A very plausible sounding rumor surfaced a week ago that 3D Systems (DDD) may be up for another acquisition. 3D System announced last Friday that it will sell new shares for $250M and will use the cash to "finance future acquisitions of other entities or their assets". There are a lot of companies that could very well be the target, but one of those companies would clearly be a very profitable and strategically wise acquisition. That company is Arcam AB (AMAVF.OB).
Arcam AB is a small 3D printer company from Sweden that has a market value of about $175M. I wrote an article about Arcam a month ago where I analyzed the fundamentals and made estimates for 2013. That article is still valid with only minor alteration to the Q1/2013 result. The corrected values and Q1 results can be found here. I am fully confident that Arcam will deliver great results this year and thus is why I think Arcam to be likely target for Acquisition.
Let me explain why Arcam would be a strategically wise acquisition. First of all Arcam is doing solid business. Its cash flow is growing constantly, its revenue is rising rapidly and it is selling an increasing number of 3D printers. Arcams business is clearly seeing a constant boom as the company is growing 21%-101% year-on-year basis and I expect the next three quarters to deliver at least as good results as the last four quarters. It would be wise to buy Arcam before it has grown into a multi-billion company.
The second reason is Arcam's patented Electronic Beam Melting (EBM) technology. It is recognized as the leading technology in the industry. Here is an article about a research report made by the University of Texas that clearly states that EBM prints better quality than the competing technology Selective Laser Melting. 3D Systems already provides a couple of printers that use SLM technology, but as 3D Systems has to licence SLM technology from a private German company EOS, it would certainly be a better idea to acquire a technology of their own. The technology for high-end metal printers is the one thing that 3D Systems is still missing.
The third reason is Arcam's connection to the prosthetics industry. Arcam formed a strategic alliance with DiSanto corporation in late February that aims to compete in the prosthetics industry. This may prove itself very profitable as the demand for personalized prosthetic parts is increasing constantly and titanium is considered one of the best materials for those parts due to its bio-neutrality. Arcam's 3D printers are designed to print titanium and thus Arcam is currently very well positioned for the future.
The fourth reason is a clear one. If 3D Systems does not buy Arcam, some other company will, assuming that Arcam is for sale.
Conclusion
Arcam is a buy for 3D Systems. It is clear that in the long run, Arcam is a very profitable acquisition. If 3D Systems spends all of the $250M (that it received from selling shares) to acquire Arcam, it would pay roughly 42% premium ($250M/$175M market cap). In this light Arcam would be a buy for any investor. Please remember that rumors are always rumors, no matter how accurate they are.
