The Stratasys (Nasdaq: SSYS) Board of Administrators unanimously decided that the revised proposal that it acquired from 3D Methods Company on September sixth continues to considerably undervalue Stratasys and doesn’t represent a “Superior Proposal”, as outlined in Stratasys’ merger settlement with Desktop Steel, Inc. (NYSE: DM) (“Desktop Steel”). The Board additionally expressed “critical issues about 3D Methods’ short- to medium-term development prospects” and “critical issues concerning the flexibility of 3D Methods’ administration group to run a mixed firm”. As Nano Dimension has already quietly deserted its takeover prospects, this could put an finish to the continued saga and permit Stratasys to finish the merger with Desktop Steel.
This, VoxelMatters believes, was all the time the most certainly and in addition probably the most fascinating consequence for Stratasys, because it allows the present administration led by Yoav Zeif to keep up management of the mixed firm, achieve entry to extremely strategic metallic binder jetting know-how, and proceed on the virtuous path it undertook just a few years in the past, turning the corporate round (not with out some vital challenges to face). Stratasys shares stay considerably undervalued, reflecting buyers’ low confidence degree, however that is at present true for almost any pure-player 3D printing firm.
The final supply
On September 6, 2023, Stratasys acquired a revised proposal from 3D Methods Company (NYSE: DDD) to accumulate Stratasys for $7.00 in money and 1.6387 newly issued shares of 3D Methods widespread inventory per extraordinary share of Stratasys, representing a worth of $15.26 per share for Stratasys, and a premium of solely 3% to the unaffected closing inventory worth of Stratasys extraordinary shares as of Could 24, 2023.
After session with its outdoors monetary and authorized advisors, and following an intensive due diligence evaluate of 3D Methods, the Stratasys Board Accordingly, the Stratasys Board has terminated discussions with 3D Methods. The Stratasys Board reaffirms its unanimous assist of the pending mixture with Desktop Steel. After a protracted quiet interval, Desktop Steel re-emerged yesterday with information of one of many largest installations of its metallic binder jetting programs, in a cope with FreeFORM for a complete of 25 machines working on the Pennsylvania-based service supplier. Whereas it is a lengthy shot from its founders’ preliminary imaginative and prescient, it’s a vital step in the correct path.
As well as, the latest proposal by 3D Methods carries a number of vital dangers. In conducting mutual due diligence, Stratasys uncovered a major variety of materials points with respect to a proposed transaction with 3D Methods.
Apparent issues
Stratasys expressed a number of issues which, to be sincere, had been fairly clear to anybody who has been following the monetary evolution of the AM trade over the previous few years. One is that there are vital worries concerning the short- to medium-term development prospects of 3D Methods. On August 9, 2023, 3D Methods reported its Q2 outcomes, which not solely fell wanting its personal projections but additionally upset market expectations. This led to a considerable downward revision of its fiscal estimates for 2023.
One other main concern facilities on Align Expertise, Inc. (“Align”), which, in line with the Stratasys assertion, accounts for 23% of 3D Methods’ revenues. It’s anticipated that Align will pose vital development challenges for 3D Methods, as there’s a chance that Align will transition to utilizing multiple-source printing know-how over time. Earlier issues had already been raised about Align transferring away from 3D Methods’ stereolithography know-how in favor of DLP know-how for each oblique and direct printing of home equipment and different provides. The latest acquisition of Cubicure GmbH by Align, identified for its power in direct 3D printing of home equipment, additional reinforces these issues. The end result stays extremely unsure concerning the market share and margins that 3D Methods can preserve sooner or later as Align expands its options and different options emerge. This example raises questions on whether or not the present market valuation precisely displays the true intrinsic worth of 3D Methods’ enterprise.
There are additionally structural challenges affecting 3D Methods’ path to reaching enticing profitability. The corporate’s portfolio at present operates at gross margins considerably decrease than these of Stratasys, with 3D Methods at 39% and Stratasys at 49%. Ought to 3D Methods’ dental enterprise decline as a result of Align shifting its sourcing, the profitability of 3D Methods may deteriorate additional, making it difficult to realize enticing long-term working margins for a mixed firm.
Moreover, the potential for internet synergy is significantly decrease than what 3D Methods has been suggesting. Their declare of price synergies exceeding $110 million lacks credible assist. Stratasys mentions unbiased evaluation from a number one consulting agency estimating annual price synergies to be between $74 million and $88 million related to the merger. Moreover, there may be the prospect of roughly $50 million in annual detrimental income synergies, a facet acknowledged by 3D Methods. This means {that a} portion of the enterprise could possibly be misplaced because of the merger.
A not possible merger
The merger between Stratasys and 3D Methods faces vital regulatory consummation dangers and an prolonged timeline for closing, which may vary from 9 to 18 months. This prolonged timeline introduces the danger of worker attrition. Regardless of repeated requests, 3D Methods has not offered an operational or integration plan, making it difficult to evaluate which Stratasys workers can be essential for the mixed firm’s execution of its marketing strategy.
Stratasys additionally expressed critical doubts concerning the capacity of 3D Methods’ administration group to successfully run a mixed firm. 3D Methods’ administration group has persistently failed to fulfill its personal price discount targets, additional fueling issues about its capability to realize the goal price synergies. In distinction, Stratasys’ administration group has demonstrated superior efficiency. From 2021 to 2023, primarily based on mid-point steerage, 3D Methods’ income declined by one % (adjusting for divestitures), whereas Stratasys’ income grew by six % (adjusting for divestitures). Given the short- to mid-term development challenges confronted by 3D Methods, any decline in its enterprise could additional widen this hole.
On account of a complete evaluate and session with exterior monetary and authorized advisors, the Stratasys Board has concluded that 3D Methods’ most up-to-date revised proposal doesn’t meet the factors for a “Superior Proposal,” as outlined in Stratasys’ merger settlement with Desktop Steel. Consequently, Stratasys has chosen to terminate discussions with 3D Methods.
