SLM Solutions Group AG AM3D S
May 26, 2017 - 11:23am EST by
Akritai
2017 2018
Price: 38.81 EPS .393 .854
Shares Out. (in M): 18 P/E 98.75 45.44
Market Cap (in $M): 780 P/FCF 0 0
Net Debt (in $M): -20 EBIT 10 20
TEV ($): 767 TEV/EBIT 70 34
Borrow Cost: Tight 15-50% cost

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  • Potential Takeover Target
  • Elliott Management
  • Failed Acquisition
  • M&A (Mergers & Acquisitions)
  • M&A Process

Description

Company Summary

SLM Solutions Group AG provides 3-D printing technology. The Company supplies metal-based additive manufacturing technologies for use by the aerospace, energy, automotive and healthcare industries. SLM Solutions offers its products and services around the world.

 

Situation Overview / Idea Source

 

GE bid E38/share (9/6/16), Elliott took a 20% stake post-bid & wanted a bump from GE.  GE needed 75% for approval, given Elliott’s stake, GE let the deal expire and walked (10/27/16).  GE subsequently bought private peer Concept Laser instead of SLM, GE also bought public Arcam (which has a different 3D printing technology).

 

Pre-GE bid, SLM traded at E27.87 (9/5/16), the stock got as high as E43.19 post GE’s bid (9/14/16) on hopes of a bump due to Elliott’s participation. Once GE walked, the stock traded down to E29.54 (10/28/16).

 

Recently the company left their local German advisor (Networking Corporate Finance GmbH) and hired Lazard (via Bloomberg 4/24/17). Channel checks indicate there is not a real process, Lazard was hired to satisfy the board and handle all incoming calls, and indications are Lazard is NOT actively shopping SLM.  

 

Currently, shares of SLM at trading above the GE bid (E38.80) on hope that a new deal for the company will occur. Press reports include China’s Shanghai Electric Group, Applied Materials and United Technologies as suitors with a notifications of interest to be submitted in May.

 

In the interim, the company’s financials have deteriorated: Q1’17 sales grew 15.7% y/y compared to Q1’16 which grew 62.7%, new orders were disappointing, Concept Laser (now owned by GE) has become more aggressive on pricing and SLM potential customers are holding back on orders given potential SLM’s M&A (customers don’t want to order an expensive SLM equipment only to have SLM acquired by an competitor). Financials are likely to continue to suffer, making a below GE bid more likely if any bid occurs.

 

Trade

This is all setting up to be an interesting short from a risk reward point of view.

 

Downside is E4 (i.e. a trade closer to GE’s valuation for the Arcam deal, at 9.1x revenue), upside is E9 to E11 (where the GE bid broke and pre-GE bid price, or 4.25x – 4.5 est 2017 revenue).

 

A 2.25x to 2.75x upside downside ratio.

 

Risk

Borrowing liquidity is a concern as the float is thin.

 

GE’s bid for SLM (8.2x ’16 revenue) was below the Arcam bid (9.1x) on a valuation basis, there is a risk that another company buys SLM at the Arcam bid, implying downside of E4. However, Arcam is a different technology and the only major player in that particular technology. In addition, channel checks suggest SLM was the second choice for GE. GE initially wanted EOS but the company as not a seller.  GE ended up buying private Concept Laser as its third choice.

 

Company Details

Based in Germany, SLM operates in the metal 3D printing market, focusing on the offer of machines. In addition, it also offers related services as well as consumables (metal powders) used in the manufacturing process. SLM Solutions is a German-based leading player in the global metal additive manufacturing industry (commonly known as “3D metal printing”). It produces metal casting and 3D printing systems and provides related services. The necessary parts and sub-assemblies are purchased from third-party suppliers and then assembled at its German site.

 

 

 

 

 

 

Customers (via 2015 Annual Rpt Deck)

 

Other Customers (Via Bloomberg)

AirBus

Siemens AG

 

 

Segments

 

 

New segment broken out as of Q1’15.

 

● Machine Sales

Sales of machines (systems), along with potential accessories. The machines are assembled in Lübeck, Germany. The metal-based 3D machines of SLM use the selective laser melting technology.

 

● After Sales

This segment offers consumables (merchandise; materials and powders such as titanium, aluminium or inconel that clients use in the manufacturing process). In addition, it also sells spare parts and services under this segment. Relevant services include inspections and maintenance of machines.

