Stratasys to combine with Desktop Metal in $1.8 billion all-stock transaction

In the end, Stratasys did not combine with Nano Dimension but it did merge with Desktop Metal, another company that recently raised huge amounts of money in the stock market and clearly offered a more compelling argument for joining forces with the AM industry’s market leader.

Stratasys Ltd. (Nasdaq: SSYS) and Desktop Metal, Inc. (NYSE: DM) have entered into a definitive agreement whereby the companies will combine in an all-stock transaction valued at approximately $1.8 billion. The transaction unites the polymer strengths of Stratasys with the complementary industrial mass production leadership of Desktop Metal’s brands, creating an additive manufacturing company that is expected to be well-positioned to serve the evolving needs of customers in manufacturing.

Stratasys and Desktop Metal are expected to generate $1.1 billion in 2025 revenue, with significant upside potential in a total addressable market of more than $100 billion by 2032.

Under the terms of the agreement, which has been unanimously approved by the Boards of Directors of both companies, Desktop Metal stockholders will receive 0.123 ordinary shares of Stratasys for each share of Desktop Metal Class A common stock. This represents a value of approximately $1.88 per share of Desktop Metal Class A common stock based on the closing price of a Stratasys ordinary share of $15.26 on May 23, 2023. Following the closing of the transaction, which is expected to occur in the fourth quarter of 2023, existing Stratasys shareholders will own approximately 59% of the combined company, and legacy Desktop Metal stockholders will own about 41% of the combined company, in each case, on a fully diluted basis.

Today is an important day in Stratasys’ evolution. The combination with Desktop Metal will accelerate our growth trajectory by uniting two leaders to create a premier global provider of industrial additive manufacturing solutions.Dr. Yoav Zeif, CEO of Stratasys.

“Today is an important day in Stratasys’ evolution,” said Dr. Yoav Zeif, CEO of Stratasys. “The combination with Desktop Metal will accelerate our growth trajectory by uniting two leaders to create a premier global provider of industrial additive manufacturing solutions. With 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, the combined company will be committed to delivering ongoing innovation while providing outstanding service to customers. We look forward to building on the complementary strengths of the combined business and leveraging the strong brand equity across the portfolio to deliver enhanced value to shareholders, customers and employees.”

“We believe this is a landmark moment for the additive manufacturing industry,” said Ric Fulop, Co- founder, Chairman and CEO of Desktop Metal. “The combination of these two great companies marks a turning point in driving the next phase of additive manufacturing for mass production. We are excited to complement our portfolio of production metal, sand, ceramic and dental 3D printing solutions with Stratasys’ polymer offerings. Together, we will strive to build an even more resilient offering with a diversified customer base across industries and applications in order to drive long-term sustainable growth. We look forward to combining with Stratasys to deliver profitability while driving further innovation for a larger customer base and providing expanded opportunities for our employees.”

We believe this is a landmark moment for the additive manufacturing industry. The combination of these two great companies marks a turning point in driving the next phase of additive manufacturing for mass production.Ric Fulop, Co- founder, Chairman and CEO of Desktop Metal.

Strategic and financial benefits

The combined company will likely create greater opportunities for growth: the transaction establishes a uniquely scaled additive manufacturing company that is expected to be one of the largest companies in the industry, targeting $1.1 billion in 2025 revenue. In addition, there are significant opportunities as additive manufacturing increases its offerings in mass production, with expected industry growth to more than $100 billion by 2032.

It will also bring together complementary portfolios, by bringing together Stratasys’ and Desktop Metal’s additive manufacturing platform offerings. Its broad product portfolio and attractive positions across multiple additive manufacturing technologies and solutions. Upon close, more than 50% of pro forma combined company revenue is expected to be derived from end-use-parts manufacturing and mass production, one of the fastest-growing segments in additive manufacturing. The combined company is expected to offer customers end-to-end solutions from designing, prototyping and tooling to mass production and aftermarket operations across the entire manufacturing lifecycle.

The transaction combines complementary IP portfolios with more than 3,400 patents and pending patent applications. Together, Stratasys and Desktop Metal have invested over $500 million in R&D over the last four fiscal years. In addition, the combined company will have one of the largest R&D and engineering teams in the industry with over 800 scientists and engineers focused on driving innovation across a differentiated materials library.

This combination brings together complementary products and technologies that cover a wide range of industry verticals and use cases. The combined company is expected to have superior global go-to-market capabilities with enhanced market access for recognizable brands, backed up by premier customer support capabilities. With more than 27,000 industrial customers, the combined company will have a large customer base across industries, materials and applications to drive significant recurring revenue from consumables.

The combined company is targeting 10%-12% adjusted EBITDA margins in 2025. Together, Stratasys and Desktop Metal had $437 million of cash and cash equivalents as of the first quarter of 2023, and this transaction accelerates the combined company’s financial flexibility through a well-capitalized balance sheet to drive future growth.

Leadership and governance

Following the close of the transaction, Dr. Zeif will lead the combined company as Chief Executive Officer together with Mr. Fulop as Chairman of the Board. Upon completion of the transaction, the combined company’s Board of Directors will comprise 11 members, five of whom will be selected by Stratasys, five of whom will be selected by Desktop Metal, plus Dr. Zeif as CEO. Stratasys Chairman Dov Ofer will serve as lead independent director of the combined company.

The transaction, which is expected to be completed in the fourth quarter of 2023, is subject to customary closing conditions, including the approval of Stratasys’ shareholders and Desktop Metal’s stockholders and the receipt of certain governmental and regulatory approvals.

In connection with the transaction, Stratasys entered into an amendment to its existing shareholder rights plan (as amended, the “Stratasys Rights Plan”), pursuant to which the expiration date 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 been validly adjourned or postponed, in which case at the final adjournment or postponement thereof) or such time as the merger agreement has been terminated in accordance with its terms. The extension of the expiration date of the Stratasys Rights Plan is intended to ensure that all shareholders have a meaningful opportunity to vote on the approval of the transaction and preserve for all shareholders the long-term value of the company in the event of a takeover or acquisition of a controlling stake without the payment of a control premium. The Stratasys Rights Plan will not prevent any person from making a superior proposal pursuant to the terms of the merger agreement.

Also in connection with the transaction, the Desktop Metal board intends to adopt a limited-duration shareholder rights plan (the “Desktop Metal Rights Plan”). The Desktop Metal Rights Plan will be designed to assist the Desktop Metal board in maximizing shareholder value in connection with the transaction. The Desktop Metal Rights Plan, like the Stratasys Rights Plan, will not prevent any person from making a superior proposal pursuant to the terms of the merger agreement.

Stratasys and Desktop Metal guidance

Stratasys today reaffirmed the guidance provided on May 16, 2023 when the company reported its first quarter earnings results, including its medium-term financial forecast. Desktop Metal also reaffirmed full-year 2023 guidance provided with its first-quarter earnings results on May 10, 2023.

Stratasys and Desktop Metal have also launched a website, www.NextGenerationAM.com, where the presentation and other materials related to the transaction are available.