Zacks_Analysts' Blog : Vistaprint to Take Over Webs - Analyst Blog

Vistaprint N.V. (VPRT) recently signed a definitive acquisition agreement with Webs, Inc., the do-it-yourself suite of websites, Facebook Pages and mobile presence solutions for small businesses. Per the agreement, Vistaprint will acquire Webs for $117.5 million, of which $100.0 million will be in cash and $17.5 million in restricted shares. The transaction is expected to close within one month.

There is a bunch of attributes that made Webs a lucrative acquisition target. Its free website and Facebook business pages are in sync with the open business card offerings of Vistaprint. Second, Vistprint seeks to capitalize on large pool of customer that Webs currently boasts of. Third, the customer centric business approach of Webs complements Vistaprint's technology, manufacturing and marketing capabilities. Finally, Webs has tight grip in several emerging markets in which Vistaprint aims to expand.

Vistaprint management has been on an acquisition spree for quite some time. In early November, the company acquired leading European photo-book provider Albumprinter Holding B.V. with the intent to further strengthen its pan-European customer base.

We view the Webs deal as strategically positive for both parties, given that Webs is not a profitable company currently. Post acquisition, Vistaprint will retain all managers and employees of Webs. This acquisition is in sync with Vistaprint’s strategy to be more upbeat in marketing, geographic reach and service operations. 

Although we prefer management's efforts to revamp its business, execution risks cast a cautious outlook on the stock. Apart from acquisitions, Vistaprint has embarked on an