How did Getty Images (NYSE: GYI) decide to put itself up on the auction block, a process resulting in its $2.4 billion sale to PE firm Hellman & Friedman? In a monstrous SEC filing, the company has published the slides its banker, Goldman Sachs, presented to the board to help it pursue strategic alternatives. Some background: the company confirmed the search for strategic alternatives in January, and announced a sale in February, but it wasn’t quite so quick.
The bank made its first presentation back in September (seen in this sub-section of the filing). The timing of this is significant, as the company’s stock had just taken a monster hit, trading around 40 percent below its highs from earlier in the summer. At that point, there were four options on the table: preserve the status quo, aggressive recapitalization (take on debt, share buybacks, etc.), leveraged sale and a strategic sale. Ultimately, the company decided on October 23 to pursue a possible sale. Lots more details after the jump.
– Bid timeline: Perhaps the most striking thing about the bidding history is how quickly would-be buyers dropped their bid. Back in November, when Getty was trading in the low $30s, there was initial interest in the company at $37-$45 per share. But as the stock dropped (and possibly because of the economy), the level of interest started to come down, such that by February 4, only two firms submitted bids. One was H&F at $32.75 per share, while the other unidentified firm offered just $30. After some negotiations, H&F moved the offer up to $34. Ultimately, this was just a little bit above where Getty was trading at when it initiated the process (a polite nod to efficient markets. It’s also below the company’s one-year average of around $38.
– Interest: Almost entirely from leverage (PE) buyers. From the early slides, it’s clear that Getty and Goldman expected a PE bidder to be the likely outcome. However, the first presentation did list Adobe (NSDQ: ADBE), Google (NSDQ: GOOG), News Corp. (NYSE: NWS), Sony (NYSE: SNE) and Reuters (NSDQ: RTRSY) as a few illustrative potential strategic buyers. Illustrative is key; these weren’t companies that showed any interest, or even companies that Goldman thought might want to bid. They were isted to show what kind of financial impact a Getty acquisition would have on a range of buyers. It is interesting, again, to look at the sale prices they were talking about. When examining a tie-up with Adobe, for example, the analysis was done on potential bid prices of $38 and $44, for above the end price. Later on, in January, after news of Getty’s sale was leaked in the New York Times, the company did get some mild interest from strategic buyers, including Reuters, Discovery Communications (NSDQ: DISCA), Thomson (NYSE: TOC) and NBC, and an unidentified “Strategic Party C”. None of these companies followed up after initial conversations, save Strategic Party C.
– That same NYT article prompted some interest from PE buyers as well. Given the timing of that article, at a time when interest had declined, it seems possible that it was the result of an intentional leak designed to goose interest (that’s just a hunch based on the way the timeline is described).
– Growth: The stock movement over the last year tells the story pretty clearly: the bloom had come off the rose, as the market lost confidence in the company’s growth prospects. The company’s own projections say the same thing. From 2002-2007, earnings CAGR was around 41 percent. Through 2012, the growth rate was expected to drop to 8.8 percent.
– Changing model: In 2007, Creative Stills, the company’s biggest business line, accounted for $461 million, or 51 percent of Getty’s total revenue. By 2012, this line was expected to shrink to $348 million, just 29 percent of the total. Conversely the iStockPhoto business, currently just 14 percent of total revenues, is expected to account for 22 percent. B2B music, a very small slice of the pie at $14 million in 2007 is expected to more than triple to $46 million by 2012. Note that Getty’s smaller rival Jupitermedia (NSDQ: JUPM) has been pushing the music side of their business hard with multiple acquisitions.