It is still unclear how the latest M&A saga in the Additive Manufacturing industry will end, but we can rest assure consolidations will continue, and will define how the industry will evolve in the coming years.
According to most studies, between 70 and 90 percent of mergers and acquisitions fail. What can we learn from past mergers, and how can we estimate success or failure? Let us examine two famous mergers and try to understand what made the first one a huge failure, and the second one a great success.
A Failed Merger - Daimler-Benz and Chrysler
The Daimler-Benz and Chrysler merger, which was officially completed in 1998, eventually failed due to a combination of cultural clashes, management differences, and strategic challenges. Here are three key reasons behind the failure of the merger:
Cultural Differences: Daimler-Benz, a German company with a long-standing history and tradition, had a different corporate culture compared to Chrysler, an American company known for its more informal and entrepreneurial culture. The clash of these two distinct organizational cultures made it difficult to integrate operations and foster collaboration between the two companies.
Management Issues: The merger brought together two companies with different management styles and decision-making processes. The German management tended to be hierarchical and focused on long-term planning, while the American management was more decentralized and inclined to make quicker decisions. This led to conflicts and inefficiencies in the combined company's decision-making process.
Integration Challenges: Merging two large automotive companies with diverse product lines, technologies, and supply chains is inherently complex. The integration process faced difficulties in streamlining operations and achieving synergies. Disruptions in production and supply chain issues also affected the overall performance of the merged entity.
Due to these various factors, DaimlerChrysler experienced a tumultuous time, and in 2007, Daimler decided to sell Chrysler to Cerberus Capital Management, effectively ending the merger. Afterward, Chrysler went through bankruptcy proceedings in 2009 and later formed a partnership with Fiat, which ultimately led to Fiat Chrysler Automobiles (FCA) before the company merged with Peugeot S.A. to create Stellantis in 2021.
A Successful Acquisition - Facebook and Instagram
Facebook’s acquisition of Instagram in 2012 was a $1 billion deal. As of last year, this acquisition added $153 billion to Facebook’s market cap while it generates around $20 billion as revenue from Instagram alone. This merger can be considered a success for three main reasons:
Complementary Features: Facebook and Instagram were both successful social media platforms, but they catered to different user preferences and demographics. Facebook primarily focused on connecting with friends and family, while Instagram was cantered around photo and video sharing with a younger audience. By merging, the two platforms complemented each other's features and expanded their user bases, appealing to a broader audience.
Strategic Vision: Facebook's acquisition of Instagram in 2012 was driven by a strategic vision to consolidate its position in the social media market. By acquiring a fast-growing and innovative platform like Instagram, Facebook secured its dominance in the industry, preventing potential competition from emerging and solidifying its leadership.
Monetization Opportunities: The merger provided Facebook with new monetization opportunities. Instagram's visually engaging platform attracted brands and advertisers looking to reach a younger, more visually-oriented audience. Facebook integrated its advertising capabilities into Instagram, expanding its advertising revenue streams.
Overall, the success of the Facebook and Instagram merger can be attributed to the strategic alignment of both companies, the complementary nature of their services, the pooling of resources and talent, and the ability to capitalize on emerging trends in social media and mobile technology. The merger resulted in a more formidable social media powerhouse, solidifying Facebook's position as a dominant player in the industry.
What The 3D Printing Industry Can Learn?
It will be pretentious to assume that these reasons for failure and success can apply in the 3D printing industry. Different industries, different times, and different circumstances. Most likely, it will be a mix these reasons and others as well.
These days, Stratasys is examining two merger options - with 3D Systems or with Desktop Metal.
The merger with 3D Systems aims to create 2 billion USD company. Such a merger will make sense if in 3-5 years it will be a profitable company with a market cap of minimum 5-7 billion USD. In its latest press release, 3D Systems suggested the following key benefits from such a merger:
Scale drives leadership
Complementary technology portfolio
100 million USD in cost savings
Industry leading financial profile
Meaningful growth opportunities from regenerative medicine
We can assume the short-term goal of cost saving is double and achievable within 12-18 months. However, the other goals will be a totally different story. I believe there are two main challenges ahead:
The combined portfolio will be huge and full with overlaps. Tough decisions will have to be made to create a thinner product offering. Discontinuing more than several products will be a essential, after investing millions of dollars in developing/buying them. If the product portfolio will be too wide and will not focus on specific industries/segments, it will be hard to achieve growth.
The combined channel structure will be problematic. Most of the revenue of both companies comes from their channel partners. It will take a very smart and delicate touch to create a new structure that will support the growth of their reselling business. Without a convinced and aligned global channel network, the revenue will not increase, and might even drop.
The other option for Stratasys is keeping the merger agreement with Desktop Metal. In this case, the synergy between the two companies is much higher:
The combined portfolio will be complimentary. As of today, Stratasys is focused on polymers and has no metal technologies. Besides the overlap between Origin and ETEC, the combined portfolio will offer solutions that will be able to target a wider spectrum of industries and applications.
The combined channel structure will make total sense. About five years ago, both companies entered a strategic agreement allowing Stratasys channel partners to resell Desktop Metal's products. Even though the agreement has been terminated in 2021 due to the acquisition of ETEC by Desktop Metal, minimal time will be required for Stratasys sales partners to add Desktop Metal’s products back to their portfolio.
Bottom line - a merger between Stratasys & Desktop Metal makes more sense than a merger between Stratasys with 3D Systems.