Critical Analysis: Desktop Metal’s SPAC Deal
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By now you’ve probably heard about the latest surprise in additive manufacturing startup companies going public. During what is clearly not the best of times for the metal additive industry, Desktop Metal has announced that it will become a publicly traded company through a reverse merger with special acquisitions company Trine. Supposedly, once the resulting company lists on the New York Stock Exchange under the ticker “DM” (for Desktop Metal), it will have post-transaction equity of up to $2.5 billion.
We haven’t seen a pureplay metal additive company as notable as Desktop Metal go public since SLM Solutions’ IPO in 2014 (unless you count GE Additive acquiring the previously privately held Concept Laser in 2016, which isn’t quite the same thing).
Regardless of the particulars of the deal or how inflated the estimated post transaction valuation might appear (more on that later), this is big news. In this article I present some views held by SmarTech Analysis, the leading AM-specific industry analyst and consulting group, about the impact this announcement will have and why the timing of the deal is especially important.
Desktop Metal Since 2017
Though the company officially began operations in 2015, it wasn’t until 2017 that most people really became aware of Desktop Metal, after it broke onto the scene during the major industry conference circuit that year showing its two primary technology platforms (Studio and Production) in early product form. Notably Desktop Metal keynoted the first day RAPID 2017 conference.
Back then metal additive manufacturing was just on the edge of a serious penetration into manufacturing applications in aerospace, expanding rapidly in orthopedics, and was beginning to be heavily explored in the automotive and oil and gas sectors. Desktop Metal almost single handedly pushed the metal additive manufacturing market forward in a number of ways even before it had ever even fielded a commercial product:
- When more manufacturers were developing internal additive manufacturing programs and capabilities with very high-end metal powder bed fusion systems, Desktop Metal created a different technological pathway to achieve a similar vision which held the promise of scale, but made the connection to an existing and mature metalworking universe of metal injection molding (MIM) and sintered metals.
- What distinctively set Desktop Metal apart and stoked the excitement (and yes, plenty of hype) was the company’s ability to get investors to give them money. Afterall, ExOne had been developing and producing metal parts in essentially the same way for a decade at this point, but with relatively little fanfare. If venture capitalist groups were willing to shell out tens of millions to a brand new startup, then surely they must have some technological secret sauce after all.
- Like it or not, Desktop Metal really managed to do for the metal AM industry what others to that point had not. This was to form a technology alternative in metal additive manufacturing which excited both prospective users and investors alike, creating critical mass financially around this area and draw in others to solidify its future. Sinter-based 3D printing is now here, and we have Desktop Metal to thank for it.
The Desktop’s CEO claims it has a plan to achieve $1B revenue in just five years. This is reminiscent of the 2017 Trumpf statement in which the group said it hoped to achieve $500M in revenues for its additive manufacturing business within five to seven years. SmarTech currently estimates that, almost three years later, Trumpf’s AM division will contribute about $70M in revenue this year to the company — and Trumpf should be considered one of the more successful stories in the metal AM industry.
What the Naysayers Say
If there’s one thing we should know from the history of additive manufacturing so far, it’s is that good things take time. While we like to think that we live in the digital age where things are changed overnight, manufacturing isn’t one of them. There is no feasible story for Desktop Metal to grow from $26M in revenue in 2020 to $1B in revenue by 2025 given the current commercial state of its products. SmarTech Vice President of Consulting, Joris Peels, puts it bluntly:
“This is an aggressive valuation when outlined against the current capabilities, technologies, growth, and installed base of the firm. At present, I don’t think that it is commensurate with revenues or the perceived quality of their offering. The firm has consistently overstated capabilities. It has also had significant issues with deploying its technology in the field.”
Detractors of Desktop Metal point especially to the company’s lengthy technological development process when juxtaposed against its aggressive marketing messaging. While the company’s Studio platform is now available internationally with a several hundred installations estimated by SmarTech, it took three years to get there.
- Meanwhile, in this same span of time, Desktop Metals Production platform is primarily active in the commercial sense only at one known flagship customer –IndoMIM. To be fair, if there is one customer one should focus one’s efforts on, its IndoMIM; the self-proclaimed largest producer of metal injection molding parts in the world.
- The naysayers aren’t entirely wrong when they say that, while Desktop Metal has been hugely successful in fundraising, it still managed to only generate $26M in revenue in 2019, about two years after it officially unveiled its core offering. That is a paltry amount of revenue when measured against both the amount of funding the company has raised over that time as well as its post-acquisition equity valuation.
But that doesn’t mean that Desktop Metal do not have a strong position to leverage in a fast growing subsegment of the metal AM market. Below we explain why even though Desktop Metal’s performance to date hasn’t matched the level of enthusiasm with which investors have opened their checkbooks, the company might just become a real leader in more significant terms in the coming years as a public company.
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