3D printing: Who’s investing now and what’s coming next

Printing has come a long way since Gutenberg and the first printing press in 1439. The printing industry has evolved from the golden age of printing blocks to modern 2D printers capable of mass-producing documents in minutes. We have seen these devices become an integral part of our lives, but today’s technology is taking them even further for the everyday consumer. What once seemed like science fiction is now a reality, with 3D printers creating anything from mechanical parts to prosthetics.

The 3D industry itself is not new. A few companies, such as 3D Systems and Stratasys, have been around for decades, and hundreds more have emerged since then.

However, it has taken over 20 years for the industry to gain traction and attract real interest from investors. Historically, this could be attributed to the fact that, in the beginning, there were only a handful of companies worth mentioning. From 2011 to the present day, though, 3D printing companies have raised close to $4 billion in public offerings vs. $300 million raised in the 23 years from 1987 to 2010. There is a clear correlation between the recent increase in interest by public investors, who have become laser-focused on the 3D printing sector, and the number of companies formed and acquired.

The deals: Tapping into the market

If current trends are indicative of the 3D printing industries’ prospects, then the industry is positioned to thrive. Based on disclosed deals only, the number of M&A deals has been accelerating, with 2014 activity being greater than any year since 2009. More than that, according to our data, deal sizes have increased with four out of every five significant deals (defined as having a value above $100 million) closing in 2012 or later.

In addition to robust M&A activity, the validating factor of big companies buying into the market is also boosting momentum. One such company is General Electric, which plans to introduce the first 3D printed parts in an aircraft engine platform by 2016. Perhaps the most significant validation of 3D printing’s commercial viability occurred when HP recently announced its first proprietary 3D printer due out in 2016.

Given its access to cash and capital, it isn’t surprising that the vast majority of acquisitions in the sector (around 70%) have been by 3D Systems. This doesn’t mean that 3D Systems is the only company in on the game. It is highly likely that incumbent companies are making deals that aren’t being publicized. Currently, M&A buying is highest among the service bureaus, but sectors such as software, industrial, medical and many more companies are buying into 3D printing as well. Aerospace companies, such as Boeing and Lockheed, are a definite must-watch as they are big users of 3D printing technology and will likely look to acquire more of the market. Greater diversity within the market means more value within the industry.

The financing: Filling the gap

Often the first question asked in any financing situation is “How much?” In 3D printing, the number isn’t nearly as interesting as how they are paying. Contrary to the public markets, in 2014, my firm, Mooreland Partners assessed the market landscape and found the number of active private investors (such as VCs and PE funds) to be negligible. The calculated methods of private investors don’t allow for hardware companies that are often perceived to be capital-heavy.

Strategic investors also currently consider 3D printing to be “non-investable” due to the long lead time for business development. Size plays an important role, too. 3D printing companies just don’t have the revenue or EBITDA necessary to fit the threshold requirements.

Of the eight major investors in 3D printing, only one — RRE Ventures — has made more than two investments. So from where is the money coming? In this case, crowdfunding is filling the gap. Kickstarter, Indiegogo and the like have allowed companies to get their business started without outside capital and jumpstart their business. It’s a welcome innovation that many companies have turned into a de-risking mechanism before raising institutional capital.

This is what our client, FSL3D, did before raising a growth equity investment in November 2014. Still, most companies are bootstrapped, and the growth of the sector over the last 25 years sans outside capital certainly proves its self-sustaining value proposition and makes 3D printing one of few industries that have managed to do so.

The future: 3D printing in 2015 and beyond

2015 is looking bright for 3D printing as mergers and acquisitions continue to rise in numbers. While smaller companies will continue to get their start through crowdfunding campaigns, an uptick in IPO activity will provide more choices for public investors looking to get their share of the 3D printing community.

We see even more potential as larger companies carve out their niche, in particular 2D printer companies like HP, Epson or Xerox getting in on the action. The prospect for growth of the 3D printing market is enormous, and we’re looking forward to tracking it. In the meantime, get an inside look at which companies are currently seeking funding.

Bryan Dow is an Executive Director at Mooreland Partners, a leading independent investment bank providing M&A and private capital advisory services to the global technology sector. He has over ten years of experience advising technology companies on strategic and financial transactions, completing over 50 transactions in his career. Follow @MoorelandGlobal on Twitter.