In less than two years, San Francisco private equity firm Hellman Friedman turned a $1.1b investment in advertising network DoubleClick into a $3.1b windfall. Now they will set out to try and wring a similar result out of the struggling financials but solid intellectual property of stock photo and content licensor Getty Images.
The $2.1b buyout deal ($2.4b with the assumption of debt) was announced Monday. It effectively closes a month long auction process in which Getty, beaten and battered in the markets, was seeking bailout assistance from a deep pocketed suitor.
Hellman Friedman (“HF”) will pay $34 a share to privatize the company. The purchase price is a 39% premium over the Getty Image’s February 22nd closing price.
Approximately $1b of the total buyout will be paid in cash taken directly from Hellman Friedman’s $8.4b fund which was raised last April. The size of this equity component is an usual move for a private equity deal of this kind which typically favor leveraged debt. The direct equity contribution was, however, apparently necessary to secure financing amidst the still troubled credit markets. For similar credit market reasons, Hellman also assembled a syndicate of lenders that are atypical for this type of the deal to provide the remaining capital. The group includes GE Finance, Barclays Capital and RBS Greenwich Capital.
In an interview, Getty’s CEO Jonathan Klein acknowledged the credit market and the related difficulties securing capital made finding a suitable buyer in the auction process difficult. “It was clear the transaction would need a higher equity component,” he said.
Other private equity firms including Kohlberg Kravis Roberts (KKR), Bain and Providence Equity Partners had reportedly shown interest but only Hellman Friedman came to the bargaining table with a financing syndicate already in place.
The deal has been approved by Getty Images’ board and, pending a shareholder approval that should be little more than a formality, will close in the second quarter.
The big question that will linger is what Hellman Friedman will do once they have the assets of the world’s leading stock photo agency in their portfolio. What will become of Getty Images?
As a private equity company, it’s certain they are going to look for a solid return over the next two to seven years (and more likely, within two to five). To achieve that their plan may involve selling off assets (as they did with DoubleClick upon acquisition). The plan could also include splitting the company into parts (though that seems unlikely in this case). It’s even possible that they will just trim off some expenses and try and give Getty the room to grow outside the scrutiny of the public markets.
There is no question Hellman Friedman is buying a company with tremendous underlying assets. Since 1995, Getty spent more than half a billion dollars acquiring the rights to an incredibly diverse library of licensable content. Among the stacks, there’s Pump Audio, their music service, Stockbyte, iStockphoto, which delivers low cost Micro-Stock photo inventory [more on the Micro-Stock Industry and how it works can be found here]. There’s also Wire Image, one of the world’s premier celebrity image catalogs which was acquired a year ago .
Unfortunately, as previously reported, Getty hasn’t been able to outrun the financial bullets of an industry in transition. Today, cameras are everywhere and services like iStockphoto and Snap Village (from Bill Gates owned Corbis) allow anyone to commercialize their images; a process that adds excess low cost supply to the market. Getty’s 2007 stock price was off nearly forty seven percent. Fourth quarter profits were off 7.7% even as sales were rising (up 7.1% to $218.1m).
As a public company, Getty has been handcuffed in dealing with margin pressures and changing customer habits. To be sure, in a private environment with more far-sighted investors there will be more leeway to look to the future and allow newer business lines to take hold even if they present strain on the current bottom line.
Hellman Friedman’s Andy Ballard didn’t give anything away with regard to future direction. His commentary was limited to a stock sound byte: “[Hellman Friedman will try to] release the full potential of [Getty’s] traditional businesses while further the evolution of Getty Images into a global digital media company.”
It will be interesting to see what kind of “media company” and “evolution” is in Hellman Friedman’s strategic plan.
[As a side note, Hellman Friedman is not a stranger to Internet or Media investments. In addition to their much publicized buyout and sale of DoubleClick, they are also stakeholders in VNU. They took that position in the parent company of AC Nielsen, Nielsen Media Research and trade publications like Adweek, Billboard and the Hollywood Reporter as part of larger syndicate of private equity firms in March 2006. Other current Hellman Friedman media investments include an interest in Axel Springer AG, German’s largest newspaper publisher and Catalina Marketing, a direct marketing firm acquired for $1.7b in 2007.]
•Microstock Photo: How User Generated Content is Reshaping the Photo World
•The Official Getty Sale Press Release (external)
•Getty Images at Auction: Now Selling Itself and Not just the Pictures
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•Getty Images Shopping Spree Continues with Pixel Graphics and Stockbyte
•Corbis Joins Microstock with Snap Village Launch
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•Getty gets Pumped: Acquires Pumped Audio
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