In recent weeks there have been several high-profile corporate acquisitions in the 3D printing world. There are reasons this is happening and we should expect more.
As Sarah reported, we’ve recently seen:
- Covestro is set to acquire DSM’s additive manufacturing materials operations
- Stratasys has acquired Origin
- Desktop Metal is set to acquire EnvisionTEC
- Protolabs is set to acquire 3D Hubs
Some in the industry expect more to come, and there has even been speculation on who might acquire whom in 2021.
I’m not going to speculate on specifics, simply because having been inside several corporate acquisitions myself, I know that each situation is unique, with many publicly hidden details evaluated before decisions are made. It sometimes also has to do with the personalities of the major shareholders of the parties, specifically their interest in cashing out.
In every industry there is a lifecycle through which all parties must pass. These phases occur naturally and there’s no way around them.
In the beginning, a technology is new; no one knows much about it, and prospective clients must be educated about the technology before they’ll even experimentally use the product. Often a major issue is simply making clients aware that the technology even exists.
In that state the level of competition is strange because the technology players will be relatively small as it is so hard for them to grow. There are so many prospective customers there really isn’t much competition at all. Some would say “there is room for everyone!” I’ve actually heard 3D print leaders say that, although not so much lately.
Eventually prospective clients become clients and learn the true benefits of the products. They leverage them to provide profit, as you might expect. However, their competitors observe this, and have to keep up. Suddenly we have a lot more orders. We saw this in the 2010-2015 era of 3D printing.
3D Printing Startup Investments
At this stage many entrepreneurs recognize the opportunity and launch startups. These numerous startups explore all the technical and marketing niches available to create a defensible space for themselves, but in the same way drive the maturation of the technology and how it’s sold.
All this activity attracts investors who plow cash into startups, hoping they will become a “ten-bagger” or better. (This is an investment term indicating a ten-times growth on the investment.)
At this moment the startups become transformed. Instead of the technology company they might have originally intended, they now have obligations to shareholders to literally become that ten-bagger. They change strategies accordingly, and usually there’s a bit of a scramble to establish a prominent market position.
These efforts tend to raise the bar for market entry. While in the early days someone had a decent chance of inventing a machine in their garage and growing it into a major corporation, that becomes increasingly difficult due to the head start of existing players, and eventually impossible. That’s the case today, where it would really cost millions to properly start a competitive new entry into the market.
Growing 3D Print Companies
Some will become very successful, while a great many will fail. But the successful entrants will then attract big investors. Really big investors, with equally big expectations.
This places leading companies in a challenging position. While the market slowly saturates, options for growth become less obvious. And growing 50% is tremendously easier when you’re a US$1M company than when you are a US$100M company. It’s just too hard to organically grow at the rates expected by investors in most cases.
That’s when companies begin alternative strategies for growth. That can include opening overseas operations to add more customers. They may partner with huge distribution organizations to gain access to their customers. They might add new lines of business in other, non-3D printing, technologies.
And they may buy whole companies.
3D Print Corporate Acquisitions
An acquisition may not be as it appears. For example, a venture capital-backed company may have an internal annual revenue target. By acquiring a company you also gain that company’s revenue, which is added to your own. Suddenly you’ve met the revenue targets in a rather different way.
These acquisitions are not just financial. Along with the clients comes also the expertise, patents, staff, sales, partnerships, facilities and inventories. By combining organizations together you can often generate massive savings. You may need only one financial department, for example, or split the costs of overseas shipments. These savings go literally to the bottom-line profit, likely required to meet some internal financial target. In many cases these can largely fund the cost of the acquisition itself.
As the market tightens the frequency of acquisitions will increase. With lessened opportunities to expand overseas and space to grow organic customers, there is little choice but to buy other companies, even if they don’t seem to be a perfect fit on a technical level.
And there’s many other benefits of simply being bigger. You can often gain preferential financial rates, increased market attention, more cash reserves, etc.
More 3D Print Acquisitions
I recall a day long ago in another industry where my boss said:
“In our industry there are currently 65 companies. In five years there will be only five, and we want to be one of them.”
Our path was then set, and we embarked on a program of repeated acquisitions.
I am pretty certain someone is saying those same words in several large 3D print companies today.