Leading 3-D printing company Stratasys (NASDAQ: SSYS ) announced on Wednesday that it was acquiring Solid Concepts and Harvest Technologies. These are interesting moves, as both these companies are service providers, rather than 3-D printer manufacturers.
First, let's look at the deals, which I view as smart moves, and then how these acquisitions should benefit Stratasys if the integrations are executed well.
Stratasys will acquire Solid Concepts for up to $295 million, while the terms of the Harvest Technologies acquisition weren't disclosed. Both deals are slated to close early in the third quarter. Importantly for shareholders, both acquisitions are expected to add to Stratasys' non-GAAP earnings within the first year.
Stratasys CEO David Reis summarized the strategy as follows: "With Solid Concepts and Harvest Technologies, together with RedEye [Stratasys' existing on-demand parts printing service], we expect to create a strategic platform to meet our customers' additive manufacturing requirements by significantly expanding our offering, targeting new applications, and strengthening our customer relationships."
Solid Concepts is the largest independent additive manufacturing -- aka 3-D printing -- service bureau in North America. Additionally, it provides conventional subtractive manufacturing services, including CNC machining, injection molding, casting urethanes, and tooling. It produces both prototypes and production parts. The Valencia, Calif.-based company has about 450 employees and was founded in 1991, so it's one of the more established 3-D printing service providers. It has operations in Los Angeles, San Diego, Phoenix, Tucson, Austin, and Detroit; these facilities are AS9100/ISO 9001 certified.
The company generated revenue of approximately $65 million in 2013, which makes it a fairly large acquisition, as Stratasys generated $484.4 million in revenue in 2013. Given this revenue figure, Stratasys is paying about 4.5 times Solid Concepts' sales, which is high on an absolute basis (the S&P's average price-to-sales ratio is 1.7), but reasonable for the fast-growing 3-D printing space. There are no publicly traded pure-play 3-D printing service operations, so the best comparison -- though far from perfect -- is probably Proto Labs, which is often mistakenly grouped in the sector. Proto Labs offers rapid turnaround CNC machining and injection molding for prototyping and small-run production. The company's stock is currently valued at a 10.9 P/S ratio.
Solid Concepts claims to offer the broadest variety of technology platforms under one roof. It offers the following 3-D printing technologies:
- PolyJet (Stratatsys' technology)
- Stereolithography, or SLA
- Selective Laser Sintering, or SLS
- Direct Metal Laser Sintering, or DMLS
- Fused Deposition Modeling, or FDM (Stratasys' tech)
- 3D Color Printing
- ID-Light (Industrial Design Light is Solid Concepts' proprietary tech, which is available using both SLA and FDM, and produces significantly lighter parts)
The company serves a diverse customer base across a range of verticals, including aerospace, medical, automotive, architectural, industrial design, firearms, and unmanned aerial vehicles, or UAVs (drones).
Harvest Technologies, based in Belton, Texas, was founded in 1995 and has about 80 employees. The company's focus is on advanced production parts, rather than prototyping. Harvest's facility contains 40 SLS, DMLS, FDM, and SLA systems. In addition to highlighting its experience in parts production, Stratasys' press release lauds the company's "materials and systems knowhow." Notably, the company was the first 3-D printing services operation in North America to become AS9100/ISO 9001 certified.
Stratasys obtains metals capabilities and cross-selling opportunities
One big positive of these two acquisitions is that they allow Stratasys to get a piece of the metals 3-D printing action, which is growing because 3-D printing is increasingly moving beyond prototyping and into actual production applications. Last month, I wrote "Why the Metals 3-D Printing Space is the Place to Be in 2014," which opened with "[D]emand for 3-D printers that can print in metals is in the relatively early stages, and it seems that we're on the cusp of an incredible growth trajectory." In that article, I noted that 3D Systems, Arcam, and ExOne had metals printing capabilities, but neither Stratasys nor voxeljet offer systems that can print in metals, though it was "just a matter of time before Stratasys enters the metals space."
While Stratasys didn't acquire any metals 3-D printing technology, it will be making money every time it produces metal parts for its services customers. It's possible Stratasys is also interested in acquiring the right metals 3-D printer maker, but now it can do so more leisurely, knowing it's not missing out on making money on metals 3-D printing. Further, Stratasys' involvement with customers in a wide range of industries via its soon-to-be largest in North America services operation will give it insight into what technologies are working best for various applications. So, if it does intend to buy a metals 3-D printer maker (or other 3-D printer makers, for that matter) in the future, it should be a more informed buyer.
There are several cross-selling opportunities this deal brings to the table. Solid Concepts offers traditional manufacturing services as well as 3-D printing, so Stratasys will have an ideal platform for educating customers using these services on the benefits of using 3-D printing. Surely it will be able to sell select customers on transitioning to 3-D printing -- which could lead to printer (and consumables) sales down the road. Likewise, Stratasys will be in a better position to sell its 3-D printers to some of the services business' customers whose prototypes and parts are already being produced using Stratasys' systems.
Foolish final thoughts
Stratasys' acquisitions of these two leading 3-D printing service providers was a smart move, in my opinion. These acquisitions are expected to quickly -- within one year -- contribute to Stratasys' bottom line, and should lay a solid foundation upon which Stratasys will be able to ratchet up its long-term growth.
Three stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.