680 CORBIS TO ACQUIRE ZEFA
November 11, 2004
Industry consolidation continues as Corbis, the second largest seller of still stock images, moves to acquire Zefa, the third largest seller. Gross revenue for Corbis in 2003 was about $140 million and they have projected $164 million for 2004. (Since Corbis is a private company actual figures are not reported.) Zefa is reported to have had annual sales of about $43 million in 2003.
Sources tell me that a "letter of intent" has been signed and Corbis management is currently in Dusseldorf doing due diligence. In a statement to his staff earlier this week, Steve Davis, CEO of Corbis said, "We are in talks with Zefa's management to gauge the potential for acquiring their company and its subsidiaries. Zefa has publicly stated their intention to sell, and Corbis often considers these kinds of opportunities. In this case the talks have reached an advanced level and we are examining Zefa's operations very closely. There is nothing more to report right now."
In August, I reported (Story 656 ) that the 3i private equity group that owns a minority interest in Zefa was interested in cashing out, a normal procedure for equity investors after five or six years. However, Erwin Fey owed the majority interest and at that time
told me, "I have control and I do not want to sell my shares. If someone offered me something ridiculous for the company, I might lose a nights sleep, but we've got a good team here and I want to continue to operate this company." 3i had estimated the company's value at two-and-a-half times annual sales, or in the range of $110 million. Evidently, the offer was too good to refuse.
It appears that a few industry insiders had wind of this as much as a month ago, but by last weekend photographers in Dusseldorf and Toronto (home of Masterfile) were beginning to discuss the potential sale online. Despite Davis' low key statement sources indicate that the deal is now on a very fast track and Corbis hopes to close before December 31, 2004.
Getty has been making a major push to expand its operations in Europe, and particularly in the German speaking countries, and it would seem that Zefa's content might have been a benefit to Getty. The strengthening of Corbis in that market is certainly not good news for Getty, but it is possible that Getty feels an independent Zefa was a stronger competitor than it is likely to be once integrated into Corbis. However, if Getty had seriously wanted Zefa they could have easily out bid Corbis. It is our belief that the potential anti-trust issues were the principle factor that kept Getty from moving on this one.
What about the sales partners?
Zefa has 16 subsidiaries and a network of 70 "sales partners" around the world.
In previous acquisitions a lot of these people have been quickly made redundant.
Chief among those likely to suffer is Masterfile. In the last few years Masterfile has developed a very special relationship with Zefa . Masterfile has closed many of its offices in Europe and turned the marketing of their imagery over to Zefa. Likewise, Zefa has used Masterfile as their marketing arm in North America. Zefa has contracts with Masterfile, and they will be honored, but it is unclear when they will expire.
Once Corbis takes over it seems likely that they will move as quickly as possible to be the sole seller of Zefa images in North America. Corbis does represent a number of 3rd parties on their site, but to date most of them have been either editorial suppliers or RF companies. It will be interesting to see what Corbis' attitude will be toward adding a strong RM 3rd party content provider like Masterfile to their existing offering, and whether they will offer a royalty rate that would be acceptable to Masterfile.
Other questions that need answering are:
Will they integrate Zefa into Corbis as they did the other brands they've acquired, or will they allow Zefa to continue to operate as a separate brand? There are rumors that they will let Zefa operate as a separate brand, but that would be a surprising change in strategy if they do.
If Zefa operates as a separate brand with its own web site will the images also be available on the Corbis web site?
If they plan to fully integrate, how long is integration expected to take?
Will the Zefa editing department continue to operate as it has in the past and be allowed to make decisions, independent of the Seattle office, about which images will be added to the site?
After Corbis' previous acquisitions of The Stock Market and Sharpshooters a number of photographers for those brands refused to sign a Corbis contract and joined Zefa
and Mastefile. Now, as a result of the acquisition, Corbis will once again be representing the work of those photographers. What will Corbis' attitude be toward a continued relationship with these photographers?