Michail - response to your question re: DTMC buyout
How TDSC is financing the buyout of DTMC: extract from TDSC's most recent 10-Q:
TDSC 10-Q, dtd May 14, 2001, for period ending Mar 30, 2001
On April 2, 2001, we signed a definitive merger agreement (the "Merger Agreement") with DTM Corporation ("DTM") under which 3D Systems will purchase all of the outstanding shares of common stock of DTM for $5.80 per share in cash. The transaction will value DTM at approximately $45 million (before transaction costs). It is expected that the transaction will be funded from on-hand cash balances, a $26.5 million revolving line of credit and a $15.0 million term loan. A commitment was received from US Bank on April 24, 2001, to fund these credit facilities subject to customary closing conditions. The revolving line of credit is expected to have a maturity of three years and provide for advances based on a percentage of eligible accounts receivable and inventory. The proposed term loan is expected to have a maturity of 66 months subject to certain prepayment provisions based on cash flow. The interest on both facilities ranges from LIBOR plus 2.0% to 2.75% or prime plus 0.25% to 1.00% based on certain ratios and are secured by substantially all of the assets of the Company and following the closing of the merger, the assets of DTM.
Does it make any sense for TDSC to expend its cash/working capital? TDSC thinks DTMC will be immediately accretive to its revenue growth. See article below, from TheDeal.com:
thedeal.com
3D Systems Corp. of Valencia, Calif., has used acquisitions to help capture a healthy share of the increasingly large market for high-tech model making. It's been so successful it has drawn the attention of the U.S. Department of Justice.
The company makes products that perform solid imaging, a technology that turns computer-generated designs into three-dimensional plastic models. Engineers use 3D Systems software and machines to design, say, a new automotive part or a child's toy. They can then produce a physical model to be used for demonstration or testing.
Chief technology officer Chuck Hull and CFO Jim Selzer say the company views acquisitions as a way to increase revenue and expand the scope of manufacturing services the company offers its diverse customer base, which includes Ford Motor Co., Mattel Inc. and Xerox Corp.
In February, 3D Systems acquired French model maker OptoForm for $2.4 million. In April, the company announced a definitive merger agreement with a rival solid imaging company, DTM Corp., of Austin, Texas, for $48 million. On June 6, the DOJ filed suit to block the deal, maintaining that it would reduce competition in the field of rapid prototyping. On Monday, the company announced in a statement that it had further extended its tender offer for DTM as it tries to reach a settlement with the government and complete the acquisition.
The DOJ alleges that if the deal proceeds, the combined company would control more than 80% of the 3-D modeling market and leave only one other competitor, resulting in higher prices, poorer service and less innovation.
DTM has said it is committed to finalizing the deal. 3D's president and chief executive, Brian Service, has said the company is negotiating with DOJ lawyers.
Meanwhile, 3D is busy digesting OptoForm, a company that works with composites — stronger and more durable than the resin materials 3D has previously used.
"We made the acquisition to help supplement our research and development in the composite area," Hull says. He hopes that will allow 3D to expand into the rapidly growing short run manufacturing market for end-use parts.
"Some customers have a need for only a couple of hundred to perhaps a thousand parts, and that's the kind of manufacturing we're going to get into," Selzer says.
3D's technology offers big advantages for customers with limited production needs, they say. Developing tooling parts to create a product can be very costly, and the 3D process, which combines lasers and liquids to create solid objects, makes tooling unnecessary.
"DTM not only develops prototyping like us, but it is starting to get into the tooling [injection molding] and short-run manufacturing field," Selzer says. "We really see that as the future of our business.
"The market for short-run production is many times the size of the markets we currently sell into. With the DTM deal, the technology was not only appealing to us but also what they could add to our business. We saw them being accretive the first year."
3D likes to acquire companies that will be accretive in the first year — but not always.
"We're really here to build long term shareholder value, and it may not necessarily need to be [accretive] in the first year to do that," Selzer says.
The company integrates its acquisitions quickly and looks for synergies and strong management.
"We will look at all aspects of an organization in an effort to identify cost savings. Generally, they are most likely to occur in finance and administration. If we can in any way utilize the talents of the management of the company being acquired, we will go to great lengths to integrate them."
Financing varies, depending on the scale of the deal.
"OptoForm was of a size that we could handle through internally generated cash," Selzer says. "With the DTM deal, we're doing it with senior debt. With future acquisitions, depending on the capital markets, we would consider debt or equity, depending on the kind of deal we're looking at."
The company remains on the lookout and could make more acquisitions this year.
"Right now, we're in the process of digesting this big acquisition, but if other opportunities come up that expand on those areas we want to develop, we certainly will consider them as well," Selzer says.
Last year, 3D Systems saw revenues grow 18% to $114 million. Founded in 1986 and publicly traded since 1988, its shares trade at about $15, compared to a 52-week high of $21. It has a market capitalization of $185 million.
Hull says the size and scale of the proposed DTM merger makes it his most memorable to date, but that doesn't mean he hasn't taken something from all the others.
"Believe me, when you go through these deals, it's always a learning experience."
Doing the deals at 3D Systems Corp.
Chuck Hull
Title: Executive vice president and chief technology officer
Age: 60
Education: B.S. engineering/physics, University of Colorado
Previous jobs: 1980-1986, UVP Corp., vice president of engineering.
Jim Selzer
Age: 37
Title: Vice president of finance and chief financial officer
Education: B.S., business and accounting, University of Kansas; M.B.A., University of Michigan
Previous experience: 1998-2000, vice president finance; 1994-1998 worked for Jay Alix & Associates, a turnaround and management consulting firm.
Most memorable deal: "The one we're currently in [DTM]," Chuck Hull says. "It is the largest deal we've done, and it will require all of our resources to make sure this thing comes together exactly how we planned it."
Investment bankers: Does not use one particular bank. A.G. Edwards & Sons Inc. assisted on the DTM merger.
Legal counsel: Akin Gump Strauss Hauer & Feld llp |
