Acquisitions, Mergers & PartnershipsAM Industry

Stratatop Metalsys and why Stratasys merged with Desktop Metal

Spoiler: it may not be as complicated as it seems

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Stratasys, the current overall AM market leader and one of the few profitable and consolidated companies in the global AM industry, merged with Desktop Metal, one of the newest and least consolidated companies in AM. Some have welcomed the merger, hailing it as a new era in AM, while others expressed skepticism with respect to the challenges of bringing together dozens of different technologies and recent acquisitions by both companies (or it might be more accurate to say “groups of companies”).

It may not be as complicated as it looks at first glance: Stratasys just needed to enter the metal AM market as its main competitors – 3D Systems, EOS and HP – are already offering both polymer and metal technologies. So it merged with the one available company that could provide the most compelling offer in a very much “Made in the USA” deal. Everything else (EnvisionTEC/ETEC/Dekstop Health and other Desktop Metal properties are mostly very welcome “collateral benefits”.

Stratatop Metalsys and why Stratasys and Desktop Metal merged. Spoiler: it may not be as complicated as it seems
Stratasys main competitors in the polymer AM hardware market (3D Systems, HP and EOS) are already present in the metal AM market. Source: VoxelMatters Research: Polymer AM Market Opportunities and Trend 2020 – 2030 – The Top 10 Polymer AM Hardware Companies.

Stratasys merged with Desktop Metal mostly to get its hands on ExOne which remains to date the only company with a significant installed base of metal binder jetting systems in the global market. And it’s not about Stratasys combining all of its technologies with Desktop Metal’s: it’s about Stratasys combining its FDM and PolyJet – and relative material – businesses (the only ones that can already generate significant revenues and profits today) with ExOne’s binder jetting (sand and metal) business. With the added benefit of Stratasys Direct Manufacturing now combined with ExOne’s very profitable binder jetting service business.

By saying this we don’t want to say that everything else involved in this deal is worthless. Far from it. There are literally dozens of amazing technologies and great opportunities (Origin, SAF, ETEC and Desktop Health, the whole AM 2.0 vision of direct mass production) involved here that are going to have to be fully explored by the newco. But these are future opportunities that will need to be developed over the next decade, not yet actual businesses, at this time.

Tools and prototypes

Over the past few years, Stratasys has acquired RPS for large-format SLA stereolithography (to compete with 3D Systems), Covestro’s (previously Royal DSM’s) AM materials business (also to compete with 3D Systems and other third-party material manufacturers), Origin (to compete with Carbon and other high-speed DLP companies) and Ultimaker (merging it with Makerbot to establish an even stronger foothold in the healthy prosumer filament extrusion market). The company also developed its own high-speed polymer PBF technology (SAF) collaborating with and later acquiring Xaar’s AM division.

All these remain marginal businesses today, with the bulk of sales consisting of industrial FDM 3D printers (mostly used for tooling and some prototyping), high-end PolyJet 3D printers (mostly used for prototyping and some tooling) and the relative materials (sold at a very high price point). These generate most of the $350-400 million in yearly product revenues. The rest – about $200 million – is generated with services via Stratasys Direct Manufacturing, and all of these combined make the company profitable.

Stratatop Metalsys and why Stratasys and Desktop Metal merged. Spoiler: it may not be as complicated as it seems
The X160Pro from ExOne, beautifully rebranded by Desktop Metal, is the most proven binder jetting production system for direct part production on the market today.

Stratasys has no immediate interest in developing the AM for mass production business. Or, to be more precise, it has no urgency to do so. But the company does need to grow. And the only proven and profitable growth area available on the market today is binder jetting. Metal PBF technologies may be too far from its polymer core business or too difficult to acquire (read GE Additive, Trumpf, SLM Solutions/Nikon, Renishaw) as they now have powerful companies behind them. Markforged/Digital Metal may also have been an option but probably less compelling and less willing to sell/merge. ExOne’s (now Desktop Metal’s) metal and sand binder jetting hardware and services are ideal opportunities: these technologies are still used primarily to make tools. And prototypes.

Some may not remember that at one point, about five years ago, Stratasys did reveal it was developing an undisclosed metal AM technology (likely a powder-based process). My personal guess is that developing the technology from scratch proved too complex (that and the fact that the company was going through some rougher times before current CEO Yaov Zeif took the helm) so Stratasys acquired it when it became available (just like it did with SLA technology).

What about mass production?

It’s not fair to reduce Ric Fulop’s AM 2.0 vision to a means of raising (huge) amounts of money to acquire ExOne (and ETEC). I, for one, am totally sold on that vision. I agree that it is the future of manufacturing and expect that high-speed metal systems (either binder jetting or some other technologies) will be able to deliver it. But it is a vision for the future, not for the present.

The present is made of tools and prototypes and – at least in polymer AM – some large batch final part production with peaks of a few tens of thousands of parts per month. But end-use part production today is a business mostly for service providers, not (yet) as much for hardware manufacturers, who make more money (as in more profits) when their systems are sold at a high price point and used for high-value applications such as prototypes and tools.

Stratatop Metalsys and why Stratasys and Desktop Metal merged. Spoiler: it may not be as complicated as it seems
AIdro’s Valeria Tirelli with a valve 3D printed on a Desktop Metal binder jetting system.

I think that Fulop joining the Stratasys board is going to be beneficial to the company’s future development in terms of pushing toward additive mass production. The first effect can be seen in the merger press release, when it says that “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.”

I am not sure how 50% of Stratasys and Desktop Metal’s combined revenues are derived from mass production today. If we consider AM services as mass production ($200-250 million) and possibly a third of all machines and materials sold by both companies (another $200-250 million) to be used for final parts manufacturing, rather than prototypes and tools (or if we consider tools as indirect additive mass production), then it may be an accurate figure. But the exact accuracy of this estimate is relative: the most important thing is for the company’s senior management to think in terms of additive mass production today as the key driver for growth tomorrow. That’s exactly what Fulop has done at Desktop Metal.

Stratatop Metalsys

The combination of Stratasys and Desktop Metal means that industry forefathers such as Scott Crump and Ely Sachs are joining forces. So are the capabilities of advanced technologies such as Polyjet and binder jetting. And the know-how of everyone that has been working with these technologies for decades.

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.

In practical terms, the first thing to do is to consolidate Stratasys and Desktop Metal’s assets around the newco’s core product offering: FDM (thermoplastics), PolyJet (photopolymers) and Binder Jetting (sand and metal). Stereolithography (DLP, SLA), polymer PBF (SAF) and high-speed MBF should be the key development areas for the future. These – along with relative services and materials – are the main products that can generate a total of over $1 billion per year by 2025

This is just a figure but I believe it is a significant one. Having a $1B pure-player company (in terms of real revenues not valuation) in AM is a great milestone for the entire industry and I think it is the start of something new and bigger.

 

Research
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Davide Sher

Since 2002, Davide has built up extensive experience as a technology journalist, market analyst and consultant for the additive manufacturing industry. Born in Milan, Italy, he spent 12 years in the United States, where he completed his studies at SUNY USB. As a journalist covering the tech and videogame industry for over 10 years, he began covering the AM industry in 2013, first as an international journalist and subsequently as a market analyst, focusing on the additive manufacturing industry and relative vertical markets. In 2016 he co-founded London-based VoxelMatters. Today the company publishes the leading news and insights websites VoxelMatters.com and Replicatore.it, as well as VoxelMatters Directory, the largest global directory of companies in the additive manufacturing industry.

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