Powerful news this morning.
Just three weeks ago we questioned whether or not 3D printer company Objet would actually make it to it’s IPO in April or May — we had heard that it was a potential buyout candidate by a larger “electronics” company. Nope. This morning Objet and 3D printer company Stratasys (SSYS) announced that they have merged to combine what will be now the highest valued 3D printer company in the world, at a value of roughly $1.4 billion dollars. While Stratasys stock is up 22% at the moment this morning, competitor 3D Systems (DDD), who is the most acquisitive 3D printer company in the world, is up 10% in sympathy.
I was just at a dinner party this weekend where I told people about investing in 3D printer stocks. They were eyes wide open as I explained the technology, and pretty shocked they hadn’t heard much, if anything, about it. This is the case almost everywhere I go: “What is a 3D printer?” I’ve been watching CNBC this morning, and while I could have missed it, I haven’t heard anything about the merger. When they do get around to talking about it, they’re going to ask the same question. And then they’ll probably have a Makerbot on the set printing a little plastic statue or something, and the hosts will laugh that they don’t see a future in 3D printing.
This is an opportunity.
This environment is the best undiscovered investing opportunity that I have seen since the 90’s when wireless company Ericson, along with then powerhouse Nokia, told the investing world that Qualcomm’s CDMA technology (what most of us use now in one device or another) “defied the laws of physics.”
When you know something the world doesn’t know, you are in a powerful position.
The fantastic thing about the Stratasys/Objet merger is that we have not lost a pure play 3D printer company (as would have happened had someone like HP bought Objet). Instead, we now have a much bigger pure play company in Stratasys. They, with 3D Systems (DDD), are both 100% involved in 3D printing. I’m no stock advisor, and do your own due diligence, but I had increased my holdings of SSYS and DDD earlier this month, and will continue to add over time.
Stocks aside, what a wonderful time it is for 3D printing, as it advances on all levels, from bobby to consumer to commercial.
Here’s the press release from Stratasys for all the details:
Stratasys and Objet Agree to Combine to Create a Leader in 3D Printing and Direct Digital Manufacturing
Combined Company Would Be Valued at Approximately $1.4 Billion
Combined Company Well Positioned With Multiple Technology Platforms and Complementary Products Available Across Enhanced Integrated Sales and Marketing Organization
Transaction Expected to be Accretive to Cash Earnings Per Share Within First 12 Months After Closing
Stratasys Announces Preliminary First Quarter 2012 Financial Results
Stratasys, Inc. (NASDAQ:SSYS), a leading manufacturer of 3D printers and production systems for prototyping and manufacturing applications, and privately held Objet Ltd., a leading manufacturer of 3D printers for rapid prototyping, today announced that the boards of directors of both companies have unanimously approved a definitive merger agreement under which the companies would combine in an all-stock transaction with a combined equity value of approximately $1.4 billion, based upon the closing price of Stratasys’ common stock on April 13, 2012. The transaction will position the combined company as a leader within the high-growth 3D printing and direct digital manufacturing industry.
Under the terms of the agreement, Stratasys will merge with a subsidiary of Objet, and Stratasys shareholders will receive one share of the new combined company for each share of Stratasys common stock they own. Upon closing of the transaction, Stratasys shareholders are expected to own 55 percent and Objet shareholders are expected to own 45 percent of the combined company on a fully diluted basis using the treasury stock method.
The combined company, which will retain the Stratasys name and operate under the name Stratasys Ltd., will have dual headquarters in Eden Prairie, Minnesota and Rehovot, Israel, the locations of Stratasys’ and Objet’s current headquarters, respectively, and will be registered in Israel. The company will continue to trade on NASDAQ under the ticker SSYS. Scott Crump, co-founder, current chief executive officer and chairman of Stratasys, will become full-time chairman of the combined company. Upon completion of the transaction, the combined company will also form an executive committee comprised of four members of the board of directors whose duties will include overseeing the integration of Stratasys and Objet and implementing the combined company’s business strategy. Elchanan Jaglom, current chairman of Objet, will serve as chairman of the executive committee of the combined company.
David Reis, current chief executive officer of Objet, will become chief executive officer of the combined company. Following the closing of the transaction, the board of directors of the combined company will consist of nine directors, with four directors designated by Stratasys and four directors designated by Objet. One additional director will be designated by Stratasys and approved by Objet.
The merger of Stratasys and Objet is expected to create a world class company offering an impressive portfolio of 3D printing and direct digital manufacturing solutions. The combined company should be well positioned to provide customers with the right solution by offering systems that produce parts with a wide range of capabilities and materials. The combined marketing and sales capabilities will provide extensive geographic reach, which should help grow customer awareness of the many opportunities to employ 3D printing and rapid prototyping techniques. Existing customers will benefit from a broader range of products that offer complementary functionality, which will create opportunities to cross-sell the product lines into the combined company’s installed base. In addition, the combined company expects to expand its access to new customers across multiple industries. With a significant increase in scale, the new Stratasys will seek to grow efficiently and faster through its combined organization.
“Today marks a significant milestone for Stratasys and an important development for the 3D printing and direct digital manufacturing industry,” said Scott Crump, chief executive officer and chairman of Stratasys. “We are bringing together two of the most innovative and respected players in the field to create a global leader in a high-growth industry. Together we will have a broader and more comprehensive product and technology portfolio, and the resources, team and financial strength to achieve our goals. Building on the success of both companies, I am confident that we will capitalize on the many opportunities this combination creates for our shareholders, channel partners, customers, employees and other important stakeholders. We look forward to completing this transaction and to building significant long-term value for our shareholders.”
