Shutterfly closes transformational acquisition of Lifetouch

• Company Issues $825M Term Loan B to Finance Acquisition

• Updated Credit Ratings Maintain Ba3/BB- Rating

REDWOOD CITY, Calif.–(BUSINESS WIRE)–Shutterfly (NASDAQ: SFLY), the leading online retailer and manufacturer of high-quality personalized products and services, today announced it has closed its previously announced acquisition of Lifetouch, the national leader in school photography. The company financed the acquisition with the proceeds of an $825 million incremental term loan facility, which closed simultaneous with the acquisition.

“We are thrilled to welcome Lifetouch to the Shutterfly family, and are excited to bring together two undisputed leaders in adjacent verticals, both of which have the common mission of helping customers share life’s joy through photos,” said Christopher North, President & Chief Executive Officer of Shutterfly. “We are focused on realizing the three value creation opportunities that we previously articulated: gaining access to many Lifetouch customers as Shutterfly customers, offering Shutterfly’s broader product range to Lifetouch customers and accelerating the development of Lifetouch’s online platform, and realizing significant supply chain, manufacturing, and fulfillment synergies over time.”

Michael Meek will remain as President and Chief Executive Officer of Lifetouch, and will report to Christopher North.

Now that the acquisition has closed, Lifetouch will no longer be required to fund the Lifetouch Inc. Employee Stock Ownership Plan (ESOP). At closing, the sale proceeds were paid to the trustee of the ESOP who will distribute the proceeds to participants. Generally, participants will receive full payment for their ESOP interest in two installments, and following the expiration of applicable escrows and final approval of the IRS, the ESOP will be terminated.

Shutterfly expects the acquisition to result in approximately $935.0 million of additional Net Revenues, and approximately $100.0 million of additional Adjusted EBITDA in the twelve-month period following the closing of the acquisition. The Company will provide updated 2018 financial guidance incorporating Lifetouch results of operations for the remainder of the year, on its Q1’18 earnings call.

As mentioned on the fourth quarter earnings call, the Company is targeting a minimum of $450 million of Adjusted EBITDA by 2020. For additional information on the components of this Adjusted EBITDA target, please see the presentation accompanying the Company’s January 30, 2018 conference call.

Transaction Details

Shutterfly acquired privately-held Lifetouch for $825 million, cash-free, debt-free. The acquisition of Lifetouch was announced on January 30, 2018 and was approved by the Board of Directors of Shutterfly and the trustee of the Lifetouch ESOP prior to the announcement. Shutterfly financed the acquisition with incremental term loans, which closed simultaneous with the acquisition.

Incremental Term Loan B Details

In connection with the acquisition of Lifetouch, the company incurred $825 million of incremental term loans. The incremental term loans bear interest at LIBOR, plus 250 – 275 basis points (determined based on the company’s secured leverage ratio, as defined), and were issued at a discount to par of 25 basis points. The incremental term loans mature on August 17, 2024, concurrent with the company’s $300 million of existing term loans incurred on August 17, 2017. The terms of the facility are set forth in an Incremental Term Loan Amendment dated April 2, 2018 by and among Shutterfly, the subsidiary guarantors, the lenders and issuing banks, and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and amends the company’s existing Credit Agreement, dated as of August 17, 2017. The incremental term loans were drawn in full at closing.

As part of the Term Loan B issuance, the company received updated credit ratings, which now incorporate the Lifetouch acquisition and the incremental debt. The company maintained its Ba3/BB- rating profile through this process, consistent with the company’s stated intentions.

 

About Shutterfly, Inc.

Shutterfly, Inc. is the leading digital retailer and manufacturer of high-quality personalized products and services. Founded in 1999, Shutterfly brings your photos to life in photo books, gifts, and cards and stationery – through its flagship Shutterfly products, premium offerings in its Tiny Prints boutique, as well as wedding invitations and stationery for every step of the planning process; and through BorrowLenses, the premier online marketplace for photographic and video equipment rentals. Shutterfly, Inc. also operates Shutterfly Business Solutions, delivering high quality digital printing services to the enterprise market, and Lifetouch, the leader in school photography. For more information about Shutterfly, Inc. (SFLY), visit www.shutterflyinc.com.