Industry ConsolidationThe Case for a Roll-up of 3D Scanning Companies

A 1.660Mb PDF of this article as it appeared in the magazine complete with images is available by clicking HERE

Because the 3D scanning industry lacks a company with a nationwide footprint, two partners and I proposed to do a roll-up of key industry players to combine their different strengths and talents and to consolidate their modeling efforts to make a stronger, farther-reaching scanning services provider. I believe that there is a strong case to be made in favor of such consolidation but there are some good reasons why that strategy has not worked to date.

Some backgroundTypical 3D scanning service lines of business
For the purpose of this article, I will separate 3D scanning companies into four primary service areas: architectural scanning, industrial part scanning, film/VFX/games-based modeling and architectural heritage. There are, of course, a wide variety of other types of 3D scanning companies who provide important and interesting services such as land surveying, GIS, forensics, even medical services such as MRI, PET and CT scanning but those companies are not the focus of this article. So, in those four categories, what types of services does the typical company sell?

The industry’s primary market focus is in industrial applications–particularly in the Architect, Engineer and Contractor (AEC) and Building Information Modeling (BIM) spaces as well as in the manufacturing, oil and gas, automotive and aerospace industries. There are a number of successful industrial parts scanning companies that provide their metrology (measurement) and related services to a wide range of industries and manufacturers. Emerging verticals include the advertising (3D web), game development and film video effects (VFX) industries.

Architectural scanning services
As-built building scans/plans
Scan to BIM (building information modeling)
Industrial digital facilities management
Industrial part scanning
Reverse engineering, part/object replication
CMM (coordinate measuring machine)/quality inspection
Compare to CAD
First Article Inspection

Film/visual effects/advertising/ games-based scanning and modeling
Real world digitization and modeling
Avatars and objects (furniture, buildings, cars, etc.)
Product display

Architectural/heritage preservation
Historic buildings
Museum pieces (e.g., statues, archaeological pieces, etc.)

In order to create the market leader in the 3D scanning industry, we believed it made sense to combine companies in the AEC and industrial parts scanning sectors. The facilities scanning and BIM markets are at their core about delivering a highly accurate, visual representation of buildings (interior and exterior) for use in design, construction, refurbishment and facilities management decision-making. We also planned to focus on the complementary industrial parts scanning/metrology market. Here the focus is on providing highly accurate visual and dimensional renderings of an object to facilitate industrial design and manufacturing decision-making.

While AEC and industrial parts scanning are each accomplished with various different laser, structured light, computed tomography (CT) and other types of 3D imaging technologies, both areas of focus require initial scanning activities by trained scanning technicians followed by complex digital modeling services by skilled 3D modelers. So, at a basic level, the types of employees involved in both areas include scanning technicians and 3D modelers. What does all that mean these companies do every day? Across the different types of scanning services, there are some basic overlaps. In each 3D scanning work flow, the following activities occur:
1. A 3 dimensional scan (often across multiple scans) is taken of the part, object, building or environment;
2. That 3D scan usually results in a point cloud (a 3D map of the geometry of the object, building or environment) and often includes a high definition high quality photographic layer on top of the mesh.
3. The scans are registered (multiple scans lined up and stitched together) and cleaned up (scan data is rarely perfectly captured such that no post-processing is required).
4. The cleaned up scan must then be put into a format that meets the customer’s needs for the intended use of the scan.

Now, while the explanation (and the relevant skill sets of the pros that do this work) has been oversimplified for this article, fundamentally the steps are capture, clean, and create a usable finished digital product.

Who buys these services?
On the AEC side, the primary customers are mid- to large-size contractors and architects with repeating BIM business requirements. The initial focus of a consolidated entity would be on the hospital, university/large institution and manufacturing sectors. Future AEC expansion efforts would likely focus on the retail (including large mall/retail) construction and renovation market as well as oil and gas production facilities.
On the industrial metrology side, customers come from the traditional reverse engineering, inspection and prototyping efforts of industrial companies such as manufacturers in the automotive, aerospace, and medical areas as well as other types of product manufacturers.

