Financial markets nearly crashed as a result of the COVID-19 pandemic, with general production and consumption activity reduced dramatically. One sector in particular received significant, newfound attention for the role that it had played in the just-in-time fabrication of critical parts during the shutdown. Additive manufacturing (AM) acted as a stopgap for many companies particularly when it came to making respirators and other medical devices.
As the world rebooted and reopened, AM markets got an important boost that was further driven by a series of reverse mergers with special purpose acquisition companies (SPACs). The trend was first kicked off by Desktop Metal (NYSE: DM) before a number of others followed suit. However, just as quickly as the 3D printing sector was pumped up, it began to fall again in parallel with the global economy. Fears or realities of a global recession hit these SPAC firms the hardest, but more established AM companies also faced obstacles.
For the 3D printing market, this meant that smaller businesses struggled, while larger corporations with more cash have been able to purchase these companies at a discount. Most notably, Nikon made its biggest move in the sector to date by acquiring metal laser powder bed fusion (LPBF) manufacturer SLM Solutions.
Perhaps even more interesting than that, however, was a series of events that led to the announcement by AM stalwart Stratasys (Nasdaq: SSYS) that it would merge with Desktop Metal, followed by a bid by competitor 3D Systems (NYSE: DDD) to purchase Stratasys. This bid has since been rejected. The public drama that resulted in this announcement may actually belie a somewhat simpler cause-and-effect relationship that began with a decision by investment management firm ARK Investment Management and culminated in a flurry of bids to buy Stratasys.
3D Printing Industry provides an excellent timeline of the events that have occurred as related to the Desktop-Stratasys merger. Though it wasn’t until May 2023 that the merger was announced, according to an SEC filing from May 30, 2023, Stratasys had already been in conversations with Desktop Metal as far back as January 2021. At that time, Desktop was in the process of buying digital light processing inventor EnvisionTEC. On February 9, 2021, Desktop made a non-binding, preliminary indication of interest to buy Stratasys for $60 per share in a stock-for-stock transaction.
After a unanimous rejection by the Stratasys board on February 21, Desktop went on to announce the acquisition of metal binder jetting pioneer ExOne in April 2021. This was followed a year later by a Mutual Confidentiality and Non-Disclosure Agreement between Stratasys and Desktop in November 2022. In February 2023, the discussions became more formal with the two businesses hammering out the details. This resulted in a formal merger agreement between Stratasys and Desktop Metal on May 25, 2023 and a public announcement on the same day.
It would seem that Desktop may have been a roll-up vehicle. After all, the acquisition spree began almost as soon as Desktop launched its SPAC IPO in December 2020. However, the conditions didn’t seem right for the creation of a 3D printing powerhouse so early on. That would require significant economic pressure. This would occur when an Israeli manufacturer of electronics 3D printers, Nano Dimension (Nasdaq: NNDM), bought some 14.5 percent of Stratasys beginning in 2022.
ARK Supports Nano
Among one of Nano Dimension’s more important financial backers was the investment management company ARK Investment Management. ARK was founded in 2014 by Cathie Wood, a well-known investor who suggested the idea of actively managed ETFs based on disruptive technologies while working as chief investment officer for asset management firm AllianceBernstein. When her employer deemed the concept too risky, she created ARK. Since then, ARK and Wood have become famous for their support of Tesla and Elon Musk.
ARM invested in Nano Dimension through its exchange-traded funds (ETFs), primarily the Autonomous Technology & Robotics ETF (ARKQ) and Next Generation Internet ETF (ARKW), and, to a lesser extent, the Total 3D-Printing Index (PRNT), a passively managed fund that replicates the Solactive 3D-Printing Index. ARK is no stranger to Israeli investments, dedicating an entire ETF to public tech companies in the nation, the ARK Israel Innovative Technology ETF. ARK also invested in Stratasys, which began in the U.S. but established an Israeli headquarters after a merger with an inkjet AM pioneer from the country, Objet, in 2012.
Though ARK had a minor number of shares in Nano Dimension dating back to 2016, beginning September 28, 2020, the firm began purchasing millions more until it reached nearly 20 million shares by December 2021. ARK’s investment timing corresponds in part with a concerning cash raising strategy by Nano Dimension. In a campaign of eight public offerings beginning September 30, 2020 and ending February 18, 2021, the company raised almost $1.5 billion.
Toward the end of Nano’s capital raising run, ARK CEO Cathie Wood began promoting Nano stock in the media. On February 17, 2021, she mentioned Nano Dimension as a favorite stock on CNBC, which was followed on a March 3, 2021 episode of “The RazReport,” where she discussed it again. Outlets like 24/7 Wall Street, of which Wood is a minority and non-voting shareholder, reported ARK’s trading activity related to Nano Dimension, as well.
With some $1.5 billion in cash, CEO Yoav Stern executed the first step of what would be his bold acquisition move. In July 2022, Nano purchased a 12.1 percent stake in Stratasys, making Nano Dimension the largest shareholder in Stratasys, even more so than ARK.
In response, Stratasys filed a “poison pill” shareholder Rights Plan with the U.S. Securities and Exchange Commission (SEC), which gave shareholders the right to buy further shares in the firm for $0.01 in proportion to their current holdings for each one bought by any ‘acquiring person’ that owned 15% or more of the company. Interestingly, the most recent high profile implementation of such a plan was by the Twitter board before it was ultimately acquired by Cathie Wood ally Elon Musk in 2022.
