Last week 3D Systems announced closing a deal to gain US$460M in a convertible notes arrangement, but what are they doing with that cash?
I’ve been wondering about this announcement ever since it came up in the news last week. 3D Systems has changed dramatically in the past year, and this seems to indicate a new step forward.
The company was one of the original two that brought 3D printing forth on the world back in the 1980s, as their founder, Chuck Hull, invented the SLA process. They were also one of the first to become a publicly traded 3D printer company, and along with Stratasys they were the only two you could easily invest in those days.
3D Systems stock price took off to stratospheric levels in the mid 2010s due to the extreme public interest in consumer 3D printing, a business that didn’t really turn out well. However, 3D Systems rode that horse until it went south, and while it raised their stock price then, it has languished for years afterwards.
Several replacement CEOs later, the company seems to have finally sorted things out and put things in motion. Their latest CEO, Jeffrey Graves, has taken a series of what would have previously been seen as radical steps to fix the company’s ailments. He’s cut costs, trimmed off non-core businesses through sales, and made some smallish acquisitions. The result of his efforts has been dramatically improved financials, with their latest report coming very close to breaking even, breaking a long term trend. The company’s stock price has risen from only US$4.65 in September 2020 to a much healthier US$23+ today. However, that’s still far, far below the company’s all-time high of near US$100 back in 2014.
What will it take to get their stock price back to those lofty levels? One clue might be this unusual financial raise.
The amount, US$460M is staggeringly huge: it’s nearly half a billion dollars! What on Earth could 3D Systems intend on doing with that amount of cash?
They could expand their sales network, or they could increase their R&D, certainly. However, that amount is too large, even for those activities.
I believe there is one main purpose for this money: an acquisition, or multiple acquisitions.
With this cash combined with the increased value of 3D Systems stocks to add to a deal, they have at their disposal the ability to acquire very large targets.
But which companies might they target? Let’s take a look at some possibilities.
If one thing is true, it’s that 3D Systems has been doing extraordinarily well in the healthcare sector. They have equipment, materials and especially software that are quite appropriate for use in various ways in the healthcare industry. It may be they wish to expand their presence in this space to bolster their already-good position.
I could see them looking at acquiring a large, non-3D printing healthcare company that could benefit from linking 3D Systems’ healthcare functionality. The benefit would be to join forces and use 3D Systems’ products directly at lower cost to provide more value.
Another angle would be to join with companies that further their long term vision of 3D printing human organs. 3D Systems already made a major acquisition in this area earlier this year.
Another possibility could be they wish to acquire a rival, and there are three reasons they might do so.
One is that they want to take someone out of the competitive scene to make it easier to compete for large clients.
Another is that they may feel the need to broaden their technology capabilities. While they have SLA, SLS and a couple other 3D printing processes in house, there are other, newer 3D printing processes emerging that may, in the long term, eat away at 3D Systems’ market. By acquiring one or more of them, they get to ride the wave instead of falling under it.
Finally, a reason may simply be the need for size. Several of their competitors, as seen on our weekly 3D print leaderboard, have been making serial acquisitions of other companies.
Each of these acquisitions makes the 3D Systems competitors stronger: they have entirely new lines of business that could enter markets 3D Systems cannot currently enter. Each of these acquisitions could grow significantly, and by having many different 3D printing processes, they diversify their strategy and lower risk.
Another thing: these acquisitions simply make Desktop Metal and Stratasys bigger. And “big” can be itself a corporate weapon. It allows them to leverage their corporate value to generate assets or cash as required, making them even more competitive than they were previously.
3D Systems just might acquire similar companies simply to keep up in the size battle. They’re current on top of our leaderboard, and perhaps they want to stay there.
Which companies might 3D Systems be targeting? We cannot know their plans, but after looking at our leaderboard, some possibilities come to mind.
Both Markforged and SLM Solutions offer metal 3D printing solutions that could complement 3D Systems’ line of equipment, and they are in the price range of affordability. BigRep, Additive Industries, BCN3D, and Essentium all could be in the mix as well. These privately-held companies are all focusing on manufacturing strategies, something 3D Systems is actively pursuing.
We’ll probably find out the truth in coming months, as 3D Systems seems to be moving rather quickly these days.
Via 3D Systems