Why does consolidation make sense?
The 3D laser scanning industry is rapidly emerging but is currently quite fragmented, both in terms of market focus and geography with a number of small, profitable, entrepreneurial companies with revenues generally of less than $5M. The industry currently has no clear market leader. The current and expected future demand for 3D imaging coupled with the lack of a strong market leader makes this an attractive business opportunity for investment.

Consolidation should take place because it would create an engine for growth based on the cost efficiency and the breadth of service offerings that a larger, better funded organization with deeper resources can bring to its customers. The consolidated work force will bring together the modeling and creative post-processing talents of key industry players. These teams would benefit from being in a few, centralized highly focused creative groups (i.e., they do not have to be geographically dispersed but rather likely would do better working alongside their creative colleagues). This side of the house would then be paired with a better sales and delivery team with a national footprint rather than operating solely at a regional level. The scanning technicians as a practical matter need to be closer to where their clients are and many of them can and do act in a client facing, if not always sales, role.

On top of those benefits, we observed that the sales force for many of the industry players was really stretched. Each company attempted to attend as many as possible of the relevant industry trade shows, conferences and other highvalue customer interaction opportunities. The consolidated entity could expand its reach to more trade shows, conferences and industry meetings even by just taking the existing sales force and spreading it out across more opportunities without overlap. It was clear as well that oftentimes the primary sales person was the senior executive (founder) of the company, which meant that their time needed to be split between selling and running the company. The consolidated entity would have an optimized and dedicated sales force which would be the engine for growth. And since they could sell a broader range of services than their competitors, we believed that the consolidated entity would enjoy a significant advantage when competing for business.

Why would a scanning company want to be part of a consolidated enterprise?
The plan was to build the market leader in the AEC/BIM and industrial metrology spaces. This market leading competitor would combine the resources, talent, customers, geographic reach and management talent of some of the strongest players in the industry today. Key reasons a company would want to be part of the bigger whole include that the combined enterprise would:
assemble capital to secure new scanning assets and industry talent–access to capital to expand operations is a recurrent theme by owners in this sector;
provide targeted, expanded marketing and sales presence at relevant trade shows, conferences, and other customer interaction opportunities (i.e., the sales representatives at a trade show and multiple trade shows could more efficiently bring
in sales as with most of the existing players there just weren’t enough sales personnel available and often it was only the company owner);
increase access to equipment that some companies may not have access to, such as CMM, CT scanning or other metrology equipment or simply an expanded pool of scanning equipment to handle periods of increased demand; and
incorporate experienced executives who know how to integrate companies in fragmented industries.

Why haven’t we seen this consolidation yet?
So, if there were business owners interested in at least exploring the idea of a consolidation, why didn’t it happen? As we initially started talking to companies and pushing on the hypothesis that a national footprint and economies of scale and expertise on the modeling side would add value, we got a fair amount of initial interest. We identified and reviewed about 65 industry participants. However, we were faced with a problem a lot of entrepreneurs and investment teams face — no upfront visibility into the financial numbers of the industry participants. After all, nearly all of the players are privately held organizations.

As we explored the opportunity, our working hypothesis was that the average scanning company annual revenues were around $4 or 5 million and that there were several $8-10 million companies. We had believed that we could bring together one or two of the largest firms along with a couple of the more interesting mid-size companies with unique skill sets or other advantages. Turns out our financial hypothesis was wrong.

The challenge when working with privately held companies is that you can’t just pull up some public filing and analyze their numbers. The process of learning more about a private company’s numbers is a nuanced task which includes a) working to earn the owner’s trust that you won’t use their information against them, b) selling them enough on the concept you are exploring so that they see some benefit in sharing some basic information with you to validate the proposal and c) talking to a lot of industry participants. While after some initial discussions with company owners we started to see the writing on the wall about the size of industry participants, we still needed additional information to confirm what we were learning.

