Shutterfly Inc. announces definitive agreement to acquire privately-held Lifetouch

“Shutterfly and Lifetouch, two undisputed leaders in their respective industries, are both built around the mission of helping customers share life’s joy through photos,” said Christopher North, President & Chief Executive Officer of Shutterfly. “The two companies are uniquely well suited for one another, with similar target customers as well as complementary manufacturing capabilities. 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. Together, the two companies will accelerate each other’s respective strategies, driving shareholder value through consumer growth and significant incremental profits and cash flow. We’re excited to welcome the Lifetouch team to the Shutterfly family.”

Lifetouch is the clear leader in school photography. The company photographs more than 25 million children annually during the cherished fall picture day tradition, serving more than 10 million households, including more than one million new kindergarten households annually, across more than 50,000 schools. In Lifetouch’s fiscal year ended June 30, 2017, Lifetouch revenue was $963.9 million, and EBITDA was $111.3 million (audited).

Lifetouch provides Shutterfly with a highly complementary business. Shutterfly expects to gain access to many Lifetouch customers as Shutterfly customers, where they will benefit from Shutterfly’s leading cloud-photo management service, product creation capabilities, mobile app, and broad product range. Lifetouch will be able to offer Shutterfly’s broader product range to the Lifetouch customer, as well as to accelerate the development of Lifetouch’s online platform. The companies also expect to realize significant supply chain, manufacturing, and fulfillment synergies over time.

“I’m excited to join the Shutterfly team,” said Michael Meek, CEO of Lifetouch. “Shutterfly and Lifetouch have a common mission and a common culture. 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. As Lifetouch continues to leverage technology to better serve our customers, Shutterfly’s capabilities across photo management, product creation, and ecommerce will accelerate this transformation.”

The Board of Directors of Shutterfly and the trustee of the Lifetouch ESOP both approved the acquisition, which remains subject to customary closing conditions, including regulatory approval. The companies expect the acquisition to close in the second quarter of 2018. Shutterfly will finance the acquisition with an incremental $825 million Term Loan B issuance. In connection with the acquisition, for the time being, Shutterfly will suspend its share repurchase program in favor of near-term de-levering.

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 closing of the acquisition.

With this acquisition, the combined Company targets 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 conference call.

Morgan Stanley & Co. LLC is serving as financial advisor to Shutterfly for the acquisition, and BMO Capital Markets is serving as financial advisor to Lifetouch Board Special Committee.

About Shutterfly, Inc.

Shutterfly, Inc. is the leading online retailer and manufacturer of high-quality personalized products and services. Founded in 1999, the Shutterfly, Inc. brands includes Shutterfly®, where your photos come to life in photo books, gifts, and cards and stationery – with premium offerings in its Tiny Prints® boutique – as well as wedding invitations and stationery for every step of the planning process; BorrowLenses®, the premier online marketplace for photographic and video equipment rentals; and GrooveBook™, an iPhone and Android app and subscription service that prints up to 100 mobile phone photos in a GrooveBook and mails it to customers every month. For more information about Shutterfly, Inc. (SFLY), visit www.shutterflyinc.com.

About Lifetouch

For over 80 years, Lifetouch has been the professional photography choice for schools and families. Headquartered in Eden Prairie, MN., Lifetouch is 100% employee owned. Built on the tradition of “Picture Day,” Lifetouch School Photography captures smiling faces, kindergarten through high school graduation. Product lines include sports, events, seniors and yearbooks. Lifetouch Portrait Studios leads the company’s retail presence in JCPenney Portraits studios. Lifetouch Church Photography connects church membership through family photography and printed and mobile pictorial directories. Lifetouch Preschool Photography is the preferred provider of infant and toddler photography from coast to coast. iMemories, a Lifetouch company, serves as a solution for digital transfer of home movies and images into cloud storage where they can be easily viewed, shared, and enjoyed on all modern devices.

Lifetouch, Inc.
Reconciliation of Operating Income to EBITDA
(In millions)
(Unaudited)