Stratasys’ (SSYS) share price is now worth one-tenth what it was 18 months ago, bringing its market capitalisation to just over $800M. Times have changed for the world’s leading 3D printing company, which had become known for acquiring anything and everything 3D. One of its most important acquisitions, MakerBot, marked the start of its demise. With this acquisition, Stratasys made a move away from its core business (industrial 3D printers) to enter the consumer market (MakerBot). This loss of focus coupled with a drop in the demand of high value, high margin 3D printers weighed significantly on their financial performance. The predator has now become the prey, ripe to be acquired.
Stratasys has a Strong and Clean Balance Sheet
After accumulating numerous intangible assets throughout its acquisitions in the years leading up to 2014, Stratasys has since drastically written off said assets. MakerBot’s net value has been reduced to nil from the over $500M recorded in 2013. Stratasys has given up on consumer 3D printing with no new products presented at CES in January 2016, paving the way for a refocus on industrial 3D printers. SSYS has halved its headcount at MakerBot.
In Q3 2015, the company repaid its credit line in full, leaving them with a very comfortable $250M net cash position, and has reduced its investment budget and cash outflow.
A Renewed Shareholder Base
The Stratasys shareholder base has changed significantly in the last 6 months. Old guns have left, leaving space for activists. Baillie Gifford, the century-old investment firm that was the largest shareholder with nearly 10%, sold its stake in January 2016 (SEC Form 13G dated 8th of February 2016). Coatue Management, Riverbridge Partners and PrimeCap have all significantly increased their holdings. Stratasys is now the largest holding at Destrier Capital Management, an activist hedge fund. These guys are pushing for a corporate event.
A Sizeable and Valuable Business
Stratasys annual sales are estimated at $700M for 2015, a nearly 50% increase from 2013. Gross margin at the core business is in the mid-40s, a level similar to 2013. Stratasys is a world leader with strong innovation capabilities and a large and profitable core business.
A Long list of Predators
Many large tech companies have dipped their toes into 3D printing waters. So far they have refrained from investing significantly large amounts. With valuations divided by 10, the price to acquire a leader is becoming much more manageable. HP, Dell, Apple, Canon, Google (recently invested $100M in Carbon3D) and Samsung are obvious players, alongside tech funds and 3D Systems…
Following the balance sheet clean-up, the refocus on the core business and with a renewed shareholder base of activists, Stratasys is ripe to be acquired. Sales of Stratasys shares by old gun investors and short sellers, has pushed down the valuation to under one year worth of sales. This should drive the predators to jump on the prey…
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