Currently Xaar owns 85 percent of the company with Stratasys having the remaining 15 percent but with an option to increase its holding up to 30 percent.
The new proposal involves Stratasys partly exercising this option to give it 25 percent of the company for $4m, followed by Xaar selling an additional 20 percent of its holding to Stratasys for $10 million, giving Stratasys 45 percent of Xaar 3D. In addition, Xaar will give Stratasys an option to acquire the remaining 55 percent for at least $33m at some point over the next three years. In this case, Stratasys will pay Xaar 2 percent annually of the revenue associated with Xaar 3D for 15 years up to a total of $10m.
On top of this, both Xaar and Stratasys will invest more money into Xaar 3D, based on their ownership percentages. This works out as $1.79m from Xaar and $1.46m from Stratasys or a total of $3.25m. It’s important to note here that by the end of December 2018 Xaar 3D had gross assets of £13.1m and made a loss of £0.4m for 2018, which is hardly surprising since its still in the process of developing its main product, the HSS 3D printer. At the same time, Xaar 3D has signed a distribution agreement for its 3D printers with Stratasys, and an agreement to buy printheads from Xaar.
Both the share transactions and the further investments require approval from Xaar’s shareholders, which will mean a general meeting to be held at some point in the next 55 days or so.
Doug Edwards, Xaar’s CEO, says that this was a mutual decision from both companies, explaining: “We are keen to accelerate this, as are Stratasys, and based on being ahead of where they expected us to be at this point they were interested in increasing their ownership.”
He adds: “They are still the go-to-market muscle behind this and they were keen to get a controlling position at some point in the future. And we felt it was better to give them full control rather than just be a minority shareholder.”
Edwards confirms that there is a working HSS machine at a customer site, installed at the end of last year, and that it has produced working parts. There are currently five running machines with the plan being to release the machine commercially at the end of next year, presumably in time for Formnext 2020.
There are two aspects to this story. On the one hand, Stratasys appears more confident that Xaar’s High Speed Sintering machine will ultimately be successful. Stratasys is working on a lot of different technologies and HSS is only one of those but has advanced far enough for Stratasys to put up a little more money though clearly Stratasys is not confident enough to just buy the joint venture outright.
The other side of this is why is Xaar is selling off its 3D business, with the obvious speculation that this is to raise money or simply to balance its books. It’s too early to say since the company won’t report its figures until the end of this week. Xaar has delayed announcing its interim figures and it is tempting to link this delay with the sale of shares in the 3D business as evidence of deeper problems at Xaar.
But I think this would be unfair and that it’s too early to make such judgements. Edwards says that the delay in announcing the figures was due to finalising the arrangements with Stratasys and completing a review of the thin film business.
He also makes a very good argument that Stratasys has a better market position in the additive manufacturing world and is able to commercialise this technology in a way that Xaar alone couldn’t. So selling the 3D business at a profit complete with a contract to continue supplying it with printheads is a reasonably good outcome, regardless of whatever else is happening at Xaar. In any case I’ll revisit this story next week when all the figures are announced.