Interview: Stratasys CEO Yoav Zeif details the strategy behind Desktop Metal merger

Stratasys CEO Yoav Zeif has told TCT that the company's metal 3D printing technology had not been mature or differentiated enough to come to market when he set the company's initial strategy focused on polymer 3D printing three years ago.

Zeif gave this assessment of the company's metal additive manufacturing activity during his first interview with trade media since Stratasys announced it had agreed a deal to merge with Desktop Metal. Per Zeif, metal additive manufacturing has been a part of his strategy from his first day in the job as Stratasys CEO, but having evaluated the technology against what else was out in the market, decided an initial focus on polymer 3D printing was the best way to yield value for customers and shareholders in the immediate term.

In Zeif's first three years at the helm, Stratasys has bolstered its polymer offering with the acquisitions of RPS, Xaar 3D, Origin and Covestro Additive Manufacturing, before expanding its focus to include metals over a year ago. To supplement its mission to develop a polymer 3D printing offering that could enable mass production, Zeif and his team identified binder jet technology as the 3D printing process most likely to achieve such scale on the metals side of the industry.

Discussions with Desktop Metal initially commenced around RAPID + TCT 2022, with the companies entering a phase of due diligence soon thereafter. Having come to an agreement, Stratasys announced the deal on May 25, and are now set to close the transaction in Q4 of 2023 subject to closing conditions and shareholder approval.

In the conversation below, Zeif [YZ] not only details Stratasys' strategy around metal additive manufacturing, but also addresses the possibility of divesting certain business units, the concerns of shareholders, and the latest Nano Dimension takeover offer.

YZ: So, it started more than a year ago, but particularly around RAPID [+ TCT] last year in Detroit. And we were discussing the synergies, but more importantly, where is the value to customers? I'm a big believer in value to customers. And I will say that the entire discussion was about how together we can deliver more value to our customers to give them more. And I think this is a unique combination, where the polymer on one side and the metal on the other side together deliver more value on the same software platform, for example, and the same go to market.

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But no less important is combining metal and polymer innovation and establishment processes, because we are complementary. One is bringing hardcore innovation from academia, from MIT, and the other is bringing established productisation processes, everything this industry needs. So, complementary offerings, but no less important, is take the customer perspective. And I heard from a customer, by the way, that he was so happy to hear that we are joining forces with Desktop Metal. He said to me, 'Yoav, it is strengthening my willingness to do business with Desktop Metal, because Stratasys is behind it now.'

So, take those three, it's all customer perspective: I have a common platform, I'm doing tools with polymers, but I'm now also doing tools with metal in the same platform. I need innovation, but I also need reliability and strong engineering. I need these unique, disruptive things, but I'm not willing to take the risk if there is not someone strong behind it that will be here for many, many years. This is the essence. Together, we bring more value.

YZ: So, metal was in my mind from the get-go, because we mapped the different segments in terms of profit pool and growth, and metal is there. It's 40% of the industry. But I decided not to go to metal three years ago, because we couldn't differentiate on metal. Our technologies were not mature enough and not differentiated enough. I said 'okay, if you cannot differentiate, let's park it.' And in my strategy, I said 'We will go into manufacturing, but we start with polymer.' That's what we have done. The first thing was returning to growth in PolyJet and FDM through new products. The second phase was about gaining again our leadership position in polymers and we did it through the new technology we acquired, which almost tripled our addressable market. And the last phase was, okay, we got to manufacturing, now we need to look at metal. We started looking at that more than a year ago.

The only real mass production technology in metal is binder jet. And the guys that know binder jet better than anyone else, in terms of the full workflow, including sintering and simulation, are Desktop Metal. That was more or less the decision process. By the way, it was not the same intensity all through the year. We started a discussion, and then there was something around end of last year/ beginning of this year, then there was time off when we were digesting the data and the technology, and then over the last month or so when we were running the due diligence, it became intensive again. But we are discussing, we are checking it, we are comparing it, our teams were there more than once. And, of course, we did the due diligence over everything because they have great technologies and materials there. Dental also has huge potential. But most of our focus was on the metal, and building the confidence that we can productise and we can make a business out of it.

YZ: This is the biggest thing that we are doing here. We are creating, for the first time, scale to deliver value, to shareholders, but also to customers. Because if you're a small company, it's very hard to deliver value to customers. In manufacturing, those customers want the full solution. You need to invest in the pre-processing, in the post-process, in the machine, in the material, in the software, and in the service. If you don't have the scale, that's very hard to do. So, scale is good for us. But it's only one thing.

