In a move to reshape the future of additive manufacturing, 3D Systems (NYSE:DDD) has officially proposed a merger with its industry peer Stratasys (Nasdaq:SSYS). Stratasys had previously announced receipt of the 3D Systems offer, but details remained light.
The proposed merger, announced by 3D Systems on June 2, 2023, will blend cash and stock, with Stratasys shareholders receiving $7.50 per share in cash and 1.2507 shares of newly issued 3D Systems common stock for each Stratasys share. This is based upon 135.3M and 72.1M fully diluted shares outstanding for 3D Systems and Stratasys, respectively.
This union will merge two frontrunners in the 3D printing space, effectively creating a global leader in additive manufacturing. Once finalized, Stratasys shareholders will have a 40% stake in the newly formed entity and be entitled to approximately $540 million in cash.
3D Systems made this merger proposal to the Stratasys board on May 30, 2023. The proposed amalgamation comes at a significant premium to Stratasys shareholders. The deal, inclusive of estimated cost synergies of approximately $100 million, would present Stratasys shareholders with a value in excess of $1,840 million, substantially more than Stratasys’ fully diluted market capitalization.
It is important to note that 3D Systems has used several assumptions to prepare this illustration. Specifically, the calculation “assumes $1,500mm in incremental equity value from $100mm of cost synergies capitalized at an illustrative 15x multiple, approximately 40% combined company ownership to Stratasys shareholders, a total cash payment by 3D Systems to Stratasys shareholders of approximately $540mm and additional illustrative transaction cost assumptions, including payment of the termination fee to Desktop Metal.”
Dr. Jeffrey Graves, President and CEO of 3D Systems, expressed his confidence in the proposed merger. “The confluence of 3D Systems and Stratasys brings about an excellent outcome for shareholders of both companies. Our two entities joining forces is simply logical. We’re uniquely poised to act quickly and with conviction. We urge the Stratasys Board of Directors to entertain our proposal, making this consolidation a reality for the benefit of shareholders, employees, and customers of both companies,” said Graves.
Calculating the value of 3D Systems offer to buy Stratasys
From the provided information, the proposed merger value can be calculated in two parts: cash per share and newly issued shares of 3D Systems.
Regarding cash, it is proposed Stratasys shareholders will receive $7.50 in cash per share. Given that Stratasys has 72.1 million shares outstanding, the total cash component of the deal is 72.1M * $7.50 = $541.5 million.
In terms of stock, Stratasys shareholders would receive 1.2507 shares of 3D Systems for each share of Stratasys. At the current 3D Systems share price of $8.78, each Stratasys share is valued at 1.2507 * $8.78 = $10.97.
Therefore, the total value per share offered to Stratasys shareholders is the sum of the cash and stock components, or $7.50 + $10.97 = $18.47 per share.
Given that there are 72.1 million shares of Stratasys outstanding, the total offer value from 3D Systems is $18.47 * 72.1M = approximately $1,332.3 million. This value does not include the anticipated synergies from the merger, which are expected to add about $100 million in incremental equity value.
However, the proposed merger was quoted to offer a total value in excess of $1,840 million to Stratasys shareholders, which suggests the expected synergies and other deal aspects account for the difference between the calculated offer value and the quoted total value.
Key highlights of the proposed Stratasys and 3D Systems merger
3D Systems has highlighted benefits regarding market position, value creation, financial results, deal speed, and certainty.
A leading position in additive manufacturing whereby the combined entity would have the scale necessary to lead the industry and an impressive range of additive technologies. The broadened scope of innovation could generate new revenue streams. The newly formed company is also expected to offer unmatched value proposition to customers, improving market access and coverage. The industry, which is projected to grow at a CAGR of approximately 21% over the next 5 to 7 years, will benefit from a wider range of production-ready additive technologies.
In terms of value creation, shareholders of Stratasys stand to gain from the merger by realizing approximately $100 million in estimated cost synergies. The proposed deal, including synergies, is worth about $1.8 billion and a 70% value uplift for Stratasys shareholders.
Regarding the combined financial profile, the new entity will have a solid financial standing. 3D Systems’ projections show revenues of $1.3 billion for the combined 3D Systems-Stratasys by 2024, making it the biggest pure-play additive manufacturing firm. The expected free cash flow for 2024 is $121 million, including synergies.
Transactional speed and certainty are the final categories. 3D Systems says the deal promises quick entry into a definitive merger agreement, providing Stratasys shareholders with the same deal certainty as the existing all-stock merger agreement with Desktop Metal. The proposal includes immediate cash and liquid stock value without any financing condition or delay.
On the regulatory front, 3D Systems believes that the necessary approvals for the merger can be obtained in a timely manner.
“We are at a turning point in our industry, and we anticipate significant advantages for our shareholders and all stakeholders by seizing the benefits of scale, enhancing investment in innovation and delivering long-term profitable growth,” added Dr. Graves.
Goldman Sachs & Co. LLC has been enlisted as the exclusive financial advisor to 3D Systems on this transaction, with legal counsel provided by Freshfields Bruckhaus Deringer (US) LLP, together with Herzog, Fox & Neeman in Israel.
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Featured image shows 3D Systems Figure 4 prints. Photo by Michael Petch