Stratasys acquires MakerBot as VCs discover key to 3D printing money
Stratasys announced on Wednesday that it was to acquire MakerBot, the New York based privately held manufacturer of desktop 3D printers. No surprise there you might think, although the Stratasys shareholders may have been a little taken aback by the price. MakerBot was founded in 2009 with an aim to develop cheap, open-sourced, 3D printers based on Stratasys’ own FDM technology which had at that time just come off patent.
Having gained approximately $13M in VC funding in 2011 however, the company took a slightly more ruthless approach and became closed source, loosing many of its hitherto loyal adherents in the process.
Its Replicator series of 3D printers sell for around $2-3k, a price point similar to the FDM based Cubify printers of Stratasys’ main competitor, 3D Systems, whilst the lowest priced printer currently marketed by Stratasys itself, the Mojo, currently comes in at a comparatively high $10k.
And the deal with Stratasys? This stock-for-stock transaction sees MakerBot’s shareholders receiving an upfront payment of 4.76m new issue shares (currently valued at around $406m) plus 2.38m further shares by end-2014 if performance targets are met (current value around $201m).
Whilst the deal cannot be precisely priced, not least as MakerBot shareholders cannot sell their newly acquired Stratasys shares for 3 months after closure and share prices of the 3D printer OEMs are historically volatile, the VCs look set to recoup in excess of $600m on their initial $13m investment in just 2 short years. With MakerBots revenues for 2012 placed at $15.7m, Stratasys shareholders are potentially paying a whopping 38x revenues to complete the acquisition.
So the obvious questions; what exactly are they acquiring and why didn’t Stratasys, the world leader in FDM, simply develop its own desktop model?
MakerBot owns little proprietary technology and has no established network of resellers, relying instead on on-line sales. What it does have is a brand name and experience in the consumer 3D printing market to which Stratasys has come very late. To have paid the price it has, the Stratasys board must have been extremely determined to play catch up very quickly indeed and to repair the damage MakerBot was seen to have done to sales at the lower end of its 3D printer range. It hasn’t only gained a brand, it has lost a competitor and the companies will presumably now align their marketing strategies to avoid overlap where possible.
No doubt fear that 3D Systems – the monarch of acquisitions in 3D printing – would itself have acquired MakerBot, forming a virtual monopoly in the consumer space, would have placed MakerBot in a very strong negotiating position. Stratasys must have feared such a marriage.
Where to now?
With access to the resources available through Stratasys, including a veritable smorgasbord of patents, MakerBot has the opportunity to more quickly bring the price of its printers down. With the company currently however maintaining its mammoth share of the consumer market against even lower priced consumer printers, this is unlikely to happen in the short term. Such a move would likely result in a loss of revenues.
Potential customers may be holding their respective breaths in the hope that the acquisition will spark a price war with 3D Systems, but this too is unlikely to happen. Neither Stratasys nor 3D Systems have an interest in hurting the sales of their more expensive printers for the sake of gaining share in what is currently a small consumer market.
In the longer term however, it could be that Stratasys will follow the business model of the 2D printer companies. Whilst the MakerBot plastic filaments (the 3D equivalent of 2D ink) are not currently proprietary, they could be made so, potentially leading to very cheap 3D printers using very expensive materials. For this model to work however would require a mass consumer demand for 3D printers for which there is frankly scant evidence. There are in fact already indications that growth in the relatively embryonic consumer market is slowing down.
In short, Stratasys have taken a gamble here. The future of the consumer market is unclear and the barriers to entry are low. The company may have paid a very high price for a quick foothold in an ultimately relatively small market with an increasing number of competitors.
If MakerBot has sold out to the big corporate world in merging with Stratasys, as some of its former open-source adherents believe, it got a jolly good price indeed.