Note on GYI: Acquisitions
KFG,
So far we are doing really well with Getty Images in the ultra-shortrun since we bought the shares. Earlier this week they announced 1 acquisition and are reported to be getting in on another. Below is the Morningstar analyst note on possible caveats (however the market really like the announcements so far, as the tape shows)
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Amid speculation that it would acquire rival Jupiterimages from Jupitermedia JUPM, Getty Images GYI said Thursday that it was acquiring MediaVast, the parent of entertainment imagery distributor WireImage, for $200 million in cash. We have mixed feelings about this deal but are holding our fair value estimate steady for now.
While adding WireImage adds diversity to Getty's revenue stream, we worry that Getty may be paying too much for a business that may be near its peak. While early 2007 results show that celebrity magazines continue to grow in popularity, this trend is relatively mature, and MediaVast's sales growth--which was more than 1,400% between 2001 and 2005 according to Deloitte & Touche--is sure to slow in the coming years. MediaVast is a private company, so we have limited knowledge of its financial results and can't know for sure how fair a price Getty is paying; however, given Getty's expectation that the acquisition would dilute 2007 earnings per share (including amortization), the lingering concerns the market has about a slowdown in Getty's core business, and the recent hypergrowth in the entertainment imagery market, we'd wager that Getty is paying up to acquire MediaVast.
Getty is paying cash, which will put a big dent in the $339 million the firm had at the end of 2006. As we mentioned above, Getty is also thinking about buying Jupiterimages. This deal has a few moving parts--Getty doesn't want all of Jupitermedia, just Jupiterimages--which complicates things, but if it went through at the $9.60 per share price mentioned in Jupitermedia's press release, Getty would need to pony up another $400 million or so. To do so, the company would need to either issue new equity--which would be a poor choice, we think, given Getty's current valuation--or add debt. We suspect the firm would opt for the latter, as it has plenty of room for additional leverage on its balance sheet.
Getty is clearly making aggressive moves to remain the leader in the digital imagery business in the face of changing industry dynamics. While we appreciate Getty using its current market dominance to ensure the same in the future, we are mindful of the price it is paying to stay on top and are concerned that returns on invested capital could decline sharply in the next few years if the company makes too many acquisitions at too high a price
So far we are doing really well with Getty Images in the ultra-shortrun since we bought the shares. Earlier this week they announced 1 acquisition and are reported to be getting in on another. Below is the Morningstar analyst note on possible caveats (however the market really like the announcements so far, as the tape shows)
----
Amid speculation that it would acquire rival Jupiterimages from Jupitermedia JUPM, Getty Images GYI said Thursday that it was acquiring MediaVast, the parent of entertainment imagery distributor WireImage, for $200 million in cash. We have mixed feelings about this deal but are holding our fair value estimate steady for now.
While adding WireImage adds diversity to Getty's revenue stream, we worry that Getty may be paying too much for a business that may be near its peak. While early 2007 results show that celebrity magazines continue to grow in popularity, this trend is relatively mature, and MediaVast's sales growth--which was more than 1,400% between 2001 and 2005 according to Deloitte & Touche--is sure to slow in the coming years. MediaVast is a private company, so we have limited knowledge of its financial results and can't know for sure how fair a price Getty is paying; however, given Getty's expectation that the acquisition would dilute 2007 earnings per share (including amortization), the lingering concerns the market has about a slowdown in Getty's core business, and the recent hypergrowth in the entertainment imagery market, we'd wager that Getty is paying up to acquire MediaVast.
Getty is paying cash, which will put a big dent in the $339 million the firm had at the end of 2006. As we mentioned above, Getty is also thinking about buying Jupiterimages. This deal has a few moving parts--Getty doesn't want all of Jupitermedia, just Jupiterimages--which complicates things, but if it went through at the $9.60 per share price mentioned in Jupitermedia's press release, Getty would need to pony up another $400 million or so. To do so, the company would need to either issue new equity--which would be a poor choice, we think, given Getty's current valuation--or add debt. We suspect the firm would opt for the latter, as it has plenty of room for additional leverage on its balance sheet.
Getty is clearly making aggressive moves to remain the leader in the digital imagery business in the face of changing industry dynamics. While we appreciate Getty using its current market dominance to ensure the same in the future, we are mindful of the price it is paying to stay on top and are concerned that returns on invested capital could decline sharply in the next few years if the company makes too many acquisitions at too high a price
posted by Rich Golaszewski at
12:16 PM
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