveraging present IP. Operationally, Stratasys is seen because the strongest additive inventory to personal resulting from demonstrated expense self-discipline and a transparent, centered technique.

Dangers embrace the shortcoming to promote new applied sciences into present consumer accounts, integration of M&A, slower market adoption of additive, increased buyer acquisition prices resulting from elevated competitors, macroeconomic headwinds, and potential disruption in gross sales from NNDM’s efforts to amass Stratasys.

Why is that this of curiosity? Shannon Cross at Credit score Suisse states the merger of Stratasys and Desktop Metallic gives better long-term worth and flags $30/share (the mixed worth of Desktop and Stratasys) as the worth 3D Techniques must beat.

3D Techniques will increase supply to purchase Stratasys – investor name with Jeffrey Graves, President, CEO & Director

A particular investor name on June twenty seventh aimed to debate 3D Techniques’ revised proposal to amass Stratasys.

The brand new proposal entails changing every Stratasys atypical share into $7.50 in money and 1.3223 newly issued shares of 3D Techniques widespread inventory. This implies Stratasys shareholders would personal roughly 41% of the mixed firm and obtain round $540 million in money.

As of the market shut on June 26, this proposal equates to a price of round $20 per share, roughly a 33% premium to Stratasys’ closing share worth on Could 24, 2023. The mix is most popular resulting from perceived scale, synergies, and an industry-leading monetary profile. This can be a response to the proposed Stratasys and Desktop Metallic transaction.

The mix of 3D Techniques and Stratasys would create a worldwide chief within the additive manufacturing house, round 50% bigger in income than the proposed Stratasys and Desktop Metallic mixture. 3D Techniques means that its supply is superior to the Desktop Metallic mixture resulting from its scale and monetary power. The {industry} is ready to develop at a 21% CAGR over the subsequent 5 to 7 years, creating an $80 billion complete addressable market.

There may be progress potential within the dental and regenerative medication enterprise regardless of near-term headwinds resulting from inflationary pressures and provide chain points. The corporate additionally believes its work in regenerative medication is very modern and may considerably improve shareholder worth. It has three alternatives on this house: human organs, human non-organ tissue, and drug improvement.

The mix with Stratasys would offer a complete know-how portfolio with minimal overlap and significant income alternatives.

They mission a mixed income of over $1 billion and $145 million in EBITDA for 2023. This, they declare, is a major enchancment over the monetary profile of a Stratasys and Desktop Metallic mixture.

3D Techniques believes that its monetary profile will end in a horny near-term outlook representing double-digit income progress, environment friendly R&D spending for sustainable innovation, and 15-plus p.c EBITDA margins. They suggest that their supply represents a complete worth of roughly $20 per Stratasys share. After together with $100 million of synergies, their revised supply equates to roughly $26 per Stratasys share or an uplift of roughly 71%.

3D Techniques expressed skepticism in the direction of the Desktop Metallic merger, criticizing its reliance on assumptions they view as unfounded and unreasonable. They be aware that Desktop Metallic has a historical past of fueling top-line progress by overpaying for unprofitable and poorly performing belongings, main to 2 goodwill impairments for a mixed complete of $500 million.

3D Techniques Company challenges the perceived potential of binder jet know-how, as touted by Stratasys, asserting that their very own laser mattress fusion know-how is extra superior and higher for the way forward for mass-produced metals. In the course of the name, they mentioned their proposal provides a bigger and extra worthwhile firm than the Desktop deal, which they consider relies on speculative financials, inferior know-how, and a poor acquisition and integration monitor file.

By way of potential antitrust issues, 3D Techniques highlights the restricted overlap of their product portfolios and the existence of a lot of opponents within the 3D printing {industry}, together with smaller companies and bigger firms like GE, HP, and Nikon.

3D Techniques beforehand made a strategic determination to exit the on-demand part-making enterprise, to keep away from competing with their clients. They consider this technique continues to be relevant within the potential merger with Stratasys, however they’re open to revisiting choices based mostly on detailed evaluation.