With what would appear to be a failed takeover attempt of Stratasys, Nano Dimension then lost its biggest shareholder in ARK Invest. The company sold all of its ARKQ shares in Nano Dimension starting in September 2022, going from holding almost 10 million shares in October 2021 to zero on October 4, 2022.
In its place, ARK left a smaller, Canadian investment management firm called Murchinson Ltd. as the top shareholder. As ARK pulled out, Murchinson made a non-binding offer in September 2022 to buy Nano for $4 a share or roughly $995 million.
The Battle Continues
From September 2022 through today, the management of Nano Dimension and its investors at Murchinson staged a tiresome drama that involved shareholder meetings, votes, media campaigns, and legal fights to determine who would control the company, Nano’s management or its institutional investors. Neither group has an entirely wholesome background, which is discussed in detail in a separate article.
While Nano and Murchinson continued to battle, bringing the fight to courts of law in New York and Israel, Nano also continued to attempt to take over Stratasys. With a second proposal to buy the company, Nano management announced a special tender offer for at least 51% of the outstanding Stratasys ordinary shares for $18 per share in cash if Stratasys did not entertain the offer. Nano Dimension went forward and executed on this hostile tender offer the same day that the Desktop merger with Stratasys was announced. Bypassing the board, Nano management put the deal to Stratasys shareholders at large, who have until June 26 to sell their shares at $18. At the time of this writing, the price of Stratasys stock has already climbed to $17.39.
Meanwhile, Stratasys and Desktop Metal progressed in their discussions of a merger. Just days after the merger was announced, longtime Stratasys competitor and the original “inventor” of 3D printing, 3D Systems, made its own bid to buy the firm on June 1, 2023. Soon after, Desktop Metal took on billionaire Farhad Ebrahimi as an activist investor in favor of the deal with Stratasys.
The exact outcome of all of these bids and who benefits the most probably won’t be known until a merger is completed or even sometime after. Until then, there are groups that profit off of the drama, both trivial and significant.
For one, there are the retail traders. Nano Dimension, in particular, has a somewhat significant following from Reddit retail investors, some of whom short the stock, some who have long-term investments in the firm, and others who do both. Searching through Reddit forums, you’ll find that ARK has its fair share of supporters and detractors, complementing the overall pattern for Nano Dimension stock.
The dynamics related to retail investors and small cap stocks like Nano Dimension are discussed in greater depth in a separate article. Mapping out the transactions of shorts along with institutional investment from ARK and, later Murchinson, you see an interesting trend. As investment from ARK increases, so do shorts, and vice versa. Then, as ARK pulls out of Nano Dimension, Murchinson steps in to fill the institutional vacuum. Immediately after ARK has fully withdrawn, Murchinson begins vying for control of the company, pressuring Nano Dimension executive leadership to make its move on Stratasys.
We can’t know who specifically is getting rich off of these transactions, other than the markets themselves, but there is at least one ETF that actually shorts one ARK ETF, The Tuttle Capital Short Innovation ETF (SARK), which was up $2.4 billion in September 2022.
It’s difficult to determine what role all this may have had in a Desktop merger, but it would be hard to say that Nano’s attempted takeover of Stratasys did not play a part in driving forward the merger between Desktop and Stratasys. In that way, the momentum of a major investor in the form of ARK, one of the only major money managers with a fund dedicated to 3D printing, was able to push forward one of the most important mergers in the emerging AM industry.
Who Will Merge with Stratasys?
As discussed in the most recent episode of the Printing Money podcast, a merger with Stratasys and any of the other firms would result in a variety of possible outcomes for the industry and the ultimate entity.
A Stratasys-3D Systems combination, for instance, would create a mega 3D printing company that would require significant resources dedicated to integration of the two businesses, potentially slowing down the effective deployment of some of the technologies acquired by each of the firms separately over the past two years. Additionally, there would likely be fewer resources dedicated to R&D, potentially stifling innovation. With the industry’s largest pure-play AM firms off the acquisition table, investment by outside companies might decrease, with competition more difficult to maintain.
In contrast, a blending of a smaller business in Desktop Metal with the larger Stratasys would mean less resources dedicated to integration, less product portfolio overlap, and room for competition in the market. As Printing Money host Alex Kingsbury noted in the episode, a legacy manufacturing company could still come in and purchase either 3D Systems or Stratasys, with guest Dayton Horvath pointing out that this would bring stability to these firms and the AM industry at large.
Many in the industry would think that a merger with Nano Dimension would be the least likely outcome, given the fact that Nano is a much smaller firm with perhaps the least convincing case for an acquisition. However, if ARK really does have an outsized influence on the sector, we could see a replication of what played out with Musk’s purchase of Twitter take place. After Twitter deployed its poison pill in an attempt to block the acquisition, Musk was able to raise enough funds to carry out the buy.
There is a possibility that Nano management would follow a similar path, with an ally of the team stepping in to sell shares to Nano before the June 26 deadline. After all, ARK still owns about 2.6 percent of Stratasys. We don’t know how the next largest owner after Nano, Neuberger Berman Investment Advisors with almost 5.7 percent, stands. If other shareholders are in favor of the deal, they could drive things toward a Nano acquisition.
As unlikely as it might seem, global events seem to be following a pattern of strange surprises as of late. From game show host presidents to world-stopping pandemics and the transmogrification of Twitter, the most surprising outcome may actually be the most likely one.