What we ultimately concluded was that in order to roll up enough 3D scanning companies for the plan to make sense from a venture capital perspective, we would need too many companies. The companies we looked at were largely well-run businesses, many of which had put bread on the table for dozens of employees for 15+ years. They are meeting the requirements of their customers but recognized that there was additional value they could be providing. However, as we started to learn the actual size of the businesses (stripping out scanner rental equipment revenue as it was not relevant to our business plan), we learned that our revenue hypothesis was off by pretty close to a factor of two. As a result, because the likely purchase price for each company was not likely to be enough to encourage or permit a majority of the owners to retire or pursue something else, they would probably want to take executive management roles in the new company to maintain their income. We were simply looking at being too top heavy post-consolidation.

What I take away from the exercise (now well over a year ago), is that this idea still makes sense as the expected consolidation in the industry still has not occurred, but that it will take a coordinated effort by just the right group of business owners. It may well require that some of them grow to be a size that makes it easier to consolidate a few larger companies with follow-on acquisitions or partnerships that avoids the top heavy management structure problem we faced. In addition, rather than a single set of transactions to consolidate top companies in the industry, I suspect that a more organic approach over time may ultimately be what occurs.

Jon Ritter practiced law for twenty years in technology-based industries, primarily communications and medical device. About five years ago, he became fascinated by the progress in the 3D world (3D capture, 3D printing and VR/AR) and left the practice of law to establish Visuality, LLC which provides consulting services in the 3D space. Jon enjoys engaging with others who are also exploring the application of technology to new business models and is working to build an innovative company in the 3D space. Jon studied law and technology at Stanford Law School. He can be contacted at

3 Market Trends Driving the 3D Scanning Industry

Lower cost, higher quality scanning and imaging
3D scanning and imaging technology is rapidly improving and becoming cheaper. The historical industry trend is favorable for clients and providers as the cost of providing the service is going down while the value to the client and quality of output is significantly increasing.

With recent entrants such as Google’s Project Tango (indoor 3D mapping), dronebased photogrammetry and others addressing the problem of 3D reality capture from the low-end, we expect that trend to continue even as OEMs like FARO, Leica, Trimble, etc. continue to bring more feature-rich offerings at the high end.

These expanded capabilities will increase the utility of 3D imaging. We expect the combination of lower cost and increased functionality to stimulate demand from existing and new users of 3D imaging.

The move from 2D to 3D
The move from 2D to 3D methods of expression is following an inevitable path that is analogous to the move from black and white to color television. 3D display technology is becoming more user-friendly and, in time, will be ubiquitous.

The world we live in is in (at least) three dimensions. The reason that the web and effectively all other forms of communications have to date been in 2D is essentially a technical challenge–historically it has been too difficult to create a 3D image with then existing computing power. That is changing now, based on a number of well-known trends:
Increased computer processing speeds
Increased graphics processing speeds
Reduced cost of scanning, computing and display
Web-based Chrome/Firefox and iOS adoption of WebGL

As 3D display technologies improve (such as WebGL, Oculus Rift now owned by Facebook, Sony’s Project Morpheus, 3DVIA Mobile by Dassault Systems, Augment, and a growing number of others), we expect to see increasing demand for 3D content for use on such platforms. While we expected the consolidated scanning company to continue to address the growing industrial market for measuring and modeling industrial objects and buildings, we fully expected additional opportunities as 3D viewing capabilities become easier to use and more universal.

Combination of BIM with the IOT
Building information modeling (BIM) and the Internet of Things (IOT) are two growing trends that are all about delivering useful, often real-time, information to users that help them make better decisions.

We believe that as embedded and mobile sensors become more ubiquitous there will be increased demand for building information modeling and the related services that pull all of that information together into a crisp, understandable presentation of the story the data are telling.

We also expect to see some convergence of the object scanning and facilities scanning activities as manufacturers further integrate their rapid prototyping and manufacturing activities. An example of such convergence is Volvo’s use of facilities scanning and modeling along with the use of 3D car models in order to conduct clash detection and to pre-visualize the movement of cars as they proceed along the manufacturing line.

A 1.660Mb PDF of this article as it appeared in the magazine complete with images is available by clicking HERE