Seemingly the culmination of an ongoing fight between the management of electronics 3D printing firm Nano Dimension (Nasdaq: NNDM) and its largest shareholder, Murchinson, Ltd. the former has announced a formal bid to acquire additive manufacturing (AM) stalwart Stratasys (Nasdaq: SSYS) for $1.1 billion.
Specifically, Nano Dimension made an offer of $18.00 per share in cash for the total remaining shares of Stratasys. This would be a 36 percent premium from Stratasys’ share price on the day of the offer. A combination of the two companies could be a potentially beneficial one to the resulting entity from a portfolio perspective. After all, Stratasys is the inventor of inkjet 3D printing, a process on which Nano Dimension’s electronics 3D printing depends. Nano Dimension also highlights the ability to share research and development capabilities, as well as cross-market penetration, as benefits to a merger.
Nano Dimension’s DragonFly IV electronics 3D printer.
Yoav Stern, Chairman and Chief Executive Officer of Nano Dimension, shared, “We have great respect for Stratasys’ business, including Chief Executive Officer, Dr. Yoav Zeif, who we believe is the architect of Stratasys’ recent positive momentum. Together, Nano Dimension and Stratasys can offer an increasingly exciting set of solutions for customers while becoming better positioned to compete in the AME and AM industries. We believe this is an exceptional opportunity for all stakeholders – shareholders, customers, management, employees, and business partners – of both companies. In recent years the AM market has grown in size and accelerated remarkable technological advancement, and it is on the cusp of its next phase of development and growth. Bringing Stratasys and Nano Dimension together is about positioning both companies to succeed as a combined company and lead the industry into that next phase. With Nano Dimension’s strong culture of innovation and track record of successful merger integration, we expect to unlock significant value for all stakeholders. We look forward to continuing our discussions with Stratasys to reach a mutually acceptable transaction.”
Despite any possible synergies, however, there are a number of other considerations that shareholders would want to take in voting for such a deal. This includes the recent infighting between Nano Dimension and its largest shareholder, as well as the overall value that Stratasys has relative to its peers in the market.
Management Woes
Nano Dimension has been flush with about $1 billion cash, with which CEO Yoav Stern saying he would make a bold acquisition, justifying the significant investment into the company. After a series of smaller purchases, some that bolstered the firm’s larger electronics 3D printing product line and some that were said to be nepotistic (specifically DeepCube), Nano Dimension attempted to execute on its plan for a large acquisition. The purchased a total of 14.5 percent of Stratasys in 2022, causing the latter to initiate measures to prevent a hostile takeover.
Since then, and throughout the larger economic slow down of the last year, Nano Dimension has experienced internal turmoil. Cathie Wood’s ARK fund, formerly Nano’s largest shareholder, dumped all of its stock in the company, leaving institutional investor Murchinson Ltd as holding the highest number of shares in the company. Murchinson then offered to acquire majority shares of the company. Soon, Nano Dimension executives and Murchinson a series of actions directed at one another, with the former putting forward shareholder proposals to give CEO Stern 10 percent control over the company and the latter proposing to remove him from leadership. As these battles occurred, Nano would not only publish press releases arguing on behalf of the company’s leadership, but also announcements related to high-profile equipment sales to military customers, intelligence agencies, and NASA.
Both Murchinson and Nano have troubled histories related to finance. Murchinson, its principal Marc Bistricer, and trader Paul Zogala settled with the SEC for violating short sale regulations. The SEC charged the firm with “making erroneous order-marking information on hundreds of sale orders of their hedge fund client to the hedge fund’s brokers, causing those brokers to mismark the hedge funds’ sales as ‘long’” from June 2016 through October 2017.
Before Yoav Stern began his tenure as Nano CEO, board member Itzhak Shrem was arrested on charges of money laundering, aggravated fraud, and securities violations. Stern then became CEO in 2020, but not without his own baggage. Stern was accused of extortion while serving as CEO at a defense company called Magal Security Systems. He only maintained the position for a short time, from 2009 to 2010, and was removed at the behest of board chairman Yaakov Perry. According to CTech, Magal shareholders filed a complaint to the U.S. Securities Exchange Commission, writing:
“During his time, Stern fired or caused the firing of many senior employees and caused almost irreversible damage to the morale of the other employees. During his time at the company, the employees were kept in a hostile atmosphere as a result of his management style. When Stern joined Magal, he made it clear to some of the employees that his intention was to lead a takeover of the company through the purchase of shares at a low price by the executives.”
Given the track records of parties involved on the Nano Dimension side of the deal, it wouldn’t even be surprising if all of the back-and-forth between fighting parties, and even this latest merger proposal, weren’t more about deals related to Nano’s own stock. Each shareholder action taken by Murchinson can affect the price in one way, while positive press releases can affect it in another, allowing the potential for long term holders to profit, both when the stock moves up and when it moves down, while it remains range-bound between 2 and 4 dollars.
Stratasys Value
So far, stock analysts seem to agree that the deal may not be as beneficial for Stratasys as it would be for Nano Dimension. Stifel Research Managing Director Noelle Dilts and Associate Kieran McCabe pointed out that the former’s revenue for 2022 was $651.5 million, compared to Nano’s $43 million and that the offer represented 1.46x the midpoint of Stratasys’ 2023 revenue guidance, compared to the fact that Nikon acquired SLM at 5.0x NTM revenue and Desktop Metal acquired ExOne at 5.2x forward revenues.
Stratasys’s new SAF technology will likely further increase the value of the 3D printing stalwart. Image courtesy of Stratasys.
Troy Jensen, Senior Research Analyst at Lake Street Capital Markets, said that the offer represented a “steep discount” compared to Stratasys peers and recent acquisitions in the market, explaining, “We would point out that the $18 per share offer for Stratasys equates to an Enterprise Value/Sales multiple of 1.3x based on our 2023 revenue estimate of $645M. Industry peers such as Velo3D, Desktop Metal, and 3D Systems trade at 3.4x, 2.6x, and 2.2x, respectively. If you gave Stratasys an average multiple consistent with these three peers, the EV/S multiple would be 2.7x.”
In other words, the deal likely won’t go through. However, in the meantime, it may have caused enough volatility to Nano Dimension’s stock for some traders to benefit.
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