The corporate is keen to supply a hard and fast money quantity of round $540 million for shareholders, which might fluctuate based mostly on particular person shareholder desire. There are not any present plans to extend the full money quantity by means of leveraging if shareholders desire money over fairness.

Jeffrey Graves, President, CEO & Director, believes the short-term and long-term worth mixture for his or her shareholders is appropriate, notably contemplating new markets like regenerative medication. 

Graves doesn’t see the merger with Stratasys as a way of supporting the regenerative medication sector. Slightly, he believes the mixed portfolio will permit them to supply a broader vary of know-how to every market vertical, enhancing each their core companies – healthcare and industrial.

The executives argue that the core enterprise of the corporate, even with out counting the regenerative medication section, guarantees wonderful progress prospects and EBITDA efficiency by means of the mixture with Stratasys. Sooner or later, the corporate doesn’t plan on divesting any core applied sciences; each firms’ printing applied sciences, supplies, and software program are seen as useful belongings.

Whereas acknowledging investments in binder jetting know-how by different firms, Graves is obvious that he sees direct laser sintering of steel powders as a extra confirmed and dependable know-how, at present in manufacturing and assembly 80% of market functions. 

Why is that this of curiosity? 3D Techniques is persistent. There’s a want to keep away from a hostile takeover. 3D Techniques believes that this deal provides the most effective worth for the additive manufacturing house, its shareholders, and Stratasys shareholders. In keeping with one particular person accustomed to the deal, confidence lies within the chance that Nano’s tender gained’t materialize and the final market’s response to the Desktop Metallic transaction, in comparison with a optimistic motion in 3D Techniques’ share worth publish deal announcement. They believe Stratasys has rejected their provides as a result of it permits their management group to take care of management, doubtlessly on the expense of shareholder worth. There are additionally doubts over the $30 per share valuation instructed by Credit score Suisse, and included in Stratasys’ investor presentation, indicating that it’s based mostly on speculative income synergies, that are sometimes discredited in M&A conditions, resulting from their unsure nature.

In keeping with one supply 3D Techniques can proceed with the transaction with out elevating extra money, as verified by monetary advisors. The identical particular person confirms that many main shareholders have purchased into the method, acknowledging the worth within the 3D Techniques transaction. The mixed steadiness sheet, post-transaction, will, by their calculations, have round $150 million. Whereas neither firm is at present worthwhile, they’re each enjoying the dimensions and leverage sport, trying to the longer term. 

An upcoming Desktop Metallic shareholder vote is seen as a serious juncture. This vote will point out whether or not Stratasys shareholders approve of the administration’s choices and can play an important position in figuring out the way forward for the merger, performing in no small approach as a referendum on the deal. An up to date SEC submitting is anticipated within the coming weeks, it will present the date.

Merger Mania Half II – The Good, The Dangerous, and The Ugly 

Extra institutional investor analysis now, this time from Troy Jensen at Lake Avenue Capital Markets. 

The divertingly titled report kicks off with a short breakdown of the newest proposal from Nano Dimension and 3D Techniques. 3D Techniques has elevated their supply for Stratasys, now providing shareholders 41% of the mixed firm (up from 40%) which equates to about $20.76 per share. Nano has elevated their supply worth to $20.05 per share, believed to be their highest reasonably priced worth given their want to take care of money reserves for his or her unprofitable operations.

Nano Dimension’s first public tender providing for Stratasys failed, with solely an estimated 8% of shareholders accepting their supply of $18 per share. The analyst means that if scalability is required for wholesome profitability, a merger between 3D Techniques and Stratasys might make extra sense. 

Lake Avenue then proceeds to evaluate every enterprise mixture. Let’s begin with 3D Techniques and Stratasys: “The Good.” 

3D Techniques may nonetheless improve the supply with extra shares or money, however they’re restricted to utilizing too many shares as they’ll’t supply greater than 49.9% of the mixed firm. They’re additionally cautious of overextending their steadiness sheet. The proposal is favorable when you consider the additive manufacturing {industry} wants scalability. In that case, a mixture of 3D Techniques and Stratasys appears essentially the most smart.

