3D Printing Deal Enhances Sector Depth Illusion

Agenda-Setting Financial Insight.
April 16 2012 4:21 PM

3D Printing Deal Enhances Sector Depth Illusion

98452840
The perception that 3D printer-maker Stratasys will automatically dominate its competitors may be a distortion.

Photo by YOSHIKAZU TSUNO/AFP/Getty Images

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.

Read more at Reuters Breakingviews.

Robert Cyran moved from the London office to New York, where he covers global technology, pharmaceuticals and special situations. Rob began his career at Forbes magazine, where he assisted in the start-up of the international version of the magazine.

TODAY IN SLATE

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Students Aren’t Going to College Football Games as Much Anymore

And schools are getting worried.

160 Countries Host Marches to Demand Action on Climate Change

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

Why a Sketch of Chelsea Manning Is Stirring Up Controversy

How Worried Should Poland, the Baltic States, and Georgia Be About a Russian Invasion?

Trending News Channel
Sept. 19 2014 1:11 PM Watch Flashes of Lightning Created in a Lab  
  News & Politics
Weigel
Sept. 20 2014 11:13 AM -30-
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Tv Club
Sept. 21 2014 1:15 PM The Slate Doctor Who Podcast: Episode 5  A spoiler-filled discussion of "Time Heist."
  Arts
Brow Beat
Sept. 21 2014 2:00 PM Colin Farrell Will Star in True Detective’s Second Season
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Bad Astronomy
Sept. 21 2014 8:00 AM An Astronaut’s Guided Video Tour of Earth
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.