Super Bowl Cleats Signal 3-D Printer Takeovers: Real M&A

Stratasys Ltd. offers Hewlett-Packard Co. and Seiko Epson Corp. the chance to move beyond paper-and-ink printers by acquiring a leader in the technology that’s used to replicate nuts, bolts and even football cleats.

Three-dimensional printers layer materials to create objects, technology that Nike Inc. used to help develop footwear for National Football League players to don at this weekend’s Super Bowl. Hewlett-Packard and Seiko Epson have shown interest in expanding into the fast-growing market, which may double by 2017. Rather than build their own 3-D printers, the companies would have a better shot of capturing that growth by buying Stratasys, BB&T Corp. said.

“The first machine was essentially a glue gun compared to what they do today, so to be starting from scratch is to be behind by a lot of patents and a lot of history that you have to make up,” Holden Lewis, a Reston, Virginia-based analyst at BB&T, said in a phone interview. Stratasys “would be an appealing little nugget to sort of fast-forward that process.”

While Stratasys would be a pricey purchase for a buyer with its stock near a record, the company is valued at a 33 percent discount to rival 3D Systems Corp., according to data compiled by Bloomberg. The valuation gap makes Stratasys a more appealing target than its larger rival, FBR & Co. said. Suitors also may favor the $5.9 billion company because of its brands such as MakerBot and its greater presence in consumer markets, Credit Suisse Group AG said.

Big Slice

Shane Glenn, a spokesman for Stratasys, declined to comment, citing company policy, when asked whether it would be interested in a sale.

Stratasys, based in Eden Prairie, Minnesota and Rehovot, Israel, began making 3-D printers more than 20 years ago and now controls one of the largest slices of a market that generated as much as $2.9 billion in revenue worldwide last year, according to consulting firm Wohlers Associates Inc.

Global sales, including all 3-D printing products and services, may double to about $6 billion by 2017 and jump to almost $11 billion by 2021, Fort Collins, Colorado-based Wohlers Associates said. Stratasys alone may boost revenue to about $1 billion by 2016, up from an estimated $482 million in 2013, according to analysts’ projections.

The company, which acquired MakerBot in August, “would be a potentially attractive target for anyone looking to make a big splash within the space,” Angelo Zino, a New York-based analyst at S&P Capital IQ, said in a phone interview. “It instantly gives you a huge presence in the 3-D printing market.”

Boeing, Nike

Stratasys’s customers include Boeing Co., Ford Motor Co., Boston Scientific Corp. and Nike, according to a September filing. Nike is also a customer of 3D Systems, according to Chief Marketing Officer Cathy Lewis. Nike declined to identify what type of 3-D printing technology it used to develop the football cleats that inspired the shoes for the Super Bowl.

While some larger technology companies are beginning to move into 3-D printing, “it’s certainly a high-risk strategy to do this from scratch internally, and it takes a lot of time,” Ajay Kejriwal a New York-based analyst at FBR, said in a phone interview.

Hewlett-Packard and Seiko Epson may decide it makes more sense to buy their way into the industry via a Stratasys takeover, said Lewis of BB&T. Other technology makers or even industrial companies also could be interested in a deal, he said.

3-D Play

In an interview with Australian newspaper publisher Fairfax Media Ltd. in December, Seiko Epson President Minoru Usui said his company was developing 3-D printers for commercial applications. Hewlett-Packard Chief Executive Officer Meg Whitman said in November that the $56 billion computer maker intended to “play in the 3-D printing market because it’s an adjacency” to its traditional devices.

Michael Thacker, a spokesman for Palo Alto, California-based Hewlett-Packard, and Alastair Bourne, a representative for Nagano, Japan-based Seiko Epson, declined to comment when asked whether their companies would be interested in buying Stratasys.

Stratasys may be a more attractive target than competitor 3D Systems because a greater portion of its business is tied to consumers after its purchase of MakerBot, according to Jon Shaffer, a New York-based analyst at Credit Suisse. A technology company that’s used to selling to individuals may have little desire to get involved in selling to factories, he said.

“It’s a different type of customer,” Shaffer said in a phone interview. “You get much better consumer exposure at Stratasys via MakerBot.”

Valuation Gap

Shaffer said the company would demand at least a 25 percent premium, or about $152 a share, in a sale. That still wouldn’t be as expensive for a buyer as 3D Systems.

Stratasys’s enterprise value of $5.2 billion is 7.8 times its projected revenue for this year, compared with a multiple of 11.7 for 3D Systems, according to data compiled by Bloomberg.

“There’s no reason why it should be at a discount,” based on fundamentals, Kejriwal of FBR said. Stratasys has “a high-quality profile of products and technologies. It has a very solid management team and very good brand names.”

Stratasys shares reached a record $136.46 on Jan. 3. Based on yesterday’s closing price of $121.72, the company commands a higher enterprise value-sales multiple than 92 percent of companies in the Russell 2000 Technology Index valued at more than $1 billion, according to data compiled by Bloomberg.

Today, Stratasys shares fell 1 percent to $120.56.

The company’s valuation still may give buyers pause, according to John Bichelmeyer, a money manager at Shawnee Mission, Kansas-based Kornitzer Capital Management Inc.

‘Big Dog’

A takeover is “possible, but not probable at this stage, given the size of the company,” said Bichelmeyer, whose firm advises the Buffalo Funds and manages shares of Stratasys. “It’s not cheap. It’d be difficult for a larger company’s board to say, ‘Yes this is a good deal for our company.’ They’d have to probably withstand a lot of dilution.”

Stratasys may prefer to stay independent and continue to build its business via its own acquisitions, said Lewis of BB&T. That may not stop buyers eager to harness the company’s growth from making bids, he said.

“They could either be the big dog in the industry or they could be an even bigger dog’s meal,” Lewis said.