| 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 (in $M): | 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.
â— 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.
â— 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/
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/
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.
Trumpf – German 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
Trumpf and Siemens partner to bring metal 3D printing into production
Breakthrough with 3D printed Gas Turbine Blades
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.
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
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
Patented paper 3D printing technology using paper, CMYK ink, and water-based adhesive, to produce full colour 3D models.
Industry End Markets
Source: 5/21/15 Berenberg
Source: 5/21/15 Berenberg
Mentioned Press Buyers
1 China’s Shanghai Electric Group – Potential
Shanghai Electric Group Co.,Ltd.is one of the largest mechanical and electrical equipment manufactory enterprises in China.
http://www.cccme.org.cn/shop/cccme0639/index.aspx
Greatest risk of a buyer for SLM.
2 Applied Materials (AMAT) – Unlikely
No mention of the company historically using 3D printing, doesn’t make sense given AMAT’s focus on semiconductor wafer fabrication equipment.
3United Technologies - Unlikely
Subsidiary Pratt & Whitney built what’s known as a “borescope boss” for their PurePower PW1100G-JM engine using selective laser melting, or SLM. PurePower PW1100G-JM are used by Bombardier.
https://3dprint.com/55492/pratt-whitney-jet-engine-parts/
The company already has in-house Metal Injection Molding, Electron Beam Melt and Laser Powder Bed Fusion (including Direct Metal Laser Sintering) will all be used in some capacity in producing the PurePower engine, though mostly likely UTX uses external machines.
The Pratt & Whitney Additive Manufacturing Innovation Center works with metal powder bed technologies.
http://www.assemblymag.com/articles/93176-additive-manufacturing-takes-off-in-aerospace-industry
According to Pratt & Whitney, the company has saved 15 months in lead time compared to conventional manufacturing processes, and reduced the weight in a single part by up to 50%.
Transactions
GE Bids
9/6/16 – GE to buy Arcam AB (ARCM SS Equity) and SLM Solutions Group AG (AM3D GY Equity)
SLM Solutions Group AG (AM3D GY Equity)
Offer: E38/sh
Implied EV: E672.6MM
2016 Sales: E80.71MM
2015 Sales: E66.14MM
2016 GP: E42.2MM
2015 GP: E36.4MM
EV/2016 Sales: 8.3x
EV/2015 Sales: 10.2x
EV/2016 GP: 16.3x
EV/2015 GP: 18.5x
Arcam AB (ARCM SS Equity)
http://www.arcamgroup.com/investor-relations/2871-2/
Initial Offer (9/6/16): SEK 285/sh
Revised Offer (10/27/16): SEK 300/sh
Revised Implied EV: SEK 5,912MM ($672.5MM)
2016 Sales: SEK 648.3MM
2015 Sales: SEK 576.1MM
2016 GP: SEK 192.4MM
2015 GP: SEK 192.3MM
EV/2016 Sales: 9.1x (8.6x initial)
EV/2015 Sales: 10.3x (9.7x initial)
EV/2016 GP: 30.73x
EV/2015 GP: 30.74x
Concept Laser Gmbh (Private, only older financials available)
75% Investment: E549MM ($599MM)
Implied EV: E732MM ($799MM)
2015 Sales: E68.36MM
2014 Sales: E43.84MM
2015 GP: E33.72MM
2014 GP: E21.43MM
EV/ 2015 Sales: 10.7x
EV/ 2014 Sales: 16.7x
EV/ 2015 GP: 21.7x
EV/ 2014 GP: 34.1x
Implied Valuation from GE’s 2 Deals
On Arcam’s 9.1x Q1’17 LTM revenue multiple, SLM would be E42.53.
On Concept’s 2015 deal metrics (Concept is private and their 2016 numbers haven’t been released), SLM is an E39.21 to E43.09.
How SLM compares to Arcam and Concept
SLM Arcam Concept
2012 Mkt Share 10% 11% 20%
Technology PBF EBM PBF
Industry Focus Energy/Aero/Auto Ortho/Aerospace Jewelry / Healthcare / Auto
Appendix
9/6/16 (Press Release) SLM Approves Merger With GE Aviation
September 6, 2016 – Globally leading aircraft engine manufacturer GE Aviation today announced its decision to launch a voluntary public takeover offer for all outstanding shares of SLM Solutions Group AG. GE Aviation is part of the General Electric Group, USA. GE Germany Holdings AG, an indirect wholly-owned subsidiary of GE Aviation, will conduct the offer. GE Aviation is offering shareholders EUR 38.00 in cash per share. Subject to a review of the offer document and on the basis of a Business Combination Agreement concluded yesterday, SLM Solutions' Executive and Supervisory boards intend to support the envisaged takeover offer.
