Technology advances, expanding adoption rates by manufacturers and growing interest from customers are driving M&A activity in the 3D-printing space. Here is what is driving trends.
“We’ve had a big increase in the number of clients that have contacted us about scaling up additive manufacturing in their organizations,” says Chris Griffin, a manager in EY’s supply chain and operations advisory group. Additive manufacturing/3D printing technology advances have opened opportunities particularly in aerospace, automotive, medical and dental sectors.
“It’s a hot space. Everybody’s coming in with the latest and greatest, and there’s been a lot of attention just in the sheer volume and growth that it’s brought to the overall marketplace,” Griffin says.
Because of the growth of innovation in 3D printing and the growing number of new entrants in the market, a lot of PE firms have been interested in 3D printing as a value play, he says. “Whether that be from a new growth venture or a traditional manufacturer seeking technology or a specialty material acquisition, particularly in the healthcare sector, it’s been a huge piece of interest.”
3D-printing technology has improved over the last several years in its ability to produce high-quality pieces quickly, to integrate into the supply chain and in the software that controls the printing and the materials that can be printed.
Also, 3D printing can now build parts from unique alloys, materials with electrical properties and environmentally sustainable materials, such as biodegradable materials for the construction industry or alternatives to plastic with small carbon footprints. “That’s been a huge area of growth that’s happened over the past several years,” Griffin says.
Over the last decade, the number of 3D-printing-machine manufacturers, material manufacturers and service providers has increased by more than 800 percent, Griffin says. In 2022, for the first time, there were more companies using 3D-printing for end-use parts than for prototypes, according to Wohlers Associates, a 3D-printing consultancy firm. “That’s a huge shift,” Griffin says. “It really indicates that the technology is finally moving out of R&D and into production environments.”
Ranjith Rajendran, a managing director in the U.S. private equity practice for TBM Consulting Group, predicts the pace of M&A for companies with or seeking 3D-printing capabilities or technology will accelerate over the next few years. That applies particularly for M&A that combines companies with the capabilities of 3D-printed manufacturing and those of traditional manufacturing methods—such as precision machining and milling, he says.
Up until a few years ago, traditional manufacturing was viewed in sharp contrast to 3D-printing. While traditional manufacturing methods were well-proven for products and parts that needed to be produced cheaply and at a high volume, those methods also typically required long lead times to gear up for production and several iterations to fine-tune the manufacturing process for a complex part.
Meanwhile, 3D printing was viewed as a higher-cost method that could produce parts quickly and on short lead times, but one that was suited primarily for prototyping and research and development applications, Rajendran says.
But over the last two to three years, 3D-printing and traditional manufacturers have been merging to offer one-stop shops that appeal to broader customer bases.
“The key is: If a traditional manufacturer has an existing customer base today, there is no guarantee that they’re going to have that same market share forever,” Rajendran says. “So they might consider either adding their own in-house capability to provide some of this 3D printing, or looking at acquisitions that will help them provide that combination. That’s what I see in the coming years.”
M&A or Buy New?
Because both types of manufacturing are capital-intensive—the printers and traditional precision parts-making machines are expensive—companies typically prefer to grow by acquisition, Rajendran says: Equipment acquired through acquisitions has already been depreciated and comes with a customer base; new equipment hasn’t and doesn’t.
“They no longer need to go invest as much capital,” he says. “Instead, they can put their funding toward the front-end marketing and capturing market share.”
Recent supply chain problems sped up adoption and acceptance of 3D printing, Griffin says. “These global supply chain challenges over the last several years have pushed manufacturers to really reevaluate their production network footprint as well as their inventory management practices,” he says. Manufacturers are looking to 3D printing as an avenue to lower costs, become more agile and resilient, improve customer service and accelerate product innovation.
“We’ve seen a large increase in contacts from private equity firms or industry firms pursuing M&A activity that started accelerating in the fall of 2021, and it’s carried forward up until modern day,” Griffin says.
As the pandemic and China-related supply chain issues boosted demand for domestically produced 3D-printed parts, customers grew accustomed to the advantages of 3D-printing, Rajendran says. Now, customers are returning somewhat to the cheaper traditional manufacturing sources, which will result in a flatter adoption rate, but still a mix of manufacturing methods more weighted toward 3D-printed sources than a few years ago, Rajendran says.
“There is more interest now among companies, particularly in domestic markets, that they want to have that flexibility” of 3D printing, he says. “I don’t anticipate them going completely to China for low-cost parts and I don’t see them relying 100 percent on 3D-manufacturing here in the U.S.”
“Traditional manufacturing will still continue to be important for multiple industries because it’s still cheaper than 3D printing. That’s not going to go away,” Rajendran says.
The expanding demand for 3D-printing methods combined with strong demand for traditional manufacturing will continue to drive M&A in the space. “It’s not done; it’s still in the early phase of consolidation and opportunity,” he says. “It will be at least a few years before it becomes stable.”
One aspect of artificial intelligence—generative design—is having an outsized impact on 3D printing, says Brendan Burke, senior emerging technology analyst at Pitchbook. With generative design, an AI algorithm can develop the ideal configuration of a given part, as well as its product design, and convert that design into manufacturing instructions for a 3D printer. That makes the 3D printing process more efficient and shortens the design period for new parts.
Recent M&A involving this technology has centered around software developers. “We’re not seeing manufacturers acquire these capabilities themselves. Technology vendors are making these acquisitions to bundle their solutions,” Burke says. “3D-printing software vendors can benefit from additional design capabilities.”
This type of innovation has been behind some of the largest M&A deals in the AI space over the last few years, Burke says. Two examples, both in 2021: The $188 million acquisition of Oqton, developer of cloud-based manufacturing AI software, by 3D Systems (NYSE:DDD) to expand its bundle of 3D-printing software, and the 102 Euros acquisition of arculus, developer of modular production AI software for factories and warehouses, by Jungheinrich, an intralogistics provider.
Looking forward, demand from manufacturers to add generative design capabilities for their 3D printing will spur M&A deals, particularly in the automotive industry, Burke says.
“Manufacturers will want to benefit from the latest developments in generative AI that have been shown to help with product design as well as 3D file synthesis,” he says. “Other manufacturers may try to catch up via M&A by acquiring startups that specialize in industrial design generation.”