How to Profit From Changes in the 3-D Printing Universe
Eileen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s buying season for the 3-D printing space as leading companies in the industry are busy acquiring smaller firms that complement their business models and give them an edge over the competition. As 3-D printing becomes a more accessible technology for consumers and expands its use for industrial purposes, industry leaders seem to be focusing on maintaining and gaining market share through strategic purchases.
Stratasys and Makerbot get hitched
Stratasys (NASDAQ: SSYS), a leading manufacturer of professional 3-D printers and printing materials, recently acquired start-up Makerbot Industries. Makerbot provides 3-D printing solutions to "prosumers," like engineers and designers, and markets its product to the consumer segment of the market. Its Replicator 2 desktop 3-D printer model carries a price tag that’s more affordable to an average consumer.
According to Bloomberg, the deal involves the issuance of 4.76 million shares, worth $403 million, in exchange for Makerbot. Afterwards, Makerbot is required to make performance-based payments that could increase the purchase price by $201 million. After the merger, the share price of Stratasys rose 2.8% in after-hours trading.
The acquisition is expected to be mutually beneficial for both companies -- Stratasys’ influence in the industry and resources are expected to help the Replicator reach a wider audience, while the Replicator gives Stratasys access to the consumer segment of the market. Both companies estimate that between 35,000 and 40,000 desktop 3-D printers were sold in 2012 and sales are expected to double in 2013. The transaction finalizes in the third quarter of 2013, and MakerBot is expected to operate as a separate subsidiary, with its own identity, products, and market strategy.
Catering to both amateurs and pros
As Makerbot's Replicator makes its way to your local store, it will share space on the shelf with 3D Systems’ (NYSE: DDD) Cube, another 3-D desktop printer marketed to the consumer segment. The printers are very similar and allow users to choose between two types of plastics to build their 3-D designs.
On the professional side, 3D Systems is expanding the types of materials it uses for industrial purposes. The company recently signed on to acquire 80% of Phenix Systems, a French manufacturer of direct metal 3-D printers that can print metal and ceramic parts from very fine powders. Metals include stainless steel, as well as superferrous and non-ferrous alloys. Being able to provide customers with direct metal-printing technology gives 3D Systems greater access to the aerospace, automotive and medical device industries. Phenix provides complementary materials and printers to the company and 3D Systems should be better able to respond to accelerating demand for direct metal printing.
The transaction is expected to close in July 2013 and afterwards 3D Systems plans to launch a takeover bid for the remaining 20% stake in Phenix. The maximum price payable by 3D Systems for 80% of Phenix’s shares is estimated to be $17.36 per share.
Focused on industrial design and processes
Dassault Systemes (NASDAQOTH: DASTY) is another company providing 3-D printing design software and consulting for the industrial sector. The company’s expertise lies in its digital mockups, or 3-D digital prototypes, and product lifecycle management solutions, which allows its customers to design and render products virtually. So far, the company hasn’t shown interest in the non-professional segment of the market.
Like its rivals, Dassault Systemes is also in buying mode and recently acquired Apriso, which provides manufacturing operations software for the management of product distribution, quality, logistics, manufacturing, and compliance processes throughout production plants. The price tag on the purchase is about $205 million, payable in cash, and the transaction should be completed by July 2013.
Apriso’s manufacturing process software is a natural fit for Dassault’s industrial customers with products in or entering the production phase of their lifecycle. The process software can expand Dassault’s reach across the 12 industries it serves, which includes consumer goods and retail, high tech, life sciences, and industrial equipment. Providing software solutions to help customers manage the production and distribution of their products is a logical next step for the company to maintain and increase its market share.
The recent acquisitions in the 3-D printing space by the industry’s larger players should benefit the shareholders of these companies and provide long-term value to these businesses. At current price-to-earnings multiples, their shares are reasonably priced based on their future five-year growth prospects, especially those of 3D Systems and Stratasys. By aligning with and acquiring new businesses that enhance their current product/service lines, these companies are gaining new customers in other markets and/or providing more options to their current ones.
With the U.S. relying on the rest of the world for such a large percentage of our goods, many investors are ready for the end of the "made in China" era. Well, it may be here. Read all about the biggest industry disrupters since the personal computer in 3 Stocks to Own for the New Industrial Revolution. Just click here to learn more.
Eileen Rojas has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!