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Stratasys, Ltd. (SSYS) Buys MakerBot: What You Need to Know

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The rumors are true: Stratasys, Ltd. (NASDAQ:SSYS) really is buying MakerBot. The move is Stratasys’ second huge consolidation in the past year, and appears to be the second-largest, 3-D printing industry tie-up by value behind the Stratasys-Objet merger. Let’s get right to the details now, and then we’ll go over just what the deal means for Stratasys, Ltd. (NASDAQ:SSYS), for MakerBot, and for the 3-D printing industry as a whole.

Source: MakerBot, image credit to Louis Seigal.

The deal, by the numbers
At a minimum, Stratasys, Ltd. (NASDAQ:SSYS) will pay $403 million — based on its stock price in what will be an all-stock transaction with the possibility for earn-outs — in approximately 4.76 million new shares to acquire MakerBot. The deal could, and very well might, wind up being higher as the market digests this news. MakerBot’s stakeholders can earn up to $201 million more in performance-based compensation, which will be tied to the value of an additional maximum of 2.38 million new shares by the end of 2014.

Initial purchase value: $403 million, or 4.76 million shares (new issue)

Performance bonuses: $201 million, or 2.38 million shares (new issue)

Total potential value: $604 million, or 7.14 million new shares

Existing shareholders can expect to be diluted by approximately 18.5% if MakerBot earns all of its performance bonuses, assuming that there are no further share issues between now and 2014. It’s hoped that MakerBot will more than justify this dilution by 2014, at which point it should become “accretive to Stratasys, Ltd. (NASDAQ:SSYS)’ non-GAAP earnings per share,” according to the company’s press release.

Stratasys, Ltd.

Make no mistake, though: Stratasys paid a major premium for MakerBot’s brand cachet, and for its expected future growth. Although the company’s revenue has accelerated rapidly in 2013, it is still far below Stratasys in terms of raw value:

MakerBot most recent quarter revenue: $11.5 million

MakerBot fiscal 2012 revenue: $15.7 million

Stratasys most recent quarter revenue: $71.2 million

Stratasys fiscal 2012 revenue: $215.2 million

A back-of-the-envelope calculation annualizing out each of these quarterly revenue spikes (Stratasys’ latest report was from its fiscal fourth quarter in 2012, but this was its first after the Objet merger) gives us an expected 193% year-over-year revenue growth rate for MakerBot and a comparatively tepid 24% year-over-year growth rate for Stratasys, Ltd. (NASDAQ:SSYS). The back-of-the-envelope result of $46 million in potential 2013 revenue gives MakerBot an implied forward price-to-sales ratio of 13.1. Stratasys’ own price-to-sales ratio is 12.2 at the moment, so the premium may not be as outlandish as it seems at first glance.

MakerBot could certainly meet that growth target, but it’s a very ambitious one to hit, even for a small company that’s positioned right in the center of the consumer push for 3-D printing. That positioning becomes very obvious when you look at the sales numbers MakerBot provided for the press release:

MakerBot 3-D printers sold since 2009: over 22,000

MakerBot 3-D printers sold since September 2012: 11,000

Estimated worldwide 2012 desktop printer sales: 35,000-40,000

Estimated worldwide 2013 desktop printer sales: 70,000-80,000

What does it mean for 3-D printing?
MakerBot is establishing itself as the brand to beat in a rapidly growing segment. Stratasys, Ltd. (NASDAQ:SSYS) almost had to do this deal — it lags behind industry peer 3D Systems Corporation (NYSE:DDD) in the consumer market, with its cheapest current model clocking in at a purchase price of about $10,000. 3D Systems Corporation (NYSE:DDD), by comparison, is now in direct competition with MakerBot thanks to its $2,500 CubeX — which resembles the MakerBot Replicator 2s lined up at the top of this article in both price and styling:

Source: 3D Systems Cubify.

More importantly, the 3-D printing industry is evidently shifting from the “mainframe” model of years past to the “PC” model of relatively affordable, relatively user-friendly consumer devices like the Replicator 2 and the CubeX. Under this analogy, Stratasys is the International Business Machines Corp. (NYSE:IBM) of 3-D printing — the big, industrial-strength industry leader that didn’t catch on to the shift until it was already on them. MakerBot, then, is Apple Inc. (NASDAQ:AAPL) right around the time it released the Apple Inc. (NASDAQ:AAPL) II.

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