3D printing deal enhances sector depth illusion
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Making physical items from digital files is a hot technology – maybe too hot if the market reaction to the acquisition of privately held Objet by Stratasys is any guide. Despite few synergies and an odd poison pill, the buyer’s shares rose nearly 25 percent, mainly on potential revenue synergies. But the future isn’t quite here yet.
A 3D printer takes digital blueprints or scans and recreates them one very thin layer at a time. The process is already quickly encroaching in product areas like replacement teeth and prototypes for new goods. That explains why the top lines of both Minneapolis-based Stratasys and the Israeli Objet are growing faster than 25 percent. But it’s the idea of upending the field of manufacturing to create custom items one at a time without having to worry about shipping costs that makes such technology truly exciting.
Stratasys, and its chunky acquisition, make it the biggest and most attractive way for investors to play the sector. The $600 million price seems fair. Objet accounted for 43 percent of the combined company’s sales last year and a roughly similar amount of income, and will wind up with 45 percent of the combined equity. Moreover, management reckons it can slash up to $8 million in costs and up to $4 million in taxes annually. Those are worth about $75 million to shareholders today.
That doesn’t explain the nearly $180 million increase in the market value of Stratasys following the announcement. Investors seem to think uniting the knowledge of working with different materials and strengths in separate areas – for example, Objet in medical devices and Stratasys in manufacturing prototypes – will make the sum worth considerably more than the parts.
That perception could be distorted. There are many competitors in this fast-growing field, and new ones are springing up. Even Stratasys management didn’t seem to expect the reaction. The company enacted a temporary poison pill to ensure activist investors couldn’t blow up the deal, even though Stratasys was already trading at a heady 30 times estimated 2012 earnings. The growth of 3D manufacturing is no illusion but the market appears to be enhancing the reality.