Considerations have been initially raised about product overlap between 3D Techniques and Stratasys, particularly in markets the place each have been energetic. Nonetheless, after discussions with the corporate, it appears the income overlap is considerably totally different resulting from their distinct focuses in numerous applied sciences.

Overlapping investments in analysis and improvement, gross sales and advertising, and provide chain efficiencies are recognized as main drivers of value synergies within the mixed firm. Regardless of the favorable points of a merger with 3D Techniques, Stratasys appears decided to stay an impartial firm and is more likely to reject the DDD supply, selecting to proceed with their deliberate merger with Desktop Metallic.

Lake Avenue name the subsequent mixture, Desktop Metallic and Stratasys, The Dangerous noting each Desktop Metallic and Stratasys confirmed their steering regardless of potential gross sales disruption resulting from merger bulletins, which might have an effect on Q2/Q3 demand and trigger Desktop Metallic to wrestle to satisfy their steering.  Stratasys can be absorbing an unprofitable enterprise, Desktop Metallic, that has constantly missed its monetary forecasts. There may be skepticism across the progress forecast integrated into their 2024-26 income and profitability steering.

The analyst factors out potential points like product overlap, channel conflicts, and enterprise segments that Stratasys has not proven curiosity in, together with dangers of integration and product rationalization.

The mixed firm of Stratasys and Desktop Metallic claims to generate $50 million in annual gross sales synergies. Nonetheless, there may be doubt about this resulting from important know-how overlap and the opportunity of product line rationalization. The declare that 100% of components made on Desktop Metallic machines are end-use components is challenged as unrealistic.

Lake Avenue mentioned, the merger is perceived as a determined transfer by Stratasys to boost their mixed market cap past Nano Dimension’s shopping for energy, relatively than a strategic transfer. Stratasys might have been desirous about Desktop Metallic’s steel merchandise resulting from their lack of publicity to steel, however they didn’t appear to need the EnvisionTEC product traces, which that they had a number of alternatives to purchase earlier than. The proposed merger dilutes the worthwhile progress story of Stratasys with the unprofitable enterprise of Desktop Metallic.

The merger is an all-stock transaction, valuing Desktop Metallic at $1.8 billion. DM shareholders will obtain 0.123 shares of SSYS inventory, which represents $1.83 per share. Stratasys shareholders will personal roughly 59% of the mixed firm, with DM shareholders proudly owning the remaining 41%.

The transaction is anticipated to be accomplished in This fall 2023 with Yoav Zeif main as CEO and Ric Fulop as Chairman of the board.

The ultimate piece of research from Lake Avenue is “The Ugly” – Nano Dimension and Stratasys

Nano Dimension has been persistently attempting to amass all or a majority of Stratasys for a number of months, with Stratasys constantly rejecting these provides resulting from valuation and authorized issues; the very best bid from Nano has been an all-cash supply of $20.05 per share.

Nano tried to bypass the Stratasys board by immediately providing Stratasys shareholders $18 per share by means of a public tender supply, however this was unsuccessful with solely 8% of shares tendered. Nano owns practically 15% of Stratasys shares and desires greater than 50% for controlling curiosity. The corporate elevated its public tender supply to $20.05 per share and lowered the sought shares from 38.8%-40.8% to 31.9%-36.9%.

The analyst means that Nano might want to attain the midpoint to amass a majority place if solely 31.9% of shares tender. The success of Nano’s acquisition try is believed to be depending on upcoming Israeli courtroom choices relating to the legality of Stratasys’ poison tablet and a latest Nano shareholder vote to take away a number of board and administration group members.

If Nano loses both courtroom case, the analyst predicts an finish to their try to amass Stratasys, but when they win each instances, the subsequent key date is July twenty sixth, when the $20.05 public tender supply expires.

The analyst urges Nano to understand that institutional traders don’t assist their try to amass Stratasys, with previous makes an attempt seen as not severe as a result of massive unfold between the provided and buying and selling worth of Stratasys’ inventory.

