Stratasys Ltd. (Nasdaq: SSYS) and Desktop Metal, Inc. announced that they have signed a legally binding agreement to merge their businesses in an all-stock deal valued at about $1.8 billion. The acquisition creates an additive manufacturing business that is anticipated to be well-positioned to meet the changing needs of customers in the manufacturing industry by combining the polymer capabilities of Stratasys with the complementary industrial mass production leadership of Desktop Metal’s brands.
With tremendous upside potential in a total addressable market of more than $100 billion by 2032, Stratasys and Desktop Metal are anticipated to produce $1.1 billion in sales by 2025.
The shareholders of Desktop Metal will receive 0.123 ordinary shares of Stratasys for each share of Desktop Metal Class A common stock, in accordance with the terms of the agreement, which has been unanimously approved by the Boards of Directors of both companies. Using the closing price of a Stratasys common share of $15.26 on May 23, 2023, this translates into a value of about $1.88 per share of Desktop Metal Class A common stock. Existing Stratasys shareholders will own roughly 59% of the combined company after the merger closes, which is anticipated to take place in the fourth quarter of 2023, and legacy Desktop Metal stockholders will own roughly 41% of the combined company, in each case on a fully diluted basis.
Dr. Yoav Zeif, CEO of Stratasys, declared that “today is a significant day in Stratasys’ evolution.” The joining of two industry leaders to form a leading global provider of industrial additive manufacturing solutions will accelerate our growth trajectory. The combined company will be dedicated to delivering ongoing innovation while providing exceptional service to customers. It will have attractive positions across complementary product offerings, including aerospace, automotive, consumer products, healthcare, and dental, as well as one of the largest and most experienced R&D teams, industry-leading go-to-market infrastructure, and a robust balance sheet. We look forward to enhancing shareholder, consumer, and employee value by leveraging the complementary strengths of the merged organization and the high brand equity throughout the portfolio.
Ric Fulop, co-founder, chairman, and CEO of Desktop Metal, declared, “We feel this is a milestone moment for the additive manufacturing industry. “The merger of these two outstanding businesses signals a turning moment in the development of additive manufacturing’s mass production phase. We are thrilled to add Stratasys’ polymer options to our portfolio of production metal, sand, ceramic, and dental 3D printing solutions. In order to promote long-term sustainable growth, we will work together to develop an even more robust offering with a diverse customer base across industries and applications. We are eager to work together with Stratasys to generate revenue, advance innovation for a wider clientele, and provide employment prospects for our staff.
Compelling Strategic and Financial Benefits of the Transaction
- The merger generates a distinctively sized additive manufacturing company that is anticipated to be one of the largest in the sector, with revenue targets of $1.1 billion in 2025. The combined company hence creates greater opportunities for growth. Additionally, there are huge prospects as mass production options for additive manufacturing expand, with a projected market growth of more than $100 billion by 2032.
- Brings Together Complementary Portfolios: By combining the additive manufacturing platform offerings from Stratasys and Desktop Metal, the combined firm will have a wide range of products and advantageous positions across numerous additive manufacturing technologies and solutions. One of the fastest expanding sectors in additive manufacturing, end-use components manufacture and mass production, are anticipated to account for more than 50% of pro forma combined company revenue at closing. Customers can expect complete solutions from designing, prototyping, and tooling to mass production and aftermarket activities from the United firm throughout the full manufacturing lifetime.
- The purchase combines together complementary IP portfolios with more than 3,400 patents and pending patent applications, bringing together robust innovation and technological expertise. Over the past four fiscal years, Stratasys and Desktop Metal have together invested more over $500 million in R&D. In addition, with over 800 scientists and engineers working to advance innovation across a diverse materials library, the merged firm will have one of the largest R&D and engineering teams in the sector.
- This combination brings together complementary goods and technologies that cover a wide range of industry verticals and use cases, which diversifies the customer base across industries and applications. With expanded market access for recognizable brands and superior customer service capabilities, the combined firm is anticipated to have superior worldwide go-to-market capabilities. The combined firm will have a sizable customer base across industries, materials, and applications with more than 27,000 industrial clients, generating considerable recurring revenue from consumables.
- Opportunities for Meaningful Synergies are Created: By 2025, it is anticipated that the combined company will generate an additional $50 million in annual run-rate cost synergies, primarily as a result of cost savings in sales, general and administrative expenses, supply chain management, and operational process optimization. By 2025, increased market access is anticipated to help the merged firm produce an extra $50 million in run-rate revenue synergies.
- Enhances Financial Strength: In 2025, the merged firm aims to achieve adjusted EBITDA margins of 10%–12%. As of the first quarter of 2023, Stratasys and Desktop Metal had a combined cash and cash equivalent balance of $437 million2. This acquisition increases the combined company’s financial flexibility by creating a well-capitalized balance sheet that will support future expansion.
Leadership and Governance
Following the transaction’s completion, Mr. Fulop will serve as Chairman of the Board and Dr. Zeif will serve as the merged company’s Chief Executive Officer. The combined company’s Board of Directors will have 11 members after the acquisition is complete, including Dr Zeif as CEO and five members chosen by Stratasys, and five chosen by Desktop Metal. Dov Ofer, the chairman of Stratasys, will be the company’s principal independent director.
Timing to Close and Approvals
The deal is expected to close in the fourth quarter of 2023, although it is still subject to the usual closing requirements, which include receiving various governmental and regulatory clearances as well as the consent of Desktop Metal’s and Stratasys’ stockholders.
Shareholder Rights Plans
The expiration date of Stratasys’ existing shareholder rights plan (as amended, the “Stratasys Rights Plan”) has been extended to the later of (a) July 24, 2023, and (b) the conclusion of the extraordinary general meeting of Stratasys’ shareholders for the purpose of seeking approval of Stratasys’ shareholders of the transactions contemplated by the merger agreement (unless such meeting has already been held).
The Stratasys Rights Plan’s expiration date will be extended in order to give all shareholders a chance to vote on whether or not to approve the transaction and to protect all shareholders’ interests in the company’s long-term value in the event of a takeover or acquisition of a controlling interest without the payment of a control premium. No one will be prevented by the Stratasys Rights Plan from submitting a better offer in accordance with the merger agreement’s provisions.
The Desktop Metal board also plans to enact a limited-term shareholder rights plan (the “Desktop Metal Rights Plan”) in connection with the acquisition. In conjunction with the Desktop Metal board’s goal of maximizing shareholder value, the Desktop Metal Rights Plan will be created.
- Based on projections from management. By CY 2025E, run-rate synergies should be realized.
- In advance of carrying out the Covestro acquisition. Similar to the Stratasys Rights Plan, the Desktop Metal Rights Plan will not restrict anyone from submitting a superior proposal in accordance with the merger agreement’s conditions.
A Form 6-K that Stratasys will submit to the SEC will contain more information regarding the Stratasys Rights Plan amendment. A Current Report on Form 8-K that Desktop Metal will submit to the U.S. Securities and Exchange Commission (the “SEC”) will provide more information concerning the Desktop Metal Rights Plan.
Stratasys and Desktop Metal Guidance
Stratasys updated its medium-term financial prognosis and the guidance it gave on May 16, 2023, when it released its first-quarter earnings results. Along with its first-quarter profit reports on May 10, 2023, Desktop Metal also updated its outlook for the entire year 2023.
Credits: Stratasys
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