The beginning of an M&A boom? Insights from Nano Dimension and Desktop Metal investor call

On an investor call today to discuss the planned takeover of Desktop Metal by Nano Dimension, CEO Yoav Stern took the opportunity to discuss the prospect of additional takeover targets and what will happen to his company’s shareholding in Stratasys. 

The planned merger is poised to reshape the 3D printing industry, creating a “juggernaut,” according to Desktop Metal CEO Ric Fulop. 

The strategic move with Desktop Metal, reflects significant changes in the latter company over the past year. Once a skeptic, Yoav Stern, CEO of Nano Dimension, now embraces the partnership, illustrating the dramatic evolution of Desktop Metal. “Desktop Metal is a very different company to what it was a year ago,” Stern remarked, adding that the transaction now has his “blood boiling with excitement”.

Nano Dimension and Desktop Metal: A Strategic Vision

The takeover was likened to purchasing a prime location property that was initially unrenovated. Now, even after renovations, with the price lower and the location still optimal, this makes for an opportune investment. Stern elaborates, “It’s like buying a property for $10 million in a prime location, but the house is not renovated. Now Ric has renovated, and the price is less.”

This partnership is more than just a financial transaction; it represents a vision for the future of manufacturing. The deal offers a data opportunity for Nano Dimension, talking up a cloud digital manufacturing platform connected to edge 3D printing devices. Stern envisions scenarios like Lockheed Martin printing metal parts for the F35 using Desktop Metal printers in the UK, showcasing the potential for innovative applications. 

Financial Dynamics of the Nano Dimension takeover

Nano Dimension boasts an adjusted 49% gross profit margin, while Desktop Metal’s margin, though currently lower, has shown improvement over the past four quarters. Addressing potential cash-flow concerns should the transaction take longer to complete, Nano Dimension will provide a loan to Desktop Metal if reinforcement of working capital is required. Stern emphasizes the potential for growth, noting, “This is forming one of the largest companies in the market with over 1,000 patents.”

However, the road ahead includes financial challenges. The combined company anticipates six to eight quarters of negative cash flow but is fortified with $700 million in cash and equivalents. Desktop Metal’s convertible bonds will be paid as planned, ensuring financial stability during this period.

Market Strategy and M&A

Stern addresses market size claims with skepticism, suggesting that the industry’s fragmentation will lead to consolidation. He draws parallels with the airline industry, predicting that the final number of operators will be greater than two but fewer than the current 350 developers, most of whom are not profitable.

“M&A is very exciting, especially the A. But the M is what counts,” Stern notes, emphasizing the importance of strategic mergers over acquisitions. He confirms plans for future M&A, indicating that the time is now right to pursue these opportunities.

Management and Future Outlook

Reflecting on his experience, Stern spoke about the need for restructuring and cost-cutting, acknowledging the challenges ahead. “I’ve been in turnaround all my life, often you don’t have a choice but to cut costs. No choice but to hurt flesh and bone, and not only the fat,” he states, indicating his approach to the forthcoming changes.

Despite potential for activist shareholder interference, Stern reassures stakeholders of a cooperative approach, saying, he will not go on the offensive, relationship is much less acrimonious than in the past. “This is not my style, at least any more.”

Looking ahead, Stern promises more detailed plans in the coming quarters. “I can promise you within the next couple of quarters we will have more details and a more accurate plan on how to deliver dollars from the top-line to the bottom line.”

Fulop, echoes Stern’s optimism, highlighting the combined company’s potential. “Combined it will form a very formidable juggernaut with a bright future,” he says. He also emphasized the innovative technology portfolio, which includes 3D printing electronics, investment casting, sand casting, ceramics, AI, and simulation.

As the industry anticipates the impact of this deal, Stern’s final reassurance stands out: “This deal is clean, cleaner than a whistle.” The strategic investment in Stratasys further underscores a cooperative future, marked by a shared vision and strengthened by mutual respect. “Just a year ago, Stratasys wanted to merge with Desktop Metal, so use your imagination,” Stern hints, suggesting the endless possibilities that lie ahead.

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Featured image shows Nano Dimension 3D printed electronics. Photo by Michael Petch.