A merger between Stratasys and Nano shouldn’t be anticipated to yield the identical scale efficiencies as potential mergers with Desktop Metallic or 3D Techniques would, and it might additionally result in an advanced scenario if Nano have been to personal barely greater than 50% of Stratasys’ inventory, which might end result within the remaining shares being extraordinarily illiquid and unattractive to different institutional traders.

Donerail, a 2.3% shareholder in Stratasys, publishes an open letter supporting the 3D Techniques takeover of Stratasys

In keeping with an open letter printed by The Donerail Group LP, they’re, a serious shareholder of Stratasys, who personal roughly 2.3% of the corporate’s excellent shares. Donerail relies in Los Angles and led by William Z. Wyatt, Managing Companion.

The letter states that regardless of makes an attempt by Donerail to satisfy privately with the Stratasys Board of Administrators to debate strategic initiatives, their requests have been constantly ignored.

Donerail expresses issues over the corporate’s governance and strategic course, heightened by latest conferences and particulars from regulatory filings. The Donerail letter criticizes the Board for neglecting fiduciary duties by refusing to have interaction with potential patrons desirous about buying the corporate previously two years.

They write that since January 2021, Stratasys has acquired no less than 12 unsolicited acquisition proposals from three totally different potential patrons, as disclosed in a June twentieth regulatory submitting.

Most of those provides have been rejected by Stratasys with out engagement, which Donerail argues has been pricey for the shareholders. The Board did have interaction with one supply – from Desktop Metallic Included in March 2023, which as a substitute of a sale resulted in a dangerous merger, not effectively acquired by the funding neighborhood.

The letter states that Stratasys’ inventory worth dropped 10% following the merger information, and analysts criticized the transfer as a result of absorption of an unprofitable enterprise. In a gathering on June twenty first, Stratasys’ CEO, Dr. Yoav Zeif, confirmed that the Board is now “working for shareholders” and dedicated to doing the “proper factor” for shareholders, regardless of the corporate’s historical past of rejecting engaging acquisition bids.

The supply from 3D Techniques is seen by Donerail as notably promising and warrants quick engagement resulting from its elevated proposal providing a mixture with a strategic social gathering in a money and inventory deal valuing Stratasys at a 27% premium to Monday twenty sixth June’s closing buying and selling worth.

Donerail praises the Board for his or her dedication to reviewing the revised merger proposal from 3D Techniques and urges a fast evaluate earlier than partaking immediately with 3D Techniques to optimize the supply for Stratasys shareholders.

The Board’s earlier inclusion of language within the Desktop Metallic merger settlement, permitting them to have interaction with an unsolicited suitor if the proposal is “fairly more likely to result in” a superior supply, is taken into account by Donerail to be a smart transfer within the present scenario. Donerail encourages the Board to behave of their capability as fiduciaries to barter and announce a transaction in response to 3D Techniques’ renewed proposal.

The letter continues to induce the Board to comply with its dedication to “work for shareholders” and abandon the Desktop Metallic deal in favor of a extra engaging deal. After two years of rejecting keen suitors, the Board is implored to be aware of its fiduciary obligations to shareholders and to not have an inflated view of an execution story stuffed with challenges.

Donerail hopes that no additional motion past this letter will probably be essential and expects the Board to be correctly suggested on find out how to proceed. Donerail is prepared and open for communication at any time with the Board, administration group, or any shareholder.

Why is that this of curiosity? In keeping with an individual accustomed to the events concerned, Donerail was invited to satisfy with Goldman Sachs, the 3D Techniques advisor. This assembly request is taken into account uncommon, because it occurs solely every year or two. In keeping with the supply, this signifies an curiosity in stirring issues up. Donerail, a self-described “value-oriented, activist” investor, had beforehand taken a place in Turtle Seashore, a gaming accent producer.

Wait, there’s extra…

Stratasys has responded to the revised provides from Nano Dimension and 3D Techniques and seems to be going forward with the Desktop Metallic deal. Stratasys writes, “[3D Systems offer is] an approximate 3% improve in complete worth, including 1% to the full possession for Stratasys shareholders, is opportunistic, continues to materially undervalue Stratasys, doesn’t represent a “Superior Proposal” and doesn’t present a foundation upon which to enter into discussions with 3D Techniques, pursuant to the phrases of the merger settlement with Desktop Metallic, Inc.”

