Should A&D care what happens with SSYS?

I remember interviewing with Stratasys in 2014, and the last question I was asked was “What do you think about leaving the aerospace industry for Stratasys?” and my very honest answer was that “I don’t see it that way at all.?I’m here to make Stratasys into an aerospace company.”?While we made some great progress in that direction, I didn’t achieve that goal.?Do any of the potential M&A scenarios get Stratasys closer??The short answer is “no,” but not all “no’s” are equal.

There are plenty of great articles and analyses out there discussing the merger scenarios from an AM-industry perspective (I like 3DPrint.com 's work in particular), but what about the customer perspective??Both Stratasys and 3D Systems have put a lot of focus on healthcare in recent years.?I’m not the guy to give an informed healthcare perspective, but I imagine someone out there could assess which merger scenario is best for that industry, and I’m guessing it’s pretty clear.?A&D, however, I think I can speak to.?

Focus on aerospace hasn’t been as strong for either company (and certainly not for Desktop Metal or Nano Dimension) in recent years, but the market is still a significant one due to the strong alignment between the values of AM and the challenges of aerospace and defense.

To very quickly recap the current state: 1) Nano Dimension has made multiple offers to acquire Stratasys, 2) Stratasys announced the planned acquisition of Desktop Metal, 3) 3D Systems is offering to acquire Stratasys with an argument that it (DDD) makes for a better combination than DM.

So from an aerospace customer perspective, what would I get out of each combination?

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Stratasys & Nano Dimension

No good can come of this.?I completely understand the Stratasys resistance to this combination, and as a shareholder, I couldn’t have rejected the tender faster.?While I love the concept of rapidly printed circuit boards and can envision tremendous applications for printing electronics content directly into structures (seriously, some revolutionary ideas in mind here), I haven’t see technical credibility or any sense of production-ready technology from Nano Dimension.?Add that to all the questions that exist around the leadership team and investor relationships, and I see no upside, only risk to future focus on A&D, and frankly the ability to do business with the US defense sector.

Grade: F

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Stratasys & Desktop Metal

I can’t reject this idea nearly so quickly, as there are some bread crumbs that would interest me in this combination.?In particular, DM has some patents in the continuous carbon fiber (CCF) space, which you may recall, is an area I see huge future potential for within A&D.?Applying DM’s CCF research into development of a multi-axis, higher performance FDM system would be a huge win for low-quantity, high-mix metal replacement parts for the aerospace aftermarket.?However, I can’t grade this combination higher than a minimal passing grade because I suspect this development wouldn’t be at the stop of SSYS/DM’s list.?All the talk has been about metal, and DM’s metal solutions are not robust or repeatable enough for the A&D industry.?As a result, I can very easily see everyone chasing the “shiny object” toward the lower requirement industries in which DM’s metal solutions are a better fit.?So, while I think there is a compelling technical play for A&D here, I’d expect that the combined company’s focus would not be on the A&D industry. There's also a lot about this deal financially that I can't get my head around, but again, that's not my topic here.

Grade: C-

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Stratasys & 3D Systems

Like the SSYS/DM combination, SSYS/DDD is a mix of good’s and bad’s.?My first thought goes to the amount of product overlap between the two companies and what that means both from a standpoint of job losses (presently spun as synergies), but I’m supposed to be focusing on the A&D customer perspective, so let’s set that aside.

In an SSYS/DDD merger, I see the same likelihood for loss of focus on the A&D market as with SSYS/DM.?Both companies have invested heavily in healthcare and I see a combination strengthening that segment significantly to the detriment of ?a focus on A&D.?From a product standpoint, the story is different.?While not dominant in aerospace, the 3D Systems laser powderbed metal technology has a technical fit within A&D, and could be strengthened.?There’s also value in some of the highflow pellet extrusion technology in the Titan Robotics portfolio as well.?So, having a metals technology suitable for A&D helps bump this combination’s grade up a bit higher than SSYS/DM. ?I still think the same risk remains.?How low on the priority list does A&D fall within, what I can see being, a strong healthcare-oriented company??One other slight edge here is that 3D Systems leadership would bring Stratasys back to US ownership, and while they’ve been quite successful operating in the US Defense ?environment as an Israeli entity, there are certainly advantages in this space that are currently closed to Stratasys.?That knocks us from a C+ to a solid B-.

Grade: B-

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Something better for A&D?

So what do I think Stratasys should do from an M&A standpoint to truly benefit A&D customers??Capitalize on the positives I identified in the DM and DDD scenarios without all the chaff.?Strengthen the ability to take FDM into multi-axis composites by acquiring small hardware and/or software companies (I’ll keep my specific recommendations to myself on this point) that are focused solely on this space.?And, if the company really feels it’s time to move beyond the “lead in polymer” manta and join portfolios with a metal’s company (I’d lean toward waiting a bit longer), merge with a company with a strong footprint with certified metal solutions in A&D – namely Velo3D or a smaller company with a strong, technically advanced powderbed or cold spray technology.?

Grade: A+

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Conclusion

None of the scenario’s currently on the table are particularly beneficial for A&D customers.?Clearly A&D business isn’t driving the decision making here.?That’s disappointing as Stratasys is still the best positioned OEM to capitalize on the opportunity for AM in A&D.?I can only hope that whatever the board and shareholders decide, the result doesn’t further decrease the focus on the customer segment that has done the most to drive AM into production over the past 20 years.?Regardless of M&A approach, a return to a verticalized focus with knowledgeable, dedicated A&D resources will be key to restoring Stratasys’s OEM?primacy in A&D.?

And while OEM’s focusing on A&D is critical, I continue to believe that the near term wins are likely in services.

The views expressed here are Scott Sevcik's own and do not represent his employer. Previous AM Perspectives posts from Scott are?summarized in?this recap.