The other thing that we are doing, which is probably no less important, is the ability really to develop mass production solutions. And mass production solutions is the metal binder jet and sand casting that they are bringing, the SAF that we have, and the combined DLP. This is all mass production. The second one is the level of innovation that we combine together. Look at the material portfolio that we have together. It's unheard of. Imagine what you can do in cross-leveraging formulations and IP of the materials. For example, we can use their material for our PolyJet and they can use our material for their DLP. Look at the printing synergy. They have technologies like binder jet and sand casting that are inkjet, and we have PolyJet, and everything is liquid resin that you're jetting. This is synergetic. Also, this is scale. And this scale has advantages both from a customer perspective, but also from a cost perspective. The front end and back end.

YZ: This is not connected to Desktop Metal. We, are, all the time, improving the quality of our business. You saw that we divested MakerBot for example. This is our role in life as the leaders of this company to make sure that we are putting in better businesses and divest what is not delivering or out of focus. Two things that are super important for us - and we are completely aligned with Desktop Metal leadership on this - are focus and discipline.

Focus and discipline will bring the synergies across the different technologies. Because unfortunately, as I've said for the last three years, there is no silver bullet in additive manufacturing. Different applications require different technologies, and each application requires a different workflow. However, there are some cross application factors that create synergy. Liquid resin is a synergy. We already have a centre of excellence for liquid resin in Israel. And it doesn't matter if you develop it for DLP or for PolyJet, or for SL, it's the same material, of course with some adjustments. Same goes with printing heads. The moment you control the whole system around the printhead, the electronics, the embedded, everything, you do it once. So, this is the trick, to find the synergies across the different technologies, on the technological side, both on the cost structure, on the material, definitely on the software, and definitely on the go to market.

YZ: So, they have a great solid revenue stream because EnvisionTEC invented DLP and ExOne is, today, the best metal binder jet. Those are solid businesses. But they have also major business today invented, innovated and developed by themselves. So, this is the nice thing here. It's a portfolio of businesses. You have dental, they have unique positioning with unique business model, you have ExOne, you have metal, you have sand casting. You have Adaptive3D, the innovation on the liquid resins, and you have also the future of high speed metal binder jet. In a portfolio, it's okay if some are more mature. But at the end, as the whole, it's a very strong business in the hands of Stratasys. Very strong business, we are very optimistic on the new technology, we made a deep dive into it. It's unbelievable what Stratasys can do.

YZ: Go to market is huge. Huge! You put the product of Desktop Metal in our channels, it's a home run. That's the number one. Number two is innovation. We have innovations there for the next ten years. The innovation of Desktop Metal with the processes and the ability to productise and make a business from technology is another slam dunk. Because we know how to create real products. We acquired three companies that had early-stage technology, we launched products from each and we now are between number one to number three in each one of those categories. And the third one is the access to best customers in the world that really want to take the additive manufacturing journey. And they wouldn't do it without Stratasys, with the confidence that we are bringing to the table.

YZ: I'm many years in business. In my experience, if everybody's happy with the deal, you didn't do a good deal. We did a good deal.

I know it can take time for the market to understand the benefits of the transaction. We did a good deal and look forward to continuing discussions with shareholders and working to complete the transaction.

YZ: We already went out with a full response of our board. You can read the details of why our board rejected the Nano Dimension offer. But in a nutshell, it significantly undervalued Stratasys, especially after the deal, big-time undervalues Stratasys.

The second thing is that there is a big question mark about the authority of the Nano Dimension board to really acquire and give an offer because they are in court now with their own shareholders. But there will be a hearing in July [to confirm] if they have the authority to offer. So, the partial tender offer could be a farce. It also requires approvals that could take another four to six months, so shareholders would not receive payment until the end of October. And suddenly the court could say 'hey, all this impact is an illusion, because practically they don't have the authority.

And last but not least, it's a partial tender offer where Nano is only seeking to own between 53% and 55% of stratasys. So, take aside the 15% that Nano has in the company, they need another 40%. If Nano is in control, remaining Stratasys shareholders would be in the minority, and their shares would have very limited value because there is an owner of the company who is controlling the company and who doesn't care about them. Put all of this together, including all the governance issues and the value destruction track record of the Nano management team and I can understand why my board rejected the tender offer unanimously.

Note: This interview has been edited for brevity and clarity, and was carried out before news of 3D Systems' proposal to acquire Stratasys.

by Sam Davies

2 June 2023

12:41