It turned out that SPACs were not the right way forward for many 3D printing companies.
The SPAC craze that took over a few years ago was supposed to be an easier way for private companies to go public. However, a recent Wall St. Journal report shows that SPACs were not the right way forward for many 3D printing companies.
SPAC vs. IPO
Normally, a private company would follow an IPO (initial public offering) process to appear on a stock market. This is a long and expensive bureaucratic process, but it’s the traditional way for a new stock to appear on exchanges.
On the other hand, the SPAC or Special Purpose Acquisition Company, was introduced as a leaner process. Someone would create a shell company with no assets and go through the IPO process, which is straightforward and relatively inexpensive, because it’s an empty company. At that point, there’s an empty company on a stock market, waiting for a customer.
The customer would be a private company that wants to short-circuit the path to the stock market. This is done by striking a deal whereby the SPAC would “buy” the private company outright and bring it as an asset under the company that’s already on the stock market.
The problem with SPACs was that the folks setting them up wanted a huge profit, and the deals struck necessitated rather high initial values for the stock once it resumed trading after the acquisition. WSJ’s analysis showed that two-thirds of the 248 SPAC-transaction companies investigated now have share values under US$5, down from an average of US$10 at the initial listing. Apparently, only 8% of the analyzed companies are trading above their initial price, and that’s years after it happened.
3D Printing Companies Affected
Several 3D printing companies entered the market during this period. Let’s take a closer look at how they have fared.
Desktop Metal announced plans to go public in 2020 and did so at an initial price of US$10 per share. The company’s stock price leapt to the mid-US$30s, but since then has dropped significantly. Currently, the company’s stock price is US$2.17, a drop of over 78% in value.
Velo3D, maker of industrial metal 3D printers, went public in October 2021 with a strong company valuation of around US$1,650M. Currently, their valuation is near US$395M, a drop of about 76% in value.
Shapeways, the original consumer order-to-print service, went public in October 2021 with a valuation then of approximately US$426M. Today, the company is valued at only US$14M, representing a drop in value of 97%. To put that in perspective, if you had invested US$10,000 in Shapeways at their peak value, those shares would be worth only US$300 today. Ouch!
Markforged went public in July of 2021 and quickly rose to a huge valuation of US$1,946M. Today their valuation is approximately US$188M, a loss of almost 90%.
Fast Radius went public via SPAC in May of 2022, with a valuation of around US$36M. In November of 2022, the company ceased operating entirely, yielding a 100% loss.
Essentium announced plans to go public in December of 2021, but after some months, they decided not to proceed with the SPAC procedure. Based on the results above, I think they made a smartest choice.
The Future of Public Offerings
It appears that the SPAC approach was perhaps not the best idea for many companies, and some of the companies in the 3D printing industry were affected. Future public offerings will likely not be using SPACs and instead will execute the usual IPO process.
The SPAC approach has proven to be a high-risk, high-reward strategy for 3D printing companies. The companies that chose this route have faced significant losses in value since their initial public listing. The failure of SPACs in the 3D printing industry shows that a more traditional IPO process may be the best way forward.
In recent years, the 3D printing industry has experienced significant growth and innovation. As companies continue to develop new technologies and applications, the need for funding will remain. However, it is crucial that companies choose the right strategy to go public to avoid significant losses in value.
As the markets recover, we can expect that companies will continue to go public, but through a more traditional IPO process. While the SPAC approach promised a faster and cheaper way for private companies to go public, the risks associated with it have proven to be significant.
The failure of SPACs in the 3D printing industry highlights the importance of carefully considering the best strategy to go public. While SPACs may seem like a tempting option, the high risk of significant losses in value should not be overlooked. It is crucial that companies evaluate their options and choose the best approach for their unique needs and goals.
Via Wall St Journal