The rumors are true: Stratasys (SSYS +1.85%) really is buying MakerBot. The move is Stratasys' second huge consolidation in the past year, and appears to be the second-largest, 3-D printing industry tie-up by value behind the Stratasys-Objet merger. Let's get right to the details now, and then we'll go over just what the deal means for Stratasys, for MakerBot, and for the 3-D printing industry as a whole.
Source: MakerBot, image credit to Louis Seigal.
The deal, by the numbers
At a minimum, Stratasys will pay $403 million -- based on its stock price in what will be an all-stock transaction with the possibility for earn-outs -- in approximately 4.76 million new shares to acquire MakerBot. The deal could, and very well might, wind up being higher as the market digests this news. MakerBot's stakeholders can earn up to $201 million more in performance-based compensation, which will be tied to the value of an additional maximum of 2.38 million new shares by the end of 2014.
- Initial purchase value: $403 million, or 4.76 million shares (new issue)
- Performance bonuses: $201 million, or 2.38 million shares (new issue)
- Total potential value: $604 million, or 7.14 million new shares
Existing shareholders can expect to be diluted by approximately 18.5% if MakerBot earns all of its performance bonuses, assuming that there are no further share issues between now and 2014. It's hoped that MakerBot will more than justify this dilution by 2014, at which point it should become "accretive to Stratasys' non-GAAP earnings per share," according to the company's press release.
Make no mistake, though: Stratasys paid a major premium for MakerBot's brand cachet, and for its expected future growth. Although the company's revenue has accelerated rapidly in 2013, it is still far below Stratasys in terms of raw value:
- MakerBot most recent quarter revenue: $11.5 million
- MakerBot fiscal 2012 revenue: $15.7 million
- Stratasys most recent quarter revenue: $71.2 million
- Stratasys fiscal 2012 revenue: $215.2 million
A back-of-the-envelope calculation annualizing out each of these quarterly revenue spikes (Stratasys' latest report was from its fiscal fourth quarter in 2012, but this was its first after the Objet merger) gives us an expected 193% year-over-year revenue growth rate for MakerBot and a comparatively tepid 24% year-over-year growth rate for Stratasys. The back-of-the-envelope result of $46 million in potential 2013 revenue gives MakerBot an implied forward price-to-sales ratio of 13.1. Stratasys' own price-to-sales ratio is 12.2 at the moment, so the premium may not be as outlandish as it seems at first glance.
MakerBot could certainly meet that growth target, but it's a very ambitious one to hit, even for a small company that's positioned right in the center of the consumer push for 3-D printing. That positioning becomes very obvious when you look at the sales numbers MakerBot provided for the press release:
- MakerBot 3-D printers sold since 2009: over 22,000
- MakerBot 3-D printers sold since September 2012: 11,000
- Estimated worldwide 2012 desktop printer sales: 35,000-40,000
- Estimated worldwide 2013 desktop printer sales: 70,000-80,000
What does it mean for 3-D printing?
MakerBot is establishing itself as the brand to beat in a rapidly growing segment. Stratasys almost had to do this deal -- it lags behind industry peer 3D Systems (DDD +3.50%) in the consumer market, with its cheapest current model clocking in at a purchase price of about $10,000. 3D Systems, by comparison, is now in direct competition with MakerBot thanks to its $2,500 CubeX -- which resembles the MakerBot Replicator 2s lined up at the top of this article in both price and styling:
Source: 3D Systems Cubify.
More importantly, the 3-D printing industry is evidently shifting from the "mainframe" model of years past to the "PC" model of relatively affordable, relatively user-friendly consumer devices like the Replicator 2 and the CubeX. Under this analogy, Stratasys is the IBM of 3-D printing -- the big, industrial-strength industry leader that didn't catch on to the shift until it was already on them. MakerBot, then, is Apple right around the time it released the Apple II.
I've written extensively on this epochal shift, noting especially that MakerBot has already begun displacing "professional" 3-D printers (the mainframes of the industry) at some key Stratasys and 3D Systems clients. However, there's room for debate over whether 3-D printing is fully into its PC era, or if it's still stuck in the minicomputer phase -- an in-between state where machinery almost makes sense for the average Joe, but not quite. The Apple II was one of the earliest consumer-friendly microcomputers, which is what PCs were called before we settled on that terminology.
MakerBot's Bre Pettis is probably the closest thing 3-D printing has to a Steve Jobs. He's had an eclectic artistic career that's served him well as the chief evangelist for one of the most interesting new creative technologies of the day -- and besides that, he's a pretty charismatic executive, with magazine covers and many prime speaking engagements to his name. He's said things such as "MakerBot is leading the next industrial revolution" and "the opportunity for creative explorers has never been better." It's classic Jobs, and it worked well enough to deliver a huge payday for MakerBot right as they appear to be on their way toward truly explosive growth.
So why did Pettis decide to take the offer?
Can you imagine Steve Jobs meeting with IBM in 1978, a year after the Apple II hit the market, and accepting a buyout even as he talked about how insanely great computers would be for the world at every opportunity? MakerBot has one of the largest and most engaged online 3-D printing communities, with over 90,000 designs, 500,000 monthly visitors, and 1 million monthly downloads. It controls a substantial chunk of consumer sales -- at least as much as Apple controlled of PCs at its market-share peak in the early '80s.
At an interview with VentureBeat earlier today, both Pettis and Stratasys CEO David Reis stressed that MakerBot would retain its independence and had gained vital opportunities to expand its brand through the acquisition. Access to superior manufacturing facilities and technological expertise is no doubt a big perk for Pettis and MakerBot, but it's worth wondering why the company was unable to secure these opportunities on its own if its future is supposedly so bright. Did Pettis really need Stratasys, or did he simply recognize the best opportunity for a high-priced exit?
Low-cost, full-function devices like MakerBot's are probably more aligned with the future of 3-D printing than Stratasys' big, bulky machines. However, this consolidation leaves the industry with only two major players and a smaller pool of upstarts ready to challenge them. Will MakerBot still feel as compelled to push the edge of the technology further now that it only has to benefit Stratasys rather than best it?
