Getty Images Inc., the world's leading seller of stock photographs, illustrations and video footage, has agreed to be acquired by private equity firm Hellman & Friedman for $2.4 billion, including debt of around $300 million, to be assumed by the buyer. The company has recently seen its margins decline, and has been looking for strategic options.

Hellman & Friedman has offered Getty Images shareholders $34 a share, which is at a premium of 55 per cent over Getty's closing price on 18 January 2008, the day on which it announced the hiring of Goldman Sachs as an adviser for a possible sale. Getty's board has given its approval to the bid, and the takeover is expected to be completed in the second quarter of 2008.

Getty Images' share price had halved in the past year as the company suffered a slowing down of its rights-managed pictures business. The share had peaked above $94 in November 2005, and tumbled to $21.80 on 18 January 2008.

The Seattle, USA, based Getty Images, grew rapidly during the 1990s through acquisitions of stock photography firms. Its main business is supplying photographs, illustrations and videos to media, marketing and advertising companies. The core of this business, for Getty, is selling 'rights-managed pictures', and this business was affected by Internet-based text-only ads and by cutthroat competition from rival firms.

In 2007, revenue grew 6.3 per cent to $857.6 million from $806.6 million in 2006. Cost of revenue as a percentage of revenue rose to 26.6 per cent in 2007 from 25.6 per cent earlier. Net income for 2007 was $125.9 million, or $2.10 per diluted share, compared to $130.4 million, or $2.11 per diluted share, in 2006. Net income in the fourth quarter of 2007 was down to 48 cents a share from 51 cents in the fourth quarter of 2006. This was after Getty Images had slashed jobs and consolidated its offices to control costs.

According to Jonathan Klein, co-founder and chief executive officer of Getty Images, the company's board of directors ''has thoroughly evaluated strategic alternatives for Getty Images and has determined that this outcome is in the best interests of our stockholders as it provides them with superior and certain value. Furthermore, Hellman & Friedman brings specific industry expertise and support for the vision of the company's management team that will benefit our employees, customers and partners.''

Says Andy Ballard, managing director of Hellman & Friedman, ''Getty Images is the leader and pioneer in the visual content and digital media business. We believe in the vision and execution capabilities of Jonathan Klein and his team, and share their commitment to the company's stakeholders and customers.''

The acquirer will have to find new ways to run the business. For there is little it can do about Getty Images' changed business environment; the rise of online advertising at the cost of print advertising, and big ad spends on text-based search, are factors that can only be expected to grow stronger. Print newspapers and magazines have been curtailing purchase of Getty's high-priced photographs as they have themselves had to cope with the growth of Internet media. And the Internet has also reduced demand for images for direct mail and brochures.

On the other hand, as the company goes private with the private equity acquisition, the management expects to be able to focus on longer-term growth. It will not be facing the public glare every quarter. Klein says Getty Images will strengthen its music licensing, multimedia, video and user-generated content businesses.

Getty Images, which has strong cash flows, is facing stiff competition from Corbis, privately held by Microsoft chairman Bill Gates, who founded Corbis in 1989, and Jupitermedia Corp. Corbis had revenues of $251 million in 2006 (against Getty Images' $857.7 million. Jupitermedia had revenues of $50.7 million; but its revenues had been just $13.5 million in 2002. Getty's attempt in 2007 to acquire the publicly held Jupitermedia didn't work.

Several other newcomers are selling photographs and videos at a fraction of Getty prices. In 2006, Getty Images spent $50 million to take over iStockPhoto.com, which sold images for as little as $1 for unlimited use. In early 2007, Getty Images acquired its biggest rival, MediaVast, for $202 million; this deal included MediaVast's WireImage service. The firm has acquired around 50 companies during its 10-year existence, including Photonica (for $51 million) in 2005.

Getty Images claims to have over 3.2 billion images in stock on an average, and 7 million visitors to its website every month. Its offerings include images from the Time Life and National Geographic collections.

Financing commitments for the Hellman & Friedman deal have been provided by Barclays Capital, GE Commercial Finance and RBS Greenwich Capital. In addition, Getty Investments, the investment arm of the Getty oil fortune, and certain related parties, including the co-founder and chairman, Mark Getty, which hold about 15 per cent of Getty Images shares, will roll their shares into the new entity, the company said.

Hellman & Friedman has many other investments in the media space, including Digitas, which was bought by Publicis Groupe; DoubleClick, whose acquisition by Google is awaiting the approval of regulatory authorities in Europe; the VNU Group; and Advanstar, an operator of trade shows and publisher of trade and business magazines.

Getty Investments, the investment arm of the Getty oil fortune, and others including the co-founder and chairman, Mark Getty (grandson of oil magnate J. Paul Getty), which hold about 15 per cent of Getty shares, will roll their shares into the new entity, the company said.