General Electric Co. (NYSE: GE) placed a $1.4 billion bet on the future of factory production by purchasing a pair of 3D-printer companies, marking one of the most significant endorsements of the technology yet.
The industrial giant offered to buy Sweden’s Arcam AB and Germany’s SLM Solutions Group AG in separate transactions, GE said in a statement. The acquisitions will bolster GE’s existing manufacturing operations and help the company build a $1 billion 3D-printing business by 2020, it said.
The move “adds to our strategy to become the premier digital industrial company,” chief executive officer Jeffrey Immelt said on a conference call with analysts. “These two companies bring, in addition to just equipment, a number of ideas in terms of what we can do in the future.”
GE has reoriented its business around industrial manufacturing and complementary software, following moves to sell most of the finance and consumer-focused divisions. The Boston-based company, the world’s largest maker of jet engines and gas turbines, is making greater use of 3D printing for equipment parts and prototypes. GE has been divesting assets throughout 2015 and 2016, including completing the sale of Antares Capital.
The global market for 3D printing is growing as companies increasingly use the technology for production of commercial parts. The aviation industry was one of the early adopters because it enables more complex designs and lighter parts, cutting waste of expensive materials on factory floors. GE said it expects to print 40,000 fuel nozzles for jet engines by 2020.
3D printers build objects by fusing together thin layers of materials such as plastic powder, metal or liquid resin. The parts, built from computer-drawn blueprints, can be used to make products ranging from car parts to surgical implants.
GE’s move could trigger a wave of acquisitions in the sector, according to Rachel Gordon, an analyst at IDTechEx. Until now, companies “have typically bought one or two machines for research and development,” she said. Companies are now “starting to use them to actually produce parts, buying bigger numbers of machines.”
Growth in 3D manufacturing could drive the need for 1,000 machines at GE by 2025, David Joyce, the CEO of GE Aviation and leader of the integration of Arcam and SLM, said on the conference call. While 3D printing is promising, GE’s acquisitions are a “net negative” because there are relatively few short-term benefits, Steve Tusa, an analyst at JPMorgan Chase & Co., said in a note. Some other recent 3D related deals include Autodesk Inc. (Nasdaq: ADSK) adding Solid Angle and Rizvi Traverse Management LLC taking RealD private.
“This seems like a relatively outsized and expensive bet, with no near-term return, and an incremental opportunity cost when considering the ongoing debate around what we view as finite balance sheet capacity,” he wrote. GE offered 5.86 billion kronor ($680 million) for Arcam, or 285 kronor a share, Arcam’s board backs the bid, according to a statement.
Arcam will be able to sell its products to other companies in the aerospace industry even after GE’s takeover, CEO Magnus Rene said in a phone interview. The company also has plans to expand beyond its focus on aerospace and medical implants.
“We feel that GE is a strong industrial owner,” Rene said. “They can help us accelerate the industrialization of the technology.”
GE will keep Arcam’s and SLM’s management teams and employees, while maintaining the companies’ headquarters. The operations will collaborate with GE’s research center in Niskayuna, New York, and 3D-production facility in the Pittsburgh area.
SLM investors are set to receive 38 euros ($43) a share from GE, Lubeck-based company said in a statement, adding that its executive and supervisory boards back the offer.
With the offers for the European companies, GE is buying into two different technologies. Arcam promotes its proprietary method using electron beams as having a fast printing process and greater ability to use a wide range of printing materials. Laser-based systems like SLM’s are generally capable of making more detailed components. GE became Arcam’s top customer in 2015, placing the largest order to date to help produce turbine blades for jet engines.
GE’s fuel nozzles are among the best known use of 3D technology in the aviation industry, but airplane makers Airbus Group SE and Boeing Co. are also working on the process, according to IDTechEx’s Gordon. Airbus has said it is starting to incorporate 3D-designed parts on a test basis and that plane content produced with such technologies will expand substantially over the coming years.
GE has invested $1.5 billion in 3D-printing technologies since 2010. The company said it expects to generate between $3 billion and $5 billion in product cost savings over the next decade through use of the process, also known as additive manufacturing.
“While the deals appear pricey, they help position GE to lead, implement and control additive manufacturing processes that will become important cost-reduction levers long term in Aviation and elsewhere,” Gautam Khanna, an analyst at Cowen & Co., said in a note.
-- Additional reporting by Bloomberg’s Andrea Rothman and Mergers & Acquisitions’ Demitri Diakantonis