Merger Creates World's Largest 3-D Print Company

Two of the world's three largest 3-D printing companies, Stratasys and Objet, have completed their merger, and today the combined entity began trading as Stratasys (Nasdaq: SSYS  ) . The new company is valued at about $3 billion, inculding $277 in revenue in 2011. That eclipses the former industry leader, 3D Systems (NYSE: DDD  ) , which weighs in at a $2.4 billion market cap and 2011 sales of $230 million.

The young industry, which centers on the rapid production of models and parts by printing successive layers of material into a three-dimensional object, is now dominated by these two large companies. The new Stratasys now boasts the widest range of print materials, with its products able to manufacture objects out of more than 120 different materials. 3D Systems, however, maintains the broadest portfolio of 3-D printers.

The merged company will keep Objet's headquarters in Rehovot, Israel, which is expected to save $3 million to $4 million in taxes annually. For Stratasys, which realized $21 million in 2011 net income, this change of headquarters is significant but not game-changing. The company also expects to generate $7 million to $8 million in annual net cost savings by mid-2014.

The biggest opportunity created is the potential for the new company to cross-sell products into the additional sales channels the merger provided. While initially customers will continue to do business with either Objet or Stratasys representatives, eventually sales will be streamlined into a single point of contact, giving customers easy access to the full range of Stratasys products, services, and solutions.

Stratasys and Objet initially expected to complete the merger in the third quarter of 2012 but had to delay after the U.S. Committee on Foreign Investment expressed concern that the deal could present national security concerns. These worries were successfully addressed, and the committee gave final approval to the plan only last week.

While the new company kept the Stratasys name, the leadership team tilts decidedly toward Objet. Stratasys CEO and co-founder Scott Crump will give up the CEO role and instead will preside over the board of directors as a full-time executive chairman. Objet CEO David Reis will take the reins as CEO of the new Stratasys. Erez Simha was both the chief operations officer and chief financial officer at Objet and will continue to occupy both positions at the merged company. Elchanon Jaglom will transition from being the chairman of the board at Objet to chairman of the executive committee.

Under the terms of the deal, which was technically structured as a merger of Stratasys, with a subsidiary of Objet, former Stratasys shareholders control 55% of the company, with Objet shareholders controlling the remaining 45%.

The merger creates new opportunities as well as new risks. On the plus side, the joint entity will now have a more streamlined and efficient marketing and sales team, an important factor for an industry that struggles with customer awareness and appreciation of the technology. The new company will also be able to afford a higher research and development spending, equally important for an emerging technology.

On the other hand, the new management team will be overseeing the integration of more than 1,000 employees, most of whom are largely unknown to the Objet-focused executive board, split between headquarters in Israel and Minnesota, and attempting to keep customers satisfied during the transition. A rough acquisition could distract management, alienate customers, or simply fail to produce the cost synergies expected. One sign to watch for in an acquisition gone wrong is a company that issues several consecutive quarters of "one-time" charges related to restructuring.

Stratasys can be sure that 3D Systems will be waiting to pounce on any weakness. Its rival will be keen to regain its position as top dog in the 3D print industry, and 3D Systems' strategy of pursuing a larger number of small tuck-in acquisitions leaves it less liable to suffer from a bad integration. This also leaves 3D Systems more flexible to pursue new opportunities.

Both companies, however, are likely to benefit from industry consolidation. The largest revenue driver for each company is print services, essentially leasing out 3-D printers to create prototypes and models on-demand, giving customers access to 3-D print solutions without the need to invest in printers. While popular, this business produces lower margins than selling printers or print materials, principally because of a more competitive landscape. When the Big Two of 3-D printing splash out on acquisitions, it limits the number of print service providers operating and helps to enforce price discipline.

That short-term boost, along with the dramatic long-term potential of this innovative technology, may make Monday's news an excellent time to buy into the industry. With only two major operators now, it's very easy to hedge your bets and buy both, but investors may want a closer look at the oldest 3-D print company in the industry, 3D Systems.

3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.


Read/Post Comments (8) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 03, 2012, at 11:18 PM, ScottCherf wrote:

    Well, I suppose those of who thought of Stratasys as an upcoming leader innovating US manufacturing are now holding stock in an Israeli company competing with a US company.

    Ripley says "Believe it or not!"

  • Report this Comment On December 03, 2012, at 11:57 PM, NanushNanush wrote:

    @scott What does that have to do with the price of tea in Rechovot?

    BTW 3D Systems is also headed by an Israeli CEO.

    As for the Americanness of American innovation: Intel's major R&D branch is in Israel, and developed the small and cool processors that enabled laptops. HP's Israeli subsidiaries basically invented digital printing, and Sergei Brin was hardly born on a corn farm in Iowa.

  • Report this Comment On December 04, 2012, at 9:34 AM, veryst wrote:

    Both companies are good and will be good, but I think DDD it will be better.

  • Report this Comment On December 04, 2012, at 2:07 PM, TMFCatoMinor wrote:

    ScottCherf, the new Stratasys hasn't laid off a single American worker and has pledged not to. They're still researching and producing in America, Minnesota to be exact.

  • Report this Comment On December 04, 2012, at 2:17 PM, ScottCherf wrote:

    @Nanush

    3D is still headquartered in the US, Stratasys isn't. The genotype of the CEO isn't all that interesting, what matters is where the company is headquartered, it determines the rules under which they operate and the executive policies they are subject to.

    Israel isn't the US. That simple.

  • Report this Comment On December 04, 2012, at 2:21 PM, ScottCherf wrote:

    @TMFCatoMinor

    If Stratasys had merged with Huawei and moved their headquarters to Bejing, they'd be a Chinese company. Instead they're Israeli.

    What was your question?

  • Report this Comment On December 26, 2012, at 5:12 PM, WineHouse wrote:

    How come little Israel, a country that's continually in political (both internal-political and geo-political) turmoil, produces such a staggering amount of technological innovation? It's not just limited to 3D printing or IT stuff. They're at the forefront in agrotechnology (they invented the drip irrigation system, among other things), biomedical technology, and other aspects of biotechnology, too.

    The rest of the world keeps watching Israel, but methinks they are watching the wrong things.

  • Report this Comment On February 08, 2013, at 11:36 PM, Plumfull wrote:

    Please name any other companies whom are rumored to be involved in 3-d research besides DDD and Stratys Ltd. Perhaps licensees of

    DDD would be for longshot playing.

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