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There is some big M&A news in the licensed visual content space. Getty Images (GETY +29%) and Shutterstock (SSTK +24%) announced a merger of equals transaction, creating a premier visual content company. The deal was not a total surprise given than Bloomberg reported a possible deal on Friday. However, shares of both companies are surging on the news as perhaps the terms were more favorable than expected.

• The combined company will be named Getty Images and will continue to trade on the NYSE under the GETY ticker. GETY shareholders will own 54.7% of the combined company and SSTK shareholders will own 45.3%. SSTK shareholders get the option of $28.8487 per share all in cash or they can choose all GETY shares or a mix of shares and cash. As a combined company, Getty Images and Shutterstock will offer a content library with greater depth and breadth for customers.
• In terms of the rationale for the deal, the companies explain that the deal will facilitate greater investment in innovative content creation, expanded event coverage, and improved capabilities such as search, 3D imagery and generative AI. They also note their complementary portfolios, creating a broader set of visual content products across still imagery, video, music, 3D and other asset types.
• The companies also cite a strengthened balance sheet and greater cash flow generation. Expected annual cost synergies are expected at $150-200 mln by year 3 and it's expected to be accretive to earnings and cash flow beginning in year 2.
• A knock on Getty Images has been a pretty levered balance sheet and that partly explains why its share price has been trading in the low single digits. Shutterstock has some debt, but it's not as levered as Getty. The deal should deleverage the combined balance sheet and the combined company should be well positioned to accelerate debt repayment and reduce borrowing costs.

Both companies have seen their share prices trend lower over the past year. In an era where generative AI applications can create images in seconds and with camera phones getting better and better, there has been less need for content creators to pay fees for licensed visual content. Combining together will certainly lower costs, but how a combined company would combat these larger macro problems is not readily apparent to us. Another wrinkle is whether the deal might raise some anti-trust concerns from regulators. Perhaps that impacted the timing of this deal after the election with the incoming Trump administration being seen as more lenient but there are no guarantees.