There’s something happening with Markforged’s valuation that requires an explanation.
Markforged, as you may recall, is a leading provider of professional 3D printing equipment. They were the first to introduce a continuous carbon fiber 3D printer, and have since developed metal 3D printing solutions and other interesting products.
A couple of months ago, it was announced that they were to be acquired by Nano Dimension, an aggressive Israeli company that has been attempting to acquire a series of 3D printing companies, most notably Stratasys. While they failed to acquire Stratasys, they did succeed with several others, including Markforged.
The deal, announced in September, was for US$123M in cash for all shares of the company. Nano Dimension is fortunate to have a rather large cash reserve from which they can easily afford to pay this amount. At one point, the cash was near US$1B, although it is somewhat lower these days.
Here’s the problem: while the deal hasn’t yet closed, Markforged continues to be traded on the stock exchange, where its value is publicly determined.
As of last week, their valuation was US$87M.
Hold on a moment, how could that be? Nano Dimension offered to pay US$123M for the entire company at a future date. How could something clearly valued at US$123M be traded at a US$87M level? Markforged seems to be dramatically undervalued by the market — at first glance.
One clue is that Nano Dimension itself is similarly undervalued. Their current valuation on the public market is around US$500M, but has been lower in recent months. This is all the while they have a massive cash reserve that vastly exceeds the valuation. How can you be worth less than your bank balance?
One theory to explain Nano Dimension’s undervaluation is that investors have lower confidence in the company’s management. In other words, while the company has cash, some investors believe the management won’t be spending the cash appropriately — and therefore the money is worth less than it should be at face value.
But how can this explain the Markforged valuation? If a company is to pay US$123M, they will pay US$123M regardless of what investors believe.
There’s more to the story. Some of Nano Dimension’s key investors have been terribly upset with company management, and in particular how the company’s board of directors has been overly friendly to the company. In fact, the company’s board included several of its own management, including the CEO.
The investors launched a lawsuit against Nano Dimension management, which, after multiple months, resulted in an extraordinary general meeting of the company recently. At this meeting, new, independent board members were elected, and the CEO was removed from the company’s board.
These moves have dramatically changed the power structure at Nano Dimension, and it may be that new and different strategies will be undertaken to properly spend the cash reserve.
Back to Markforged. The acquisition has not yet completed; it’s just an offer that has to be officially delivered to Markforged shareholders and accepted by the majority.
It may be that investors in Markforged see the recent changes at Nano Dimension could jeopardize the acquisition. If the new board does not want this type of acquisition to take place, then it may not take place. Investors could be discounting Markforged’s valuation because they see a risk that the deal may not follow through.
This is all speculation, because that’s what the stock market is all about. However, if the deal does fall through, then Markforged would remain as an independent company, and its valuation would float to wherever the market feels it should be. That might be lower than US$123M, as we have already seen.
[UPDATE] A major development has just been announced: the CEO-friendly board members of Nano Dimension have abruptly resigned, leaving only four members, all of whom are aligned with the investors. According to this press release, the newly constituted board is “committed to strong corporate governance and executing plans to maximize long-term value for shareholders.” That could have implications on not only the proposal to Markforged, but also to Desktop Metal.
Via Markforged and Nano Dimension
