Desktop Metal is Going Public via a Merger with Trine Acquisition Corp.
- Desktop Metal helps clients create parts for mass-scale production, not just prototypes
- Sales forecast to grow more than 10x between 2021 and 2025
- Clear path to positive Ebitda and cash flow in 2023
- Customer base is highly diversified from Ford to Callaway to Medtronic
- Desktop Metal has large M&A pipeline of 60+ targets that can boost growth further
- Reasonable valuation of 3.1x 2024 sales and 1.9x 2025 sales – well below competitors
- Renowned tech investor and operator Leo Hindery, Jr. who is Trine CEO will join board
- Board also includes Jeff Immelt and Ford Chief Manufacturing Officer Gary Johnson
- Investor roster includes Kleiner Perkins, Baron Capital Group and Chamath Palihapitiya
By John Jannarone and Jarrett Banks
Once a passing Wall Street fad, 3D printing has returned in true fashion, helping companies create real-life components in high volume for the most technologically advanced devices. The key for investors is to choose the right company at the right price.
Desktop Metal, the only next-generation, pure-play 3D printing company available to public investors, currently presents just such an opportunity. The company will soon go public after merging with Trine Acquisition Corp. (NYSE: TRNE, TRNE-UN, TRNE-WT), a SPAC led by renowned tech investor and operator Leo Hindery, Jr. The deal, which is expected to close in the fourth quarter, is also backed by a $275 million private investment in public equity (PIPE) whose participants include elite investors such as Baron Capital Group and Chamath Palihapitiya. Investors who buy Trine shares now would see them automatically convert to shares in the new company after the deal closes formally.
The first thing for investors to understand about Desktop Metal is how far it has advanced from an earlier generation of 3D printing companies. For the most part, the first batch of companies couldn’t create parts that had real life use but rather pieces of prototypes that aid in design and development.
Desktop Metal, however, has the ability to help companies produce parts for a full spectrum of uses, from early-state prototypes to fully operational equipment. The range of possibilities is also vast, with Desktop Metal helping produce parts of rocket engines, golf clubs, and motor vehicles.
“Whereas prior additive technologies have been primarily focused on prototyping, our portfolio is extraordinary in its focus on impact across the entire product lifecycle — capturing value at every stage from R&D to high-volume mass production,” Ric Fulop, Desktop Metal’s CEO said on a recent investor call.
Mass production capabilities are a key strength of Desktop Metal. Rather than printers, the company’s machines perform more like printing presses, churning out all manner of parts at a high speed and low cost.
One key growth industry is automotive, where Desktop Metal already works with the likes of Ford and BMW (both of which are investors in the company) along with Renault, Volkswagen, GM, and more.
But Desktop Metal’s big name clients go far beyond the automotive industry. Its customer roster already includes the likes of Georgia-Pacific, Adidas, Google, along with the U.S. Army and Navy.
And once customers begin working with Desktop Metal, they are unlikely to part ways easily. For one, Desktop Metal allows companies to produce items very quickly and cheaply rather than keeping massive warehouses of spare parts.
That sticky relationship with customers was one of the most appealing attributes to Mr. Hindery. In an interview with IPO Edge, he said he reviewed over 100 possible targets and Desktop Metal was far and away the strongest candidate for a deal.
Mr. Hindery, who will stay at Desktop Metal as a director, himself brings decades of leadership and dealmaking skills to the table. In the late 1990s, he led TCI to a 400{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} increase in market value that culminated with a sale to AT&T.
There are structural tailwinds that will also boost Desktop Metal for years to come. The coronavirus pandemic taught companies that supply chains can be fragile, leading more to desire in-house part production. Trade tensions with China and other manufacturing centers also have prompted many executives to eschew imports when possible.
All this adds up to scorching top-line growth, with Desktop Metal expecting revenue to grow from $77.5 million in 2021 to $941.5 million in 2025. And profits aren’t that far off: Thanks to excellent operating leverage a capital light model with outsourced manufacturing, the company sees Ebitda and cash flow swinging positive in 2023.
What’s more, Desktop Metal has plenty of ammo to hunt for a wide array of M&A targets. The company has a pipeline of more than 60 potential acquisitions, all of which are within reach thanks to Desktop Metal’s $625 million in cash on its pro forma balance sheet.
Desktop Metal also has a huge lead over any would-be rivals who enter the fray. The company had approximately $100 million of venture capital funding to develop its printing system. And its scientific staff included the best of the best, with four MIT professors onboard from the beginning. It’s also protected by 120 patents, creating tall barriers to entry.
In a major vote of confidence, high-caliber existing shareholders will keep their stakes in the company after the SPAC deal. They include the likes of Sand Hill Road VC giant Kleiner Perkins, Ford Motor Company, GV (formerly Google Ventures), and Koch Disruptive Technologies.
Desktop Metal, whose shares spiked but recently pulled back near $10 where Mr. Palihapitiya and other PIPE investors got in, looks like a bargain. The company trades at an enterprise value of just 1.9 times 2025 sales and 3.1 times 2024 sales. Materialise NV trades at 5.5 times 2024 sales while Proto Labs, Inc. trades at 4.5 times, according to Sentieo, an AI-enabled research platform.
Investors should pick up Desktop Metal shares while they’re still hot off the press.
Contact IPO Edge:
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