Voxeljet (VJET) was the target of the short sellers in the recent past, this impacted the valuation trends in late November and the company is still struggling to regain share price momentum currently associated to 3D printing industry. The company's CFO commented recently that Voxeljet is not currently focused on the share price. But the market normally factors share price trends in the investment decisions. One might say that this is worrysome news for the company but as we mentioned in the previous report that Voxeljet is susceptible to takeover and some current developments points toward Voxel merger or a friendly takeover by a large 3D printing company i.e. 3D Systems . This renders the historic share price performance of Voxeljet irrelevant to the decision of investment in Voxeljet. Rather the acquisitive potential of the company make it a viable investment opportunity. The following analysis will cover the acquisitive potential, financial feasibility of acquisition and the synergic benefits associated with the merger if it goes through.
Pointers toward Voxel acquisition:
The 3D industry as a whole is going through a consolidation phase. Both 3D Systems (DDD) and Stratasys (SSYS) are pursing aggressive acquisition strategies to capture the anticipated high growth market. This makes smaller companies a target for acquisition and hence Voxeljet is a candidate for acquisition.
There is one significant development which causes us to believe that Voxeljet is on the verge on being acquired by 3D Sytems; one of the big players of the 3D printing industry. Here goes, 3D Sytems website is displaying Voxeljet VX1000 and VX500 in its product section with production printers. The printers are named as casting printers and the information source is Voxeljet website. This is an interesting development as it indicative of relation between the both companies.
This is a snapshot of 3D Systems production printer page on the website. This clearly mentions Voxeljet in the subheadings. This could mean that 3D is interested in acquiring Voxel or it could be entering in a partnership with Voxeljet. Either Way, the valuation will be affected.
Voxeljet shares are trading on a low side when compared to other 3D printing companies. This also makes Voxel an acquisition target. 3D Systems may be thinking of sealing the deal when the shares on a low side and can get a better deal. Furthermore, the silica based material offered by Voxeljet could be another reason for 3D Systems' potential interest in Voxeljet.
The above mentioned details make us believe that Voxel will be acquired by 3DSystems and once it does it would benefit 3D Systems, Voxeljet and specifically the stock holders of Voxeljet. The stock of 3D will not be affected much because it is already trading on a premium when compared to its future prospects.
The acquisition of Voxeljet can bring synergic benefits to the whole group (i.e. formed after the acquisition). The main synergies are outlined below.
Capacity and speed:
Voxeljet is famous for the build capacity of its industrial printers. The VX4000 has a build capacity of 4m×2m×1m while 3DSystem currently offers a build capacity of 1.5m×0.75m×0.55m. On the other hand the print speeds of 3DS printer in impressive. These two feature combined together will substantially reduce the printing time and hence a distinguished competitive advantage for the group.
The silica advantage:
Voxeljet offers a Silica based material which has a good bending strength and can be used to cat metals as such as aluminum, magnesium, cast iron and steel casting. According to Voxeljet "Today, 3D printing is used in conventional applications and all other situations that require the rapid and efficient production of sand molds - whether for architecture, restorations, aviation and aerospace or the production of designer furniture". The company generates around 50% of its revenue through services including the casting moulds services. This means that the services revenue could be increased to the printer sales revenue if appropriately used. By acquiring Voxeljet, 3D Systems can use the casting expertise thereby increasing its service revenue which is currently a low proportion of the total revenue of 3D. The main reason 3D might be interested in Voxel is its ability to make casting equipment using sand i.e. inorganic material because it open doors for services revenue growth. The company is displaying Voxeljet's printer as "printers for casting patterns" indicating that 3D sees value in Voxel's sand material and casting abilities.
Technology and reach expansion:
Acquisition of Voxeljet means gaining access to 170 US and international patents and patents applications. The company's Powder binding AM technology would also expand the technology base of the 3D Systems and in fact benefit the whole group. On the other hand, With Voxeljet, 3DS will have a better access to the European markets and will be well positioned to grow in the Europe if 3D printing grows there. Furthermore, 3DS will also benefit from the Voxel's position in the automotive and film industry of US. All in all, this potential acquisition will enhance the technology portfolio and the geographic and multi industrial reach of 3DSystems.
The acquisition of Voxeljet will require funds. We will now analyze the value of the Voxeljet and the 3D's ability to arrange those funds in order to acquire Voxeljet.
Value of Voxeljet:
In stock terms:
The shares of the company are trading in the range of $32-$37. The market cap of the company is around $356 million. So, an open market bid around $400 million for 100% stock will tempt the investor to sell the stock and 3D would gain a controlling share. But, this scenario is remote as 3D Systems is displaying Voxel's printer on its website. There seems to be an understanding between the management of both the companies. So a more likely valuation will be based on the enterprise value of the company. The Value of the company using the Enterprise value approach is calculated below:
*The MV given in the latest quarterly report
In asset terms:
The company has around $20 million of assets. This excludes the current IPO net proceeds. Incorporating the IPO's proceeds translate to asset balance of around $80 million. Even if a premium of 25% is paid to acquire the assets of voxel. The value would be around $100 million. The company does not have significant intangible assets on the balance sheet hence higher premium for technology cannot be incorporated in the calculation.
Based on above two calculations, we believe that 3DSystem will be able to seal a deal at a price tag ranging $250-300 million.
3D Systems financial ability:
3D has a cash balance of around $345 million. The company also generates OCF (average) of around $39 million per annum. It would not be possible for 3DSystems to pay the consideration for the acquisition wholly by cash without a credit bridging facility or a financing arrangement because paying $300 million in cash would bring the Current ratio below 1 resulting in working capital problems. So full cash payment is not feasible. However, the purchase is still financially feasible because 3D can offer consideration part in cash and part in stock offerings to the existing shareholders of the Voxeljet. So, the bottom line is 3D can manage the acquisition.
The acquisition of Voxeljet is in the cards for 3D Systems and this consolidation would further consolidate the 3D printing industry. The acquisition will bring synergic benefits especially capacity, speed and casting ability to the 3D systems. It will also enhance the reach of 3D Systems and the services segment will be able to generate a larger share of the revenue of the company. The acquisition, if goes through, will further strengthen the industry printing position of the company relative to Stratasys. With this acquisition, 3D Systems will emerge as the leader in industrial 3D printing. As far as Voxeljet is concerned the investor will get value for their money by acquiring cash and stock interest in 3D systems. So, both the Voxeljet and 3D Systems are a strong buy.
Additional disclosure: Equity Flux is a team of analysts. This article was written by our Technology analyst. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.