Online stationary retailer Shutterly Inc. (SFLY, Financial) announced Tuesday afternoon it is buying privately held Lifetouch Inc. for $825 million in cash, expanding its business into school photography.
The Redwood City, California-based company’s shares, which closed at $53.32 on Tuesday, surged 14.7% in after-hours trading following the announcement.
A leader in school photography, Eden Prairie, Minnesota-based Lifetouch says it photographs more than 25 million children every year for their parents. Through this acquisition, not only will Shutterfly gain these customers, but both companies will benefit from the other’s products. According to Shutterfly President and CEO Christopher North, the two companies are “uniquely well suited for one another.”
“Most exciting of all is the potential to bring together Lifetouch’s unique access to millions of families who value high-quality photographic portraits with Shutterfly’s cloud photo management, product breadth, and product creation capabilities,” he said. “Together, the two companies will accelerate each other’s respective strategies, driving shareholder value through consumer growth and significant incremental profits and cash flow.”
In a statement, Lifetouch CEO Michael Meek also expressed his excitement for the deal.
“Shutterfly and Lifetouch have a common mission and a common culture,” he said. “Similar to Shutterfly, Lifetouch has a large and loyal customer base, and a talented and dedicated team that are excited about the opportunities at the combined company.”
In its fourth-quarter and full-year 2017 earnings report, which was also released on Tuesday, Shutterfly posted results that exceeded expectations. In fiscal 2017, Lifetouch generated approximately $963.9 million in revenue.
In the 12 months following the close of the deal, Shutterfly anticipates approximately $935 million in additional net revenues and approximately $100 million in additional adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). By 2020, the combined company hopes to achieve $450 million in adjusted EBITDA.
Shutterfly said it will finance the acquisition through an “incremental $825 million Term Loan B issuance.” In addition, the company said it is temporarily suspending its share repurchase program to accommodate for near-term delevering.
The deal is expected to close in the second quarter.
Guru shareholders
Several guru investors followed by GuruFocus have positions in Shutterfly, the largest shareholder being PRIMECAP Management (Trades, Portfolio) with 21.34% of outstanding shares, or a little over 5.06 million shares. Other guru shareholders are Ron Baron (Trades, Portfolio), Mario Cibelli (Trades, Portfolio), Jim Simons (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio).
Stock price
Continuing its rally, Shutterfly’s stock was up 20.27% on Wednesday morning at $64.36. GuruFocus estimates the stock lost approximately 1% in 2017. Year to date, it has gained nearly 30%.
Disclosure: I do not own any stocks mentioned.