“We are excited to be joining forces with Stratasys,” said David Reis, chief executive officer of Objet. “This transaction creates an organization that will provide a broad range of rapid prototyping and direct digital manufacturing applications to our customers, and the ability to bring exciting new products to the market. With an impressive technology portfolio, great talent, and an extensive sales and marketing channel, we will be well positioned to achieve efficient growth, expand our distribution reach and create value for all of our stakeholders. We look forward to working with Stratasys employees to take our combined company to the next level.”
Strategic and Financial Benefits of Transaction
• Impressive Product Portfolio: With an expansive product and technology portfolio, the combined company will offer customers the right solutions for a broad range of applications within a wide range of industry verticals. The combined company will offer complementary products and materials and bring together Objet’s expertise in design verification and visualization with Stratasys’ leadership in functional testing and direct digital manufacturing. The combined company will offer Stratasys’ advanced FDM® Technology, ideal for functional prototypes and applications requiring high levels of durability, Stratasys’ Solidscape® technology, used to make complex wax patterns for the investment casting process of finished parts, and Objet’s PolyJet™ technology, which provides high resolution printing suited for rapid prototyping and applications that require high feature detail and a finer surface finish.
• Expanded Sales and Marketing Reach: The combined sales and marketing organization will include more than 260 resellers and selling agent entities around the world, allowing customers to streamline purchasing processes and provide new access to solutions that address their needs. In addition, this combination will result in greater distribution reach and enhanced opportunities for cross selling into the combined company’s installed base. The combined company will also offer improved customer service by joining two experienced teams capable of servicing a combined product line and technology portfolio.
• Enhanced Capabilities and Scale: The merger will yield an even more impressive research and development team that includes a world class team of engineers and product developers. The combined company will be well positioned to remain at the forefront of innovation within a dynamic industry that is poised to transform the process of new product design and manufacturing. Together, Stratasys and Objet will have more capabilities to develop new consumables and systems than either Stratasys or Objet could alone. In addition, the combined company’s competitive position is expected to be improved by a scaled organization with a more comprehensive reach.
• Strong Leadership and Management Team: Scott Crump, co-founder, current CEO and chairman of Stratasys, together with Elchanan Jaglom, the current chairman of Objet, were the visionaries behind combining the two companies. Upon completion of the transaction, Scott Crump and Elchanan Jaglom will continue to jointly provide visionary leadership for the combined company. Scott Crump will become full-time chairman of the combined company, leading innovation. Elchanan Jaglom will serve as chairman of the executive committee of the combined company. David Reis, current Objet CEO, will become CEO of the combined company, bringing proven executive leadership skills that will be critical in guiding the company toward future growth. David Reis has been CEO of Objet since 2009 and a member of the Objet board of directors since 2003. Prior to becoming CEO of Objet, he spent several years in the wide-format 2D printing industry as CEO and president at NUR Macroprinters and Scitex Vision.
• Strengthened Financial Performance: The transaction is expected to be accretive to cash earnings per share within the first 12 months after closing. The merger is expected to create significant revenue synergies from increased sales, which will stem from the combined company’s expanded sales reach and product portfolio, as well as from cross-selling of the complementary product portfolio to the existing combined customer base. Beginning 18 months after the close of the transaction, the combined company also expects to be generating between $7 and $8 million of annual net cost synergies, primarily resulting from several cost avoidance measures including the better allocation of current and future resources, the reduction in future recruitment costs, and the reduction in shared G&A expenses and corporate overhead, as the combined company continues to grow. In addition, the combined company expects to achieve between $3 and $4 million in annual tax savings also beginning 18 months after the transaction closes.
• Attractive Long-Term Target Operating Model: On a pro forma basis, the combined company expects to significantly improve its long-term operating model compared with Stratasys’ current standalone model. Longer-term, the combined company expects to achieve:
◦ Annual revenue growth of at least 20 percent;
◦ Non-GAAP operating income as a percent of sales of between 20 and 25 percent;
◦ An effective tax rate of between 15 and 20 percent; and
◦ Non-GAAP net income as a percent of sales of between 16 and 21 percent.
Approvals and Timing
The transaction, which is expected to be completed in the third quarter of 2012, is subject to, among other things, approval by Stratasys shareholders, registration of the Objet shares issuable to Stratasys shareholders with the Securities and Exchange Commission, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of regulatory requirements and other customary closing conditions. The approval by the Objet shareholders is required for certain actions related to the Merger. Stratasys has entered into a voting agreement with the Objet shareholders holding the requisite majority for said actions to secure the vote. The transaction will be taxable to Stratasys shareholders.
Preliminary First Quarter 2012 Financial Results
Today, Stratasys also announced preliminary financial results for the first quarter ended March 31, 2012. For the first quarter Stratasys expects to report revenue of approximately $45.0 million, a 31 percent increase compared with $34.3 million reported during the same period last year. Stratasys also expects to report non-GAAP net income of approximately $5.6 million to $6.3 million for the first quarter, or $0.27 to $0.29 per share, compared with $4.4 million, or $0.21 per share reported during the same period of last year. GAAP net income for the first quarter is expected to be approximately $4.3 million to $4.7 million, or $0.20 to $0.22 per share, compared with $5.0 million, or $0.23 per share, reported during the same period of last year. These numbers are preliminary and represent the most current information available to management. Stratasys plans to provide full financial results and updated 2012 guidance for Stratasys on a standalone basis during its first quarter financial results conference call scheduled for May 9, 2012. Items excluded in the non-GAAP calculation include amortization expense related to the acquisition of Solidscape, Inc. intangible assets; stock compensation expense; the gain on sale of an equity investment during the first quarter 2011; and the expenses associated with the company’s current efforts to combine with Objet Ltd.