The acquisition of Arcam and SLM Solutions expands the wide-moat company's 3-D printer capabilities and will turn the firm into one of the largest industrial users of metals-based 3-D printing.
Wide-moat General Electric
announced the acquisition of two European additive manufacturers, Arcam and SLM Solutions, for a combined purchase price of $1.4 billion; however, with no change to earnings guidance through 2018 and greater industrialization of the technologies still years away, we do not intend to change our $30 per share fair value estimate based on this news. Arcam and SLM bring advanced micro-welding technology in-house, giving GE the ability to produce industrial 3D printers that utilize metal powders such as titanium, nickel, aluminum, and steel. The deals extend GE’s earlier foray into additive manufacturing with the 2012 acquisitions of service bureaus Morris Technologies and Rapid Quality Manufacturing. Since then, GE has steadily worked to industrialize the technology in its aviation business, resulting in a fuel nozzle that is currently used in the new LEAP narrow body engine.
Barbara Noverini is a senior equity analyst for Morningstar.
To date, GE’s additive manufacturing story has largely been about cost savings, as rapid prototyping enhances the design process and uncovers opportunities to eliminate parts and reduce materials and machining costs. To date, GE’s Aviation segment has been the biggest beneficiary; however, over the next decade, GE expects an additional $3 billion-$5 billion of cost savings as new applications reach beyond the Aviation segment into the rest of GE’s portfolio.
The addition of Arcam and SLM also highlights the growing importance of additive manufacturing in GE’s digital industrial story, illustrated by its Predix-enabled Brilliant Factory concept. Scaling each business will catapult GE not only into one of the largest industrial users of metals-based 3D printing, but also into a leading equipment manufacturer for industrial uses, a market the company expects will grow at a 20% CAGR over the next decade. This could add nearly $1 billion in revenue by 2020, with 60% from equipment sales and 40% from powders and other aftermarket parts and services.
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