CORE Offers to Buy 3D Printing Service Fathom Amid Economic Downturn

Fathom Digital Manufacturing Corp. (NYSE: FATH), a player in the on-demand digital manufacturing sector, received a non-binding acquisition proposal from CORE Industrial Partners, a Chicago-based private equity firm that played a role in the company’s consolidation and public listing efforts. This offer, valuing Fathom’s shares at $4.50 each, signifies a potential shift in the company’s ownership structure, given that CORE Funds already possess about 63% of Fathom’s voting power.

The proposal’s evaluation rests with Fathom’s Special Committee, consisting of Adam DeWitt, David Fisher, and Peter Leemputte, tasked with considering this offer alongside other potential strategies or proposals. No definite timeline for decision-making has been set, and there’s no guarantee of a definitive agreement or transaction fruition.

CORE’s History with FATHOM

CORE acquired FATHOM on September 26, 2019, via CORE’s portfolio company Midwest Composite Technologies. The result was one of the largest global independent AM service providers with over 80 3D printing machines. The resulting entity soon executed a series of acquisitions of other machine and 3D printing shops around North America.

In 2021, Fathom announced its plans to go public through a merger with special purpose acquisition company (SPAC) Altimar Acquisition Corp. II, a deal valued at $1.5 billion and expected to raise around $80 million through a Private Investment in Public Equity (PIPE) at $10.00 per share. Fathom’s shares experienced fluctuations post-listing, starting from a high of $10.53 and then stabilizing at around $7.

As one of the last 3D printing companies to join the trend of SPAC mergers in 2021, Fathom may have benefitted the least from the public markets. In 2022, the company experienced financial challenges, with a third-quarter revenue decrease of 3.1% to $40.2 million and a substantial net loss of $(1,046.1) million, including a significant non-cash goodwill impairment. Despite this, year-to-date revenue increased by 13.8% to $122.7 million, driven by acquisitions and growth in strategic accounts.

This led, in October 2023, to Fathom’s appointment of a new CEO, Carey Chen. Chen has been an operating advisor with CORE since 2017 and has led such manufacturing companies as Cincinnati Incorporated, known for its big area AM 3D printers. It is expected that he will be involved in righting the ship.

Private Equity in 3D Printing Services

CORE’s proposal fits into a larger context of private equity’s evolving role in the 3D printing industry. Private equity firms like CORE have increasingly influenced this sector, often employing strategies like roll-ups, where they consolidate smaller firms to create more competitive and resourceful entities.

This trend towards consolidation is driven partly by the current economic climate, which has heightened the attractiveness of 3D printing technologies for private equity due to their potential for innovation and profitability. The move by CORE to acquire Fathom aligns with this broader pattern of strategic acquisitions and consolidation in the industry.

Interestingly, Fathom is not CORE’s only service bureau play, which also includes UPTIVE. Whereas Fathom was taken public, UPTIVE has remained private, perhaps suggesting that the private equity firm has been experimenting with a variety of strategies in the digital manufacturing space. In addition to these two service bureaus, CORE has also backed 3DXTECH, a manufacturer of 3D printers and materials.

In this case, timing may not have been on Fathom’s side in terms of going public. Now, CORE has the opportunity to privatize this arm of its AM investments and try something new, perhaps even consolidating it with UPTIVE. Now might be a perfect chance to do so, as the U.S. service industry is not yet at its peak and competitors, such as ADDMAN and Cumberland Additive, are beginning to build up their own operations.