Merger and takeover activity around Stratasys, 3D Systems, Desktop Metal and Nano Dimension continues to be the most discussed topic in additive manufacturing. 3D Printing Industry asked analysts, consultants, and experts, including Terry Wohlers of Wohlers Associates, Sona Dadhania from IDTechEx, Matthias Schmidt-Lehr at Ampower, Wilderich Heising of Boston Consulting Group, and Richard F. Neff from Rick Neff LLC, plus others for their perspective.
We’ll be updating this article with additional responses as they come in.
Not all the analysts, consultants, and experts we contacted were willing to go on record, and generally, it’s considered bad form to comment on competitors. Emerging from those discussions that we can’t publish were several interesting takes; one of the most enlightening directed me to work by consultants at Kearny on a theory of consolidation.
The Consolidation Curve and the 3D Printing Industry
The consolidation curve is based on a study of 1,345 large mergers and suggests that industries undergo a predictable consolidation life cycle. This process involves four stages: Opening, Scale, Focus, and Balance and Alliance.
In the Opening stage, industries are marked by a single start-up or a newly deregulated or privatized monopoly. Market share then gets distributed as competitors enter the scene. Stage 1 companies should focus on building scale, establishing barriers to entry, and perfecting acquisition skills.
During the Scale stage, major players begin to emerge as they acquire competitors, and the top three players in an industry will own 15% to 45% of the market. This stage requires companies to hone their merger-integration skills and to capture major competitors in the most important markets.
The Focus stage comes after extensive consolidation in stage 2, where companies focus on expanding their core business, with the top three industry players controlling between 35% and 70% of the market. Megadeals and significant consolidation efforts are typical of this stage as companies strive to become one of the few major players in their respective industries on a global scale.
The final stage, Balance and Alliance, is where the industry giants reign, with the top three companies claiming as much as 70% to 90% of the market. Growth becomes more challenging, and companies may form alliances with their peers. Companies don’t progress through this stage, they remain in it, defending their leading positions and finding new different ways to grow their core business in a mature industry.
Ultimately, a company’s long-term success depends on how well it progresses through these stages of industry consolidation. Speed is essential, especially during the middle stages, and companies must evaluate each operational and strategic play according to how it will advance them through the stages. Firms that are slower to adapt may become acquisition targets and likely disappear.
Read selected previous coverage here:
An assessment of where the 3D printing industry is on the consolidation curve is a topic for another article. For now, here is the analysis of the four-way M&A.
3D Printing Industry: What are the strategic implications of the merger between Desktop Metal and Stratasys?
Terry Wohlers, head of advisory services and market intelligence, Wohlers Associates, powdered by ASTM International: “The increased size of the combined company, coupled with strong brand recognition, may elevate the overall stature of Stratasys. This could open doors in some markets and make the company more competitive. The merger would result in the largest AM company in the world.
The merger gives Stratasys hundreds of additional metal- and dental-related patents. As a result, it will bring the company’s intellectual property portfolio to a total of 3,400 granted and pending patents. This represents a tremendous amount of IP upon which to develop new and complementary products.”
Sona Dadhania, Technology Analyst, IDTechEx: “It’s important to note that additive manufacturing is a broad industry encompassing numerous technologies that are compatible with different material categories, like metals, polymers, composites, etc. The merger represents a step change for Stratasys, who go from offering five polymer AM technologies to offering eight different AM technologies covering polymers, metals, ceramics, and composites.
Strategically, this puts the combined entity in closer competition with other large printer manufacturers offering both metal and polymer additive manufacturing technologies, such as 3D Systems, HP, and EOS. That said, there will be some differences between Stratasys/Desktop Metal’s combined portfolio and other metal/polymer printer manufacturers’ portfolio, namely in its diversity. Whereas many metal/polymer printer manufacturers offer the same technology but with different materials (i.e. selective laser sintering), the technologies of Stratasys/Desktop Metal will be quite distinct from each other, from sand and metal binder jetting to thermoplastic filament extrusion to stereolithography and more.”
