Protolabs acquires 3D Hubs for $280M to expand manufacturing partner network

On-demand digital manufacturing provider Protolabs has acquired online manufacturing platform 3D Hubs for a total of $280 million, in a move that will see the creation of what the companies claim to be “the world’s most comprehensive” digital manufacturing offer for custom parts.

Through the acquisition, Protolabs will gain access to 3D Hubs’ global network of 240 manufacturing partners, enabling broader capabilities, pricing, and lead time options outside of its current scope.

“The addition of 3D Hubs provides Protolabs a platform to evolve our service model to provide unprecedented manufacturing flexibility to our customers,” said Rob Bodor, incoming President and CEO of Protolabs. “Our combined organizations will provide the market an industry-leading digital manufacturing solution to serve their needs from idea to prototype to full end-use production.

“Together we can fulfill nearly every custom manufacturing need across the product life cycle.”

The launch of 3D Hubs offices at Station F, Paris. Photo via 3D Hubs
The launch of 3D Hubs offices at Station F, Paris. Photo via 3D Hubs

3D hubs’ evolution

Founded in 2013 initially as a P2P platform for people with 3D printers to make things for others, 3D Hubs has since gained more financial backing to reposition itself as a B2B service. After adding CNC machining, injection molding, and sheet metal fabrication manufacturing offerings to its 3D printing capabilities, the firm officially rebranded as a “turnkey manufacturing platform” in 2018. 

Following this, 3D Hubs launched a new business entity based in the US named 3D Hubs Manufacturing LLC, in order to implement the firm’s “Fulfilled by 3D Hubs” service in the region. In 2019, the company marked its entry into the French market with the opening of new offices in Paris, backed by investment firm Future Shape.

Currently, 3D Hubs’ platform contains 240 vetted manufacturing partners from 20 countries worldwide, and has facilitated the production of more than six million custom parts and products. In 2020, the firm generated $25 million in revenue at a compound annual growth rate (CAGR) of more than 200 percent since 2017.

“The entire 3D Hubs team is thrilled to join Protolabs and continue to revolutionize the manufacturing industry through innovation,” said Bram de Zwart, co-founder and CEO at 3D Hubs. “At 3D Hubs, our goal is to empower companies to create revolutionary products through supply chain efficiency and reliability. We are confident that partnering with Protolabs will help us advance that mission.”

Robert Bodor will succeed Vicki Holt as President and CEO of Protolabs, effective March 1, 2021. Image via Protolabs.
Robert Bodor will succeed Vicki Holt as President and CEO of Protolabs, effective March 1, 2021. Image via Protolabs.

Details of the Protolabs-3D Hubs acquisition

Protolabs’ acquisition of 3D Hubs was driven and executed by Bodor, in order to provide Protolabs with two significant benefits; an extended network of manufacturing partners, and a broader selection of manufacturing capabilities, pricing, and lead time options. The acquisition also accelerates three key elements within Protolabs’ growth strategy, in which the firm hopes to achieve $1 billion in revenue much faster. 

According to Protolabs, the move will enable the company to both obtain new customers and increase sales within its existing customer base, which will expand geographically. The acquisition will also broaden Protolabs’ part envelop to deliver larger part sizes with increased complexity and new materials. Additionally, new manufacturing services, processes, secondary operations, and inspection reporting will be facilitated.

In terms of the acquisition agreement, Protolabs will acquire 3D Hubs for a total of $280 million, of which $130 million will be funded with cash and the remaining $150 million in Protolabs common stock. An additional $50 million of contingent consideration is also payable subject to performance-based targets over the next two years. Protolabs has also initiated an employee incentive fund payable to 3D Hubs employees based on financial performance and employee retention targets.

“The acquisition of 3D Hubs is part of the continued evolution of Protolabs as the digital manufacturing leader, serving more and more of our customers’ needs,” added Vicki Holt, Protolabs CEO. “Protolabs’ leading in-house technology-enabled manufacturing services combined with 3D Hubs’ global network of premium manufacturing partners will yield the greatest value to our customers for years to come.”

Explaing the deal to investors

The purchase price of $280 million with a further $50 million contingent on meeting revenue and earnings targets values 3D Hubs at over 13 times 2020 revenue. This is impressive considering that in 2017 3D Hubs revenue was a mere $1 million. The roots of today’s announcement can be traced to that same year, when 3D Hubs embarked on a new strategy focused on the B2B market. Prior to 2017, 3D Hubs appeared to many to be predominately a network of consumer users – while at the time approximately half of the $1 million revenue came from professional users. These business users were frequently unable to order from non-business hubs.

3D Hubs now has 240 vetted manufacturing partners, with approximately $15 million in revenue from CNC Services and $7 million from 3D printing. On a call with investors today attention was drawn to the quality assessment process of vetting these partners and monitoring the quality of parts produced. Upfront audits and ongoing evaluations of performance are done through the 3D Hubs platform and coupled with human oversight. Key metrics include low customer complaints and orders arriving on time together with reliability. The expertise of partners is vital to ensure orders are routed to the correct partner. Protolabs is proud of how it has automated much of the digital manufacturing workflow and in 3D Hubs, the company finds a like-minded partner, the quality management process is handled mainly by the 3D Hubs platform. 

So why would a potential customer choose 3D Hubs over Protolabs, and is there a danger that the acquisition will see some cannibalization of sales? “There are times when customers don’t need the part that fast and they are interested in a different lead-time and at a competitive price for that lead time,” says incoming CEO Robert Bodor. Furthermore, additional secondary processes can be offered.

Protolabs believes it important to “augment our offering with the opportunity for outsourcing”. Suggesting that legacy overheads may mean that it may make business sense to use the 3D Hubs network of manufacturing partners rather than in-house Protolabs equipment. This would also avoid leaving cash on the table for orders that Protolabs may have previously rejected and opens the door to such a customer utilizing Protolabs’ wider services down the road. Analysts drew attention to the acquisition as a defensive play, which is another way to view the strategy.

Discussions for the deal started in the summer, and Vicki Holt says the timing for the deal now is perfect due to the acceleration of B2B eCommerce taking place post-Covid. “We want to be in the strongest position” to “maintain leadership in the eCom B2B supply of custom parts to the industrial customer,” said the CEO. “Our normal approach of bringing things into a digital platform to accelerate our road map was just not fast enough for the pace of change happening in eCom today,” Holt added. 

This acceleration through acquisition brings with it a large group of expertise in the form of current 3D Hubs employees and the executive team. As the 3D Printing industry continues to grow it is widely acknowledged that the battle for talent is real. Adding such a team to the existing Protolabs headcount is surely advantageous, measures must be in place to ensure key staff are retained. As Holt said, “3D Hubs has a strong talented team that would really fit into the culture of Protolabs”.

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Featured image shows a Protolabs CNC machining facility. Photo via Protolabs.