In a transaction that’s expected to be finalized in Q4 2021, Desktop Metal is set to pay ExOne shareholders $192 million in cash and $383 million in shares, valuing the firm at $575 million. For Desktop Metal, the agreement sees it acquire one of its key binder jetting rivals, according to ExOne’s CEO John Hartner, the deal could also prove beneficial for the sector by driving the technology’s wider adoption.
Since investors caught wind of the acquisition, Desktop Metal’s shares have dipped 6%, although they are projected to recover 2% in early morning trading, while ExOne’s shares fell by 5%, but are also expected to rise 35% premarket.
“I’m very excited about this combination, which I believe will dramatically accelerate the adoption of production metal additive manufacturing,” explained Hartner. “This combination brings together two of the industry’s leaders, that combined, will solve customers’ challenges faster and bring the reality of production metal additive forward by years.”
A binder jetting convergence
Desktop Metal’s acquisition of ExOne sees two of 3D printing’s biggest binder jet system manufacturers join forces, to build a broader portfolio that’s better capable of addressing their clients’ needs. In practice, Desktop Metal intends to achieve this by taking full control over its competitor, paying $8.50 in cash and $17.00 in stock to ExOne shareholders, in a deal valuing the company at $25.50 per share.
This price factors in a 47.6% premium on the closing price of ExOne’s stock on August 11, 2021, and an acquisition multiple of 6.4 x 2021 on its consensus revenue estimates. The move is also subject to a ‘collar mechanism,’ which will see the value of the Desktop Metal stock awarded is based on a ‘weighted average price,’ meaning that it could surrender anything from 39.5 million to 48.3 million shares.
Once completed, the transaction is set to see Desktop Metal shareholders retain 85-88% of the company’s stock, with ExOne’s backers holding the remaining 12-15%. While the move has been approved by ExOne’s Board of Directors, it still remains subject to approval by its shareholders, as well as the satisfaction of customary closing conditions.
In terms of the deal’s wider impact, Desktop Metal CEO Ric Fulop said on the firm’s earnings call, that he expects it to help “increase the penetration of binder jetting,” by enabling both companies to pool their materials, reduce any overlap and harness the synergies between their technologies, to make their offering more attractive to large-volume clients.
“Putting a company like ExOne into a well-capitalized enterprise like Desktop Metal helps [drive] the adoption of technology from large companies that are looking to make decisions on very, very large programs,” said Fulop. “They can now feel more confident in the balance sheet and resources behind a larger technical team. It [the deal] should accelerate the adoption of binder jetting as a whole.”
Desktop Metal’s Q2 2021 results
Alongside the announcement of its ExOne acquisition, Desktop Metal has also published its Q2 2021 financials, revealing that it generated $19 million in revenue. This figure represents a 764% increase on the $2.2 million it reported in Q2 2020 and reflects the rapid expansion of the firm’s product portfolio since it went public on the NYSE in December last year.
The company reports its revenue across ‘Products’ and ‘Services’ divisions, with the former being its primary source of income. During Q2 2021, Desktop Metal’s Products brought in $17.5 million, a 70% rise on the $10.3 million reported in Q1 2021, while its Services segment grew steadily from $1 million to $1.4 million over the same period.
On the firm’s earnings call, Fulop attributed its rapid revenue growth to an increase in its customer install base, which grew by 44% between Q1 and Q2 2021. Fulop also cited the strong performance of the company’s Shop System and Studio System 2 sales for its rising income, before adding that its P-50 machine should begin shipping in Q4 2021, further bolstering its Product sales numbers.
|DM Revenue ($)||Q2 2020||Q2 2021||Difference (%)||Q1 2021||Q2 2021||Difference (%)|
Likewise, Desktop Metal has invested heavily in expanding its medical portfolio over the last six months, first establishing Desktop Health, then acquiring Beacon Bio along with its ‘Phonograft’ bioprinting technology. Although it’s unclear how much revenue the firm’s clinical portfolio has generated thus far, Fulop maintains that it will eventually “supplement its industrial business and accelerate growth.”
In Q2 2021, the company also established its wood 3D printing Forust subsidiary, which according to Fulop, is “experiencing overwhelming demand,” and he sees potential synergy for the technology with the ExOne’s large-frame systems.
Elsewhere, Desktop Metal’s expansion has seen it acquire EnvisionTEC for $300 million, and buy up Adaptive3D as well, in a strategy that has involved it racking up a whopping $388 million investment bill during H1 2021, but the firm’s CFO James Haley says that it has “lots of dry powder left,” to continue taking this approach moving forwards.
“We finished Q2 with north of $514 million in cash, cash equivalents, and short-term investments, so we’re extremely well capitalized,” said Haley. “We’re burning through cash as we continue to grow and scale the business, and look at opportunities that have outsized returns over the next couple of years. But we’re very comfortable with where we are and don’t foresee any runway issues whatsoever.”
ExOne’s Q2 2021 financials
Conveniently, ExOne has also published its Q2 2021 financials at the same time, providing Desktop Metal with the ideal opportunity to size-up the potential of its prospective purchase. At first glance, the firm is being bought at an ideal time, given that it reported the highest backlog in its history during Q2 2021, in addition to record revenue of $18.9 million.
This figure represents a 69% rise on the $11 million ExOne generated in Q2 2020, and a 24% increase compared to the $15.3 million it brought in during a pre-COVID Q2 2019. On a joint earnings call with Desktop Metal’s Fulop, Hartner explained that the firm’s revenue jump was the result of rising 3D printing machine sales from recurring clientele, which in turn, was fuelled by its broadened material portfolio.
Geographically, Hartner added that ExOne’s business grew in all regions during Q2 2021, but its demand was particularly strong from Asian and American markets, where it grew 92% year-on-year. Over the same period, the company’s backlog rose 27% to $49 million as well, thus Desktop Metal effectively stands to inherit some of the revenue from these orders, once its acquisition is completed in Q4 2021.
|ExOne Revenue ($)||Q2 2020||Q2 2021||Difference (%)||Q2 2019||Q2 2021||Difference (%)|
|3D Printing Machines||4.9m||10.5m||+114||9.3m||10.5m||+13|
|Other Products, Materials and Services||6.2m||8.3m||+34||6m||8.3m||+55|
Additionally, ExOne has been on somewhat of an expansion drive itself over the last six months, acquiring the ‘AMClad’ assets of Freshmade 3D, with the intention of scaling the technology for a global aerospace client, as well as launching its Metal Designlab 3D printer, as part of a deal that provided it with first refusal over any future Rapidia takeover.
The firm has also worked with Ford to develop a new aluminum binder jetting process, and Celwise to 3D print tooling out of wood-based materials, both technologies which should now be added to Desktop Metal’s portfolio in Q4.
In terms of future revenue, Haley wrapped up his part in the earnings call by saying that Desktop Metal will generate “in excess of $100 million” for FY 2021 while achieving sequential quarterly growth. Although this figure excludes the impact of acquiring ExOne, analysts on the call suggested that the companies’ combined revenue could top $172 million in FY 2021, rising to $300 million by FY 2022.
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Featured image shows a 3D printed ExOne logo on display at one of the company’s facilities. Photo via ExOne.