 

Industry Overview

3D Metal Printing (Most Popular Categories, not ALL categories)

Source: 3/21/15 Berenberg

 

1 Power Bed Fusion (PBF)

Powder bed fusion (PBF) methods use either a laser or electron beam to melt and fuse material powder together.

 

1A Selective Laser Melting

Requires the use of an inert gas, uses either a roller or a blade to spread new layers of powder over previous layers. When a blade is sed, it is often vibrated to encourage a more even distribution of powder. A hopper or a reservoir below or aside the bed provides a fresh material supply.

 

One of the key advantages of this process is that the powder bed serves as an in-process support structure for overhangs and undercuts, and, therefore, complex shapes with high geometrical accuracy of +/- 0.05 mm can be manufactured with this type of process which separates this AM technology from the others.

 

However, on the downside, porosity has been an historical issue with this process, and while there have been improvements towards fully dense parts, some applications still necessitate Hot Isostatic Pressing (HIP) or infiltration with another material to improve mechanical characteristics. Also, the cost of the inert gas required for the process, and the time to reach satisfactory processing conditions (oxygen content, gas purity, etc.), raise concerns.

 

Conclusion – Very accurate, less dense, gas costs may be expensive.

 

1B Electron Beam Melting (EBM)

Layers are fused using an electron beam to melt metal powders. EBM provides models with very good strength properties due to an even temperature distribution of during fusion. The high quality and finish that the process allows for makes it suited to the manufacture of high standard parts used in aeroplanes and medical applications.

 

Currently, electron beam melting can only be used with a limited number of metals. Titanium alloys are the main starting material for this process, although cobalt chrome can also be used. The technique is used primarily to manufacture parts for the aerospace industry.

 

Conclusion – Denser, smaller, cheaper, limited metals to print.

 

SLM vs EBM

Electron beam melting (EBM) is an additive manufacturing process that is very similar to selective laser melting. Like SLM, it produces models that are very dense. The difference between the two techniques is that EBM uses an electron beam rather than a laser to melt the metal powder. The key difference is the heat source, which is an electron beam, rather than a laser, and necessitates that the procedure is carried out under vacuum conditions. As such, the fabricated component size is limited to the bed size, which restricts its application to relatively small components

 

The EBM process has been “labeled” slow and expensive, when compared to SLS/SLM, however, it has the capability of creating fully-dense parts in a variety of metal alloy applications. It has been particularly effective in the medical industry for creating implants.

 

Key Links

http://www.lboro.ac.uk/research/amrg/about/the7categoriesofadditivemanufacturing/powderbedfusion/

 

http://additivemanufacturing.com/2015/10/14/electron-beam-additive-manufacturing-ebam-advantages-of-wire-am-vs-powder-am/

 

2 Directed Energy Deposition (DEP)

Directed Energy Deposition (DED) covers a range of terminology: ‘Laser engineered net shaping, directed light fabrication, direct metal deposition, 3D laser cladding’ It is a complex printing process commonly used to repair or add additional material to existing components

 

2A Binder Jetting

The binder jetting process uses two materials; a powder based material and a binder. The binder is usually in liquid form and the build material in powder form. A print head moves horizontally along the x and y axes of the machine and deposits alternating layers of the build material and the binding material.

 

2B Sheet Lamination

Sheet lamination processes include ultrasonic additive manufacturing (UAM) and laminated object manufacturing (LOM). The Ultrasonic Additive Manufacturing process uses sheets or ribbons of metal, which are bound together using ultrasonic welding.

 

Key Links

http://www.lboro.ac.uk/research/amrg/about/the7categoriesofadditivemanufacturing/directedenergydeposition/

http://www.lboro.ac.uk/research/amrg/about/the7categoriesofadditivemanufacturing/

 

 

Market Share (As of 2012)

Above 10%+

Concept Laser – GE, concept Laser focuses on the production of comparatively small and cheaper

machines for the production of jewelry, the healthcare and automotive sector.

 

Arcam – GE, focusses on the orthopedic and aerospace market.

 

SLM Solutions – GE bid and failed

 

EOS – Founded in 1989 by Dr. Hans Langer (CEO), private, family owned. EOS owns 20 companies. Founder is adamant about not selling, regarded as the best of breed 3D metal printer.

 

Optomec – Private (Bloomberg reports 2012 revenue at $8.01MM), HQ in New Mexico, has a China focus.

 

Below 10%

Realizer – Private, started by Dr. Matthias Fockele and Dr. Dieter Schwarze.  DMG Mori bought a 50.1% stake in 2/15/17.

