Reading Between the Layers of the Stratasys-Objet Merger

Some unions just make sense: Think Disney-Pixar, Exxon-Mobil, or Bogie and Bacall. Others seem doomed to failure from the start. Did anyone think AOL-Time Warner, Daimler Chrysler, or Kardashian and Humphries were really going to work out?

So when Stratasys and Objet announced they intended to merge to create a giant in the 3D printing arena, it was only natural for design engineers to wonder whether it was a good match—and, more importantly, “What does it mean for me?”

Adding fuel to the speculation is the spate of recent mergers in the 3D printing/additive manufacturing space, mainly driven by 3D Systems. Since 2009, 3D Systems has scooped up dozens of companies. Last year, Stratasys acquired Solidscape, a 3D printer manufacturer active largely in the jewelry, medical and dental markets, but was still much smaller than 3D Systems.

In 2011, 3D Systems reported $230.4 million in revenue, but that’s before its 2012 acquisitions of Z Corp., Vidar Systems, My Robot Nation, Paramount Industries, FreshFiber, Bespoke Innovations and Viztu Technologies. Stratasys reported $155.9 million in revenue for 2011; privately held Objet’s were between $160 million and $180 million. The Stratasys-Objet merger values the combined companies at about $1.4 billion.

The Bigger, the Better

Industry consultant Todd Grimm, president of T.A. Grimm & Associates, says the size of 3D Systems was likely one motivator behind the merger—but not the only one.

“I don’t know if it’s the main driver, but it’s an obvious one,” he says. “It gives them a little more mass, to be on equal footing with 3D Systems.”

Terry Wohlers, president of Wohlers Associates, agrees that there is strength in numbers. “As you become larger, you can do more things and be more competitive,” he says.

One of those things is taking advantage of the potential for growth in the 3D printing market. Both Objet and Stratasys saw revenue increases of more than 30% for 2011, so the merger is more likely to be a play for expansion than a cost-cutting maneuver.

“Both companies have been in a hiring mode,” says Wohlers. “My guess is that they’ll keep most of their people. Some casualties are inevitable, but in this case, I don’t expect customers will notice much.”

Complementary Product Lines

Neither consultant sees a lot of reduction in duplicate product lines, either, because the companies’ technologies are more complementary than competitive with one another.

“For Stratasys, its niche is all about strength of parts,” says Grimm. Stratasys’ Fused Deposition Modeling (FDM) is often used for building models from thermoplastic for fit and function. “Those people are looking for durable, strong, resilient parts,” Grimm says of Stratasys’ customers.

But when it comes to highly-finished presentation models, Objet’s PolyJet technology has the upper hand, according to Wohlers. “Aesthetically, FDM is fine, but parts from Objet systems are more visually appealing,” he says. “The surface finish and feature detail are very impressive.”

After the merger, Stratasys will be able to offer customers both solutions. It’s a situation they’ve been in before.

“Another reason for the merger, I think, is if you look back to Stratasys’ success about five years ago when they were a distributor of Objet technology,” Grimm says. “Stratasys’ sales team sold up a storm when it was selling Objet’s technologies.”

The difference now, of course, is that sales can flow both ways, with Stratasys’ customers buying Objet’s 3D printers and consumables, and vice versa.

“They’ll be able to see into each others’ accounts,” says Wohlers. “If you have customers who have one system and not the other, it’s easier to penetrate those accounts.”

Grimm agrees. “A smart buyer and smart salesperson at a higher level can tell what application—stereolithography, PolyJet or FDM—is needed. There is a clear delineation,” he says. “Stratasys likely saw many situations where FDM was not the best fit. Now they can walk in with a bag full of products. If you want really smooth features and high details, here’s Objet. If you want strength and high detail, here’s FDM.”

Marriage is Tough

The new company, which retains the Stratasys name, is 55% owned by Stratasys shareholders, but is headed by Objet CEO David Reis. Stratasys CEO Scott Crump is chairman of the new company. Wohlers says Crump has been mostly focused on the big picture and business strategies over the past few years, so he expects Reis to be more hands-on with operations. Objet can appoint four people to the board of directors. Stratasys can appoint five, but the fifth must be approved by Objet.

The combined company is keeping separate offices in Rehovot, Israel, where Objet was headquartered, and in Eden Prairie, MN, where Stratasys is based. Does that mean that the companies will be run as separate entities?

“With the acquisition of Solidscape, Stratasys basically let them be,” Grimm says. “My only question is, when this rolls out, is there a distinct line in the sand between Objet and Stratasys, or will they truly combine them?”

As Wohlers puts it: “The devil’s in the details when it comes to people working together and sharing systems.”

Stratasys stockholders voted overwhelmingly to approve the proposed merger with Objet Ltd. at a special meeting held September 14. The transaction is expected to close any day now.

What It Means

The merger creates two main players in the non-metal, professional 3D printing space: Stratasys and 3D Systems. In other industries, decreased competition has led to higher prices, but neither Grimm nor Wohlers is willing to predict that will be the case in 3D printing.

“Obviously, with fewer competitors in industry, there can be some concern over prices staying high or even increasing,” Grimm says. “Time will tell, but I think there are enough options out there to put downward price pressures on everyone.”

Those options stem from two sides, one selling sub-$5,000 3D printers to non-professionals, and the other selling full metal-based additive manufacturing systems that can approach $1 million. Either side could expand into the middle professional market where Stratasys is focused, if given the opportunity. Just last week, MakerBot announced the Replicator2, a $2,200 3D printer it is aiming at professionals.

“I can’t see many negative consequences for end users,” says Wohlers. “They may be working with a new reseller or a different tech support group; maybe some names or faces will change. But my guess is the companies will—especially in the short-term—stay focused on their strengths.”