This quick rejection prompted 3D Techniques CEO and President Dr. Jeffrey Graves to say, “The Stratasys Board has made the perplexing determination to not have interaction with us to succeed in a mutually agreed upon, pleasant transaction that we consider would unlock worth for all shareholders. Frankly, we’re stunned that of their fast rejection, Stratasys’ Board didn’t acknowledge or refute the deserves of our proposed transaction, or reply to the market’s issues in regards to the worth destruction of the Desktop Metallic merger.”

Graves continues, “We’re listening to from a spectrum of Stratasys shareholders that they perceive and consider {that a} mixture between 3D Techniques and Stratasys provides an unparalleled choice for certainty, scale and long-term progress. This suggestions from Stratasys’ personal shareholders solely strengthens our conviction that that is the precise deal on the proper time. It’s regarding that, as public firm administrators, the Stratasys Board is ignoring these indicators from its traders. It’s obscure their rationale, which we predict raises questions as to whether or not they have entrenched themselves able that demonstrates an absence of give attention to maximizing shareholder worth.”

With the amount of knowledge, already printed, it’s fairly potential to lose monitor of who mentioned what and when. Listed here are a few latest exchanges that could be of curiosity

Proclamations across the transaction are pitching a type of steel 3D printing shoot-out with  Binder Jet set towards DMLS. Now given the events concerned, it might be applicable to take these statements with a grain of salt. 

Evaluate the assertion of 3D Techniques to this one from Credit score Suisse, “3D Techniques does have a steel portfolio, although the techniques are extra splendid for low quantity high-cost functions and the know-how is extra mature (e.g., DMLS techniques used to print rocket components).” 

The 3D Techniques aspect, “We don’t assume we’re alone in believing that our metals know-how is healthier and extra superior. On the subsequent slide, you possibly can see that our know-how, laser mattress fusion generated 84% of all metals {hardware} income within the {industry} final yr. To place this in perspective, that’s 21x better market share than binder jetting, a know-how that, once more, is sort of 3 many years previous.”

“The issue is that the longer term is already 28 years previous, we consider shareholders ought to be clear {that a} important piece of the binder jet know-how touted by Stratasys’ administration was acquired by Desktop Metallic after they purchased ExOne in 2021. In our view, ExOne is a enterprise the {industry} and the market know very effectively and is but to show viable for mass manufacturing or to generate any revenue. Its efficiency previous to the acquisition by Desktop Metallic doesn’t level to the expansion potential that Stratasys administration is claiming,” mentioned the 3D Techniques CEO.

Dental 3D printing is one other area the place the statements are mounting up. Right here’s Credit score Suisse, “The bottom case assumptions [supporting the Desktop and Stratasys deal] are largely pushed by the scaling of DM’s steel binder jet know-how and restorative dental enterprise.”

Over to 3D Techniques, “We consider that we’ve, by far, essentially the most profitable dental enterprise within the 3D printing universe. The near-term headwind on our outcomes is principally a results of latest inflationary pressures on customers and stock buildup associated to produce chain in our orthodontics enterprise. Excluding our dental enterprise, income grew 12% year-over-year in Q1 on a relentless forex foundation, with 9% progress in our industrial enterprise, and 22% progress in our healthcare enterprise, excluding dental.”

So, sure, however present stress on client spending 3D Techniques dental enterprise is prospering, A reality that won’t have gone unnoticed by opponents who may additionally search a share of the practically $40 billion world dental market.

The place subsequent? It could appear issues are usually not ramping down; certainly, they could be simply getting began.

Much more? What do analysts consider the 3D Techniques, Stratasys and Desktop Metallic deal?

What does the way forward for 3D printing for the subsequent ten years maintain?

What engineering challenges will have to be tackled within the additive manufacturing sector within the coming decade?

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Featured picture exhibits 3D Techniques Healthcare Expertise Middle. Photograph by Michael Petch.