 

TrumpfGerman private company, E2.8bn in sales for 2016, E2.5bn of which is machine tools for sheet metal / tube processing.  

 

Trumpf / Siemens partnership – started late 2016  - Makes Trumpf less likely a SLM buyer

Trumpf partner with Siemens as 3D printing continues on industrialization path

https://3dprintingindustry.com/news/trumpf-partner-siemens-3d-printing-continues-industrialization-path-103436/

 

Trumpf and Siemens partner to bring metal 3D printing into production

https://www.lasersystemseurope.com/news/trumpf-and-siemens-partner-bring-metal-3d-printing-production

 

Breakthrough with 3D printed Gas Turbine Blades

https://www.siemens.com/innovation/en/home/pictures-of-the-future/industry-and-automation/additive-manufacturing-3d-printed-gas-turbine-blades.html

 

Siemens has achieved a breakthrough in the 3D printing of gas turbine blades. For the first time, a team of experts has full-load tested gas turbine blades that were entirely produced using additive manufacturing.

https://www.energy.siemens.com/us/en/services/industrial-applications/additive-manufacturing.htm

https://www.youtube.com/watch?v=8vtLtu4ZYsQ

 

Reinshaw / MTT – Reinshaw (RSW LN, $3bn EV, $650MM revenue) designs, develops, manufactures and sells high technology precision measuring and calibration equipment.  Entered space via acq of private MTT in 2011.

 

Phenix Systems – French public company (ALPHX FP), acquired by 3D Systems Corp (DDD) on 12/22/16.

 

Others

Direct Energy Deposition ONLY

Trumpf – discussed above – partnership with Siemens

 

Optomec – Private – Too small

Production lines in China

$8.0MM in revenue in 2012 (via Bloomberg)

 

https://www.optomec.com/3d-printed-metals/lens-printers/

 

DMG MORI SEIKI – Just bought a stake in a small 3D Printer – Not likely to buy SLM

https://en.wikipedia.org/wiki/DMG_Mori_Aktiengesellschaft

 

2014 Revenue E2.2Bn

German/Japanese firm

The DMG MORI group is one of the largest manufacturers of metal cutting machines and a leading global manufacturer of CNC-controlled Turning centres and Milling machines.

 

Products of DMG MORI include innovative high-tech CNC machines like lathes, milling machines, advanced technologies (ULTRASONIC / LASERTEC) as well as Software Solutions and Systems. Industrial services include a wide range of services in relation to the whole machine lifetime, used machines, accessories and energy solutions.

 

Released last year, DMG Mori’s Lasertec 65 3D, uses two interchangeable heads to print then perfect metal parts. The first head makes 3D shapes by shooting metal dust onto a print surface and liquifying it with a laser. The machine then switches midstream to a 5-axis mill bit to smooth and perfect the part.

https://singularityhub.com/2015/02/25/one-machine-to-rule-them-all-3d-printing-with-german-precision/

 

2/15/17 DMG MORI acquires majority share in additive manufacturing firm REALIZER

http://www.tctmagazine.com/3D-printing-news/dmg-mori-50-shares-additive-manufacturing-realizer/

Machine tool manufacturer, DMG MORI is strengthening its position in the additive manufacturing industry with a 50.1% acquisition of the shares in German AM leader, REALIZER

 

ExOne – EV $206.5MM, top line $50MM LTM – Too small / Diff Tech

Overview

The ExOne Company (ExOne) was founded in 2005 as a spin-off of Extrude Hone Corporation, a global supplier and developer of precision nontraditional machining processes and automated systems for more than 50 years. Three-dimensional printing emerged as the core technology for The ExOne Company, which currently supplies services, systems and solutions for manufacturing in the digital age, including three-dimensional printing in industrial grade materials such as sand and metals.

http://www.exone.com/Services/3D-Printing-Services

 

3D sand printer

https://techcrunch.com/2014/09/25/3d-printing-with-sand-using-the-power-of-the-sun/

 

Voxeljet – Too Small, EV of E91.1MM, Top line E22MM

http://www.voxeljet.com/

voxeljet is a leading manufacturer of 3D printing systems for industrial applications and is specialized on Powder-Binder-Jetting of plastic and sand.

 

Mcor Technologies – Private – Different Technology

http://mcortechnologies.com/

 

Patented paper 3D printing technology using paper, CMYK ink, and water-based adhesive, to produce full colour 3D models.

 

 

Industry End Markets