Why Is Apollo Global Management Acquiring Shutterfly?

Private equity firm Apollo Global Management LLC recently entered into an agreement to acquire U.S. digital imaging company Shutterfly, Inc for $2.7 billion, including the company’s $900 million debt. Shutterfly disclosed its intent to be acquired late last week, clarifying the financial aspects of the proposed deal. Notably, Apollo also announced that it is acquiring privately-held Snapfish LLC, a small internet-based retailer of photography products, and plans to merge it with Shutterfly.

Shutterfly’s shareholders will receive $51 per share in cash as a part of the deal – a price Trefis has maintained as the fair value for the company since the start of 2019. Details about our price estimate for Shutterfly can be found in our interactive dashboard What is Shutterfly’s Fundamental Value Based On Expected 2019 Results?  Additionally, you will find more Trefis Internet and Software company data here.

A Quick Look At Shutterfly’s Revenue Streams

Trefis’ model for the company breaks its key value drivers down to three key components:

• Consumer segment: Shutterfly’s retail division, which delivers customized products like photo albums, photo cards, greetings cards, stationery, and other gift items.
• Lifetouch segment (created in 2018): Shutterfly acquired Lifetouch, a national leader in school photography, in April 2018 for $825 million.
• Shutterfly Business Solutions segment (SBS): SBS provides personalized direct marketing and other end-consumer communications as well as just-in-time, inventory-free printing to Shutterfly’s customers.

The trends in revenue for each of these segments over recent years is captured in the chart below.

Salient Points of the Deal That Will Take Shutterfly Private

• On April 23, 2019, a media report speculated that funds managed by Apollo Global Management were considering a bid for Shutterfly.
• On June 10, 2019, Shutterfly agreed to be acquired in an all-cash deal.
• The transaction is expected to close in early Q4 2019.
• Shutterfly’s common shareholders shall receive $51.00 per share in cash, representing a premium of 31% when compared to Shutterfly’s unaffected closing stock price of $38.91 on April 23, 2019.
• Upon completion of the transaction, Shutterfly will become a privately-held company

How Is Apollo Likely To Benefit From The Deal?

• Shutterfly is a leading digital retailer and manufacturer of high-quality personalized products and services and provides a unique product range in the industry. Shutterfly recently acquired Lifetouch, a national leader in school photography. The integration of Lifetouch provided the company access to more than 10 million purchasing households which form its ideal target customers.
• Snapfish is a web-based photo sharing and photo printing service.
• Apollo intends to acquire both Shutterfly and Snapfish. It plans to merge the two photo-product retailers to form a larger combined business. This merged private entity is likely to provide a well-diversified product and category range, that is expected to contribute to its customer growth and drive value in the near term.
• Apollo is most likely working with a time frame of 3 to 5 years for this investment. Over this period, it will look to realize synergies from the combined entity and to then grow the business enough to either sell it a potential acquirer or take it public again via an IPO, at a much higher valuation (with potential returns in excess of 100%)

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