Much ado about nothing… Stratasys finally ends merger talks with 3D Systems

The last few months have been full of twists and turns of the acquisition of Stratasys by Nano Dimension and 3D Systems. The first company submitted many offers and proposals, which were rejected each time, until finally, in July this year. she ultimately withdrew from further attempts. It was different in the case of 3D Systems, which was so confident that it even announced the date of the official merger (it was supposed to take place on August 4, 2023). Ultimately, however, nothing came of it and it certainly won’t work out. On Tuesday, September 12, Stratasys officially announced the end of talks with 3D Systems, and in its rather direct and sometimes brutal argument, it excludes a return to them… So the summer soap opera from the very top of the global 3D printing industry has come to an end. Stratasys will soon merge with Desktop Metal, and 3D Systems… well, I guess it needs to find a new idea for itself…?

On Monday, September 11, 3D Systems announced its latest proposal for Stratasys, which included converting each share of Stratasys stock into $7 in cash and owning 46% of the combined company’s total stock. The offer would be worth more than $27 per share to Stratasys shareholders, after factoring in synergies. A day later, Stratasys’ board unanimously concluded that 3D Systems’ latest proposal was not a “better proposition” over the merger with Desktop Metal and ended discussions with the company.

Reasons for rejecting the 3D Systems offer

In a statement, Stratasys said that after consultations with outside financial and legal advisors and an extensive due diligence review by 3D Systems, the proposal “significantly undervalues” the company. However, what is most interesting in the statement explaining the rejection of the offer is the situation of 3D Systems itself. Stratasys claims the following:

The latest proposal from 3D Systems carries several significant threats. While conducting mutual due diligence, Stratasys discovered a significant number of material issues related to the proposed transaction with 3D Systems, including significant concerns regarding 3D Systems’ short- and medium-term growth prospects:

  • the company released its second quarter results on August 9, 2023, missing its own guidance and shareholder expectations and significantly lowering fiscal 2023 estimates. 3D Systems currently expects revenue to decline one percent on average guidance in 2022 compared to four percent revenue growth in the medium term prior to the release of second quarter results.
  • (…) Align Technology’s revenues, which constitute 23% of 3D Systems’ revenues, will create serious development challenges for 3D Systems. We believe that over time, Align will likely transition to multi-source application printing technology. We have previously raised concerns that Align is likely to move away from 3D Systems stereolithography technology towards DLP technology for both indirect and direct printing devices and third-party vendors. Align’s recently announced acquisition of Cubicure GmbH, a specialist in direct 3D printing of devices, confirmed our fears. At this stage, it is uncertain what market share and margins 3D Systems will be able to achieve in the future as Align develops its own solutions and continues to develop additional alternatives. The impact could be very significant and calls into question whether the market currently reflects the true business value of 3D Systems.
  • 3D Systems’ portfolio already operates at gross margins significantly lower than Stratasys’ gross margin: 3D Systems is 39% and Stratasys is 49%. Consensus 2023 estimates for 3D Systems’ EBITDA remain negative. If 3D Systems’ dental business fails due to Align’s change in sourcing, 3D Systems’ profitability could decline even further and burden the combined company’s margins. We believe this would make it extremely difficult to achieve attractive long-term operating margins for the combined company.
  • the potential for net synergies is much lower than what 3D Systems claims. The company was unable to provide any credible support to support its claim of cost synergies in excess of $110 million. Based on an independent analysis conducted by a leading consulting firm, we estimate that the annual cost synergies associated with the merger will be between $74 million and $88 million.
  • in addition to this gap in realizable cost synergies, based on the detailed work performed by Stratasys management and independent advisors, there will be approximately $50 million in negative revenue synergies annually. Even 3D Systems admitted that this part of its business would be lost as a result of the potential transaction.
  • According to a detailed joint analysis by Stratasys and 3D Systems, a combination of the two companies would likely require a lengthy and extensive regulatory review process, an extended transaction period and significant costs to obtain the required regulatory approvals. This extended closure schedule creates a significant risk of employee loss. Additionally, despite our repeated requests, 3D Systems has not provided any operational or integration plan, which prevents us from assessing which Stratasys employees will be critical to implementing the combined company’s business plan.
  • 3D Systems’ management team repeatedly failed to achieve its cost reduction goals, which deepened our concerns about its ability to achieve its cost synergies targets. In turn, the Stratasys management team delivered excellent results: from 2021 to 2023, based on average forecasts for each company, 3D Systems’ revenues decreased by one percent on a divestiture-adjusted basis, while Stratasys revenues increased six percent on a divestiture-adjusted basis.
  • 3D Systems’ business operates on a gross margin of 39%, well below the 49% gross margin of Stratasys. Given the near- and medium-term growth challenges, the decline in 3D Systems’ business could widen this gap.
  • based on estimates (…), 3D Systems is expected to generate an operating loss of $41 million, while Stratasys is expected to generate an operating profit of $19 million in 2023.
  • of the last 12 quarters, 3D Systems failed to provide estimates for one or both of earnings and revenue for 7 quarters, while Stratasys management met or exceeded such estimates in EVERY quarter.

At the same time, the Stratasys Management Board confirmed its unanimous approval, recommendation and declaration of advisability of the transaction with Desktop Metal.

Was the attempted merger with Stratasys primarily intended to be a solution to the problems facing 3D Systems?

Based on the conclusions of the due-dilligence study presented by Stratasys, it appears that 3D Systems is in trouble… Maybe not so clearly visible from the outside, but analyzes of this type are used to bring to light all the things that companies carefully hide it from the public eye.

The key thread seems to be Align Technology. On Sunday, September 10, we reported that “out of the blue” 3D Systems announced that cooperation with its strategic partner “remains unwavering.” This was quite surprising and strange information, because generally, if cooperation between companies is successful, there is no need to talk about it – especially to write about it. Meanwhile, 3D Systems decided to do this for some reason? It is possible that this was a move ahead of Stratasys’ statement, and maybe the matter has deeper roots?

Another thing is that, for me personally, the idea of a company generating ~$550 million in annual revenues taking over a competitive company generating ~$650 million in revenues a year sounded strange from the beginning, especially since the financial reports clearly indicated that the “acquired company” was more profitable. “from the acquirer”?

But now it doesn’t matter. Stratasys will most likely succeed and take over Desktop Metal, and 3D Systems will have to develop a new plan for itself. Especially since the difference in revenues will increase dramatically and 3D Systems will be able to forget about renewing talks with Stratasys for a long time. Unless it’s the other way around…


Paweł Ślusarczyk
CEO of 3D Printing Center. Has over 15 years' experience in buisiness, gained in IT, advertising and polygraphy. Part of 3D printing industry since 2013.

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