AMS Spring 2023

Do SPACs Reflect the Performance of the 3D Printing Industry?

Inkbit

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In recent years, the use of Special Purpose Acquisition Companies (SPACs) as a way for companies to go public has seen a significant increase, leading to a so-called “SPAC craze” in the financial markets.

SPACs (also referred to as “”blank check” firms) are essentially shell companies created specifically to raise funds through a public offering with the purpose of acquiring a private business. The private company then becomes public through the merger, without going through the traditional initial public offering (IPO) process.

Some companies and investors have been drawn to SPACs due to their perceived simplicity and speed. However, that “simplicity,” which also consists of less scrutiny than a traditional IPO, has raised concerns about the potential for overvaluation and significant risks for investors. In fact, many argue that the SPAC craze was fueled by hype and speculation, rather than solid fundamentals, and that investors have been taking on unnecessary risks by investing in SPACs.

3D Printing SPACs

3D printing firms also participated in this “craze” with Desktop Metal, Markforged, Shapeways, Velo3D and Fast Radius going public this way in the last couple of years. All five went public with high expectations and high valuations, only to see those valuations evaporate in record-time.

The most extreme case is probably Fast Radius, filing for bankruptcy less than a year from the SPAC and then selling in December 2022 for just $15.9 million. This represents roughly one percent of its peak value. In other words, if you invested in Fast Radius after the SPAC, you would have seen about 99 percent of your investment evaporate in less than a year. In fact, the “best” performer of these five firms is Velo3D, which declined by about 77 percent since the SPAC (and more than 90 percent from its peak).

3D Printing SPACs vs the AM Market

So, is this under-performance attributable only to the “SPAC craze” or is this a broader issue with 3D printing? The answer is unfortunately the latter. As is visible below, the stocks of Stratasys and 3D Systems, the market “incumbents,” have also suffered from under-performance when compared to the larger market.

That said, we should be careful not to throw the baby out with the bathwater regarding 3D printing investments. There are many opportunities in the space, fueled by companies needing now, more than ever, the flexibility and agility offered by 3D printing.

Supply chain resiliency and sustainability are “mega trends” drawing significant investments, and for those additive manufacturing (AM) companies that can weather the storm – and deliver true value to customers – we believe there is an opportunity to deliver above-market returns.

But first, companies must weather the market storm, and, for that, cash is king. For the SPAC’d businesses specifically, controlling cash flows is absolutely critical, as they are all far from profitability and raising additional funds in this climate is very difficult. Indeed, most of these firms have recently taken aggressive cost-cutting measures and, when seeing their current cash reserves to burn below, we can expect more to come.

Company Cash* CF from Operations** Enterprise Value EV/Sales
Markforged $182m -$72m $99m 1.0X
Shapeways $47m -$21m -$18m NM
Desktop Metal $217m -$196m $348m 1.7X
Velo3D $113m -$117m $235m 3.8X

* Cash = cash and short-term investments per the last available Balance Sheet; ** CF from Operations per the last available Cash Flow report.

To summarize, in the 3D printing industry, we are likely to see more cuts in the short term across the board. However, given 3D printing’s suitability to some market “mega-trends,” it is this author’s view that certain technologies and companies will flourish in the mid-term and potentially deliver above-market returns to investors.

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