How the Deal Will Work
This transaction is structured as a two-part stock-for-stock merger. Stratasys has committed to providing MakerBot’s private shareholders about 4.75 million new Stratasys shares at an averaged-over-time price. At the company’s current stock price, this represents a payment of at least $400 million. If the merger is deemed to be successful, MakerBot’s existing shareholders stand to receive an additional 2.4 million shares over a yet-to-be-determined payment period. As such, the total value of this deal could exceed $600 million.
This transaction will require the creation of as many as 7.5 million new Stratasys shares and could dilute the company’s stock by nearly 20 percent. This is the primary reason for the “sudden” weakness in Stratasys’s shares. If the deal is successful, Stratasys’s stock price is likely to recover over time. Indeed, much of the dilution may already be priced into the firm’s shares.
Potential Complications and Other Issues
It seems likely that this deal will go through without a hitch. At the same time, it should be noted that Stratasys is paying a substantial premium for MakerBot. If unforeseen issues arise to scuttle this deal, Stratasys could be forced to take a substantial loss on it. Likewise, the success of this merger is dependent on the emergence of certain key synergies. If these fail to materialize, the deal could be labeled as a disappointment. Fortunately, the two-part structure should insulate Stratasys from a worst-case collapse.
Possible Synergies and Implications for Shareholders
Although Stratasys has experienced rapid organic growth and made a number of acquisitions to bolster its exposure to the business-to-business 3D printing market, it lacks a viable foothold in the rapidly growing consumer market. This acquisition should change this unfortunate arrangement in a big way. With the market for MakerBot’s desktop 3D printers expanding at a tremendous clip, Stratasys is entering the field at a perfect time. Although it is difficult to estimate the precise value of the synergies that this deal will create, Stratasys has indicated that the acquisition will be “immediately accretive.” The company’s shares could benefit as a result.
Long-Term Growth and Ways to Play
It appears that the consumer market for 3D printing is more than a fad. If this is the case, Stratasys is positioned to capitalize on exploding demand for 3D printing devices. Although the MakerBot deal appears to be expensive at the moment, it could turn out to be the steal of the decade.
On the other hand, Stratasys and MakerBot are young companies that have much more to prove. Conservative investors may wish to remain on the sidelines or conduct thorough research to determine whether this deal is worth their time. Those who wish to play this merger may do so through a long position in Stratasys. There are many other enticing merger arb opportunities in the market right now though. In the coming weeks, further weakness in the company’s stock could provide a one-time opportunity to accumulate its shares at a discount.
The article Why This Company’s Move Strengthens Its 3D Printing Operation originally appeared on Fool.com is written by Mike Thiessen.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems (NASDAQ:CSCO) and Stratasys. The Motley Fool owns shares of Oracle. and Stratasys. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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