9/26/16 Offer Document
10/5/16 (Press Release) SLM Unanimous Recommendation in favor of GE Germany’s Takeover
The offer price of EUR 38.00 per share includes a premium of around 37% on the last XETRA closing price prior to the announcement of the takeover bid, as well as of more than 50% on the volume-weighted three and six-month average share price prior to the announcement of the takeover bid. The offer is significantly above the share price targets which were released by various analysts a short time before the intended takeover was announced.
10/14/16 (Reuters) Activist investor Elliott increases stake in GE target SLM to 20 pct
http://uk.reuters.com/article/slm-solutions-ma-ge-idUKL8N1CK1MP
Says activist investor Elliott has increased its stake in the 3D printer manufacturer to 20 percent from 16 percent.
Says increase in holding effective Oct. 11.
Regulatory releases show Elliott started building a stake in SLM shortly after General Electric announced plans to buy the company on Sept. 6.
GE's offer runs to Oct. 24 and is conditional upon a 75 percent acceptance rate.
Shares in SLM stand at about 41 euros, well above GE's 38-euro-per-share offer.
10/20/16 (DGAP-Media) Elliott announces its intention to reject GE's tender offer for SLM Solutions
London/Frankfurt am Main, (October 20th 2016) - Elliott Associates, L.P. and Elliott International, L.P. together with affiliated entities ("Elliott"), which together own over 20% of SLM Solutions Group AG ("SLM") shares, announced today that Elliott intends to reject GE Germany Holdings AG's ("GE") current tender offer for the outstanding shares of SLM. Elliott released the following statement regarding its decision:
Elliott believes that GE's offer is not in the best interests of SLM shareholders. As a result, we will reject GE Germany Holdings AG's tender offer for the outstanding shares of SLM on its current terms.
10/27/16 (Press Release) Takeover by GE Germany Lapses
Minimum acceptance ratio of 75% of SLM shares outstanding not reached
Management and Supervisory boards of SLM Solutions Group had backed takeover attempt
11/18/16 (Reuters) Elliott to raise stake in 3D printer maker SLM Solutions
http://www.reuters.com/article/slm-solutions-ma-idUSL8N1DJ183?type=companyNews
1/23/17 (Reuters / News Stories) SLM Solutions CEO Markus Rechlin leaves abruptly
https://exechange.com/slm-solutions-ceo-markus-rechlin-leaves-abruptly-2/6847
http://www.reuters.com/article/us-slm-solutions-moves-idUSKBN1572D0
German 3D printer maker SLM Solutions removed Markus Rechlin from his position as chief executive officer and management board member with immediate effect, it said on Monday. Uwe Boegershausen, the company's chief financial officer, will take over the CEO's responsibilities until further notice, SLM said in a brief statement. He was working for SLM Solutions since 2013 and his contract expired in June 2018.
SLM is chaired by Hans-Joachim Ihde. He has been SLM Solutions Group AG’s Chairman of the Supervisory Board since 2014. His mandate expires at the time of the Annual General Meeting which resolves on the fiscal year 2018.
https://slm-solutions.com/investor-relations/company/supervisory-board
Lazard / Other Buyers
4/24/17 (Bloomberg) SLM Said to Tap Lazard to Explore Options After Failed GE Bid
SLM Solutions AG has hired Lazard Ltd. to help it explore strategic options six months after General Electric Co. withdrew a EU680 million-euro offer for the 3-D printing company, according to people familiar with the matter.
The review could lead to the sale of a stake in the Luebeck, Germany-based company or even a complete takeover, said the people, asking not to be identified because the talks are private
“We’ve hired Lazard to advise us on how to best deal with the new situation following the failed transaction with General Electric,” Uwe Boegershausen, SLM’s chief finance officer and interim CEO, told Bloomberg News on Monday
Possible suitors include family offices, large companies like China’s Shanghai Electric Group or Applied Materials and United Technologies, people say
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
Weak Q2'17 results
Reduced 2017 guidance
M&A process failure
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