Matthias Schmidt-Lehr, Managing Partner, Ampower: ‘The merger between Desktop Metal and Stratasys seems to be rather a take over looking at the balance sheet and considering timing, it more seems to be more of a “Poisoned Pill” to avoid the unwanted Nano Dimension takeover.”
John Kawola, CEO, Boston Micro Fabrication: “The AM industry as a whole ($$’s spent on machines, software, materials, services) continues to grow at a strong clip. Use of 3D printers for design and prototyping is now very much a standard in most product design businesses. Applications for tooling and end-part production continue to expand. A lot of this has been driven by the technology advances made, especially in the last ten years. There was a consolidation wave back in 2012 and 2013 and arguably a bit of a valuation bubble. This in turn drove a great deal of venture capital investment. Companies like Formlabs, Markforged, Carbon, Desktop Metal and many others evolved from this wave. This expansion has been fantastic for technology innovation and for the customer, if they can sort out all the choices. But, it is hard to imagine that all of these companies will be able to build profitable, sustainable businesses. There is a market inefficiency there. All these companies have marketing departments, sales teams, finance teams, manufacturing sites, etc. To get to sustained profitability, this will have to shake out.
DM and Stratasys together makes a good deal of sense. There is some overlap with the DLP businesses, but in general, not a lot. Stratasys will benefit from the technology that DM brings and with having an entrant into the metal market. Both companies will benefit from scale and efficiencies.”
3D Printing Industry: What could be the potential business risks and opportunities that may arise from this merger?
Terry Wohlers: “One opportunity is applying Stratasys’ strong distribution channel to the many products and services that would result from the merger. This is especially relevant to Desktop Metal’s ETEC (formerly Envisiontec) and ExOne.
One possible risk is the merging of company departments, including IT, accounting, sales, marketing, and executive management. History shows that it is difficult, especially with a wide span of markets, regions, and cultures.”
Sona Dadhania: “Considering the overall additive manufacturing market, each AM technology offers different opportunities for end-users. Certain verticals and applications are better suited to some processes over others, so the combination of different technologies under one umbrella may enable access to new and different customer bases and sectors. Still, given that each AM technology is on its own growth curve in terms of adoption, there will still be challenges to overcome for each individual technology, and the combined entity will need to manage the individual maturation of technologies under one umbrella successfully.”
Matthias Schmidt-Lehr: “Nano Dimension seems to look for revenue, the same way Desktop Metal did before. Both companies are based on many promises that did not make it to the market yet.”
John Kawola, CEO, Boston Micro Fabrication: “There are always business risks with mergers. Company cultures may clash, decisions are made about integration that may not pan out, the combined company gets distracted with the heavy lifting that comes with combination. However, the opportunity comes with mating the best of the technologies of both companies together, finding creative ways to combine go-to-market approaches. Also, for the new company, it may have more of an opportunity to fully serve big OEM customers who want multiple technologies but one supplier.”
3D Printing Industry: What are your thoughts about the Nano Dimension and 3D Systems offers?
Terry Wohlers: “It is understandable why Nano Dimension is interested in Stratasys, before and after the announcement of the possible merger with Desktop Metal. However, it is difficult to see what value Nano and Stratasys might bring to one another.
3D Systems might be feeling as if it could become less substantial with a merger of Stratasys and Desktop Metal. A merged company would surpass 3D Systems in size, market, and product breadth. 3D Systems likely wants to be a part of a discussion that is drawing significant attention.”
Sona Dadhania: “IDTechEx cannot comment on either offer specifically, but the combination and timings of these offers may signal a major shift in the market dynamics of the AM industry.
Having major M&A activity from four large, publicly traded AM companies all in the same week cannot be ignored, especially since the result could be the formation of a true 3D printing giant.
IDTechEx has been studying the 3D printing market for more than a decade and often has often explored the question of when consolidation will come for AM, a sign of the industry’s maturation. This may well be a sign of major industry changes to come, which IDTechEx will continue to closely monitor.”
Matthias Schmidt-Lehr: ”My guess is, Stratasys was looking for a company, that complements their product portfolio and offers synergies and is big enough, to make a larger player once merged, that cannot be taken by Nano Dimensions. In the long run, this merged company may also be strong enough to counter the emerging Chinese competition in the Western market in industrial systems.
3D Systems now offers an alternative to stockholders, who neither want a cash-burning Desktop Metal nor a non-revenue Nano Dimension. This could have the same impact as described above but with a better outcome of two rather healthy 3D printing companies.”
John Kawola, CEO, Boston Micro Fabrication: “These offers have the same objective as noted above. How can companies be combined to become more profitable together and how can the companies execute on the synergies that may be available there. 3D Systems and Stratasys together would immediately be the #1 company (by far) in the space and have the opportunities to act on the synergies to bring more value to the customer. Re: Nano-Dimension: they are still a small company with a few specialized niche technologies. It is unclear to me how that combination will bring value to the customer and shareholders through a combination.
In the end, the shareholders who get to vote will have to decide what it is in their best interest and which combination will be best for the value of their shares in the future.”
3D Printing Industry: Is the 3D printing industry consolidating?
Wilderich Heising, Partner and Associate Director, Manufacturing & Supply Chain, Boston Consulting Group, said, “After a long time of a growing number of players that enter the Additive Manufacturing ecosystem we are now entering a consolidation phase with some prominent examples over the last couple of months and the activities that we can see in the news today around some of the big names in the industry.
Valuations have come down quite significantly, so this is a good time for mergers and acquisitions. Moreover, as Additive Manufacturing becomes more mature, scale is becoming more and more important. There are certainly interesting synergies at hand.”
Rick Neff of Rick Neff LLC gave his perspective, “Wow! What a week! The news of three big players seeking mergers is quite entertaining. Are they worth it?
When it comes to the value of Desktop Metal, Stratasys and 3D Systems we can’t just look at their sales and profits. If they were traditional manufacturing companies you might be disappointed with their financials and question their sanity.
The perceived value of these companies, however, makes the mergers make sense to the respective management teams. The forecast upside in sales and the intellectual property have significant value. Each estimate of the value of a company depends on how conservative or how bullish the marketing forecaster is on their technology and manufacturing portfolio.
You would expect each company to be excited about its potential growth. It is interesting that they are excited about their competitors’ positions too. All three companies have some great, unique technologies that I personally am excited to see succeed. Only time will tell if any of the pending transactions are a great move or a poor move for the players.”
The CEO, Boston Micro Fabrication added, “Yes, we are starting to see it here. Unfortunately, I think we will also see many companies who do not make it.”
Culture war on the horizon?
John E. Barnes, President, The Barnes Group Advisors, “What are the key factors for a successful merger? According to a Harvard Business Review article, 70-90% of mergers fail. We’re a technical firm and don’t pretend to give financial advice, but those statistics are staggering. Our team has been involved in many manufacturing industry mergers through our combined centuries of experience and so here are some collective thoughts.
Customer value, integration, and culture have to be given their due. Creating a “pure play 3D firm” is meeting no customer requirement. Polymer and metal AM parts are quite different, designed differently, go in different products, and can serve very different requirements. Because of this, the path to market is quite different.
Only one of the proposed mergers creates some customer value or true synergy from what I can tell. It would appear outwardly that the company cultures are all quite different which is another warning signal. Whether built from acquisitions, or from a start up, when the cultures don’t align, the integration can be quite difficult.
From the integration standpoint, which is where most mergers ultimately fail, the savings are delayed which compounds a situation where a premium is being paid for the company. This “goodwill” will come back to haunt us as that premium will need to be paid for.
From a customer perspective, I would be looking at which combination is going to give me a better product, efficiently and one that is more productive. A lot of that hinges on the culture of the new entity.”
Kawola added, “In the end, as passionately as many feel about this industry, including myself, this is still a business that has to deliver value to customers and get paid enough to make money. Different companies have different business cultures and part of the trick with consolidation is to meld those together productively.”
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Featured image shows Multi-color medical models 3D printed on the J5 MediJet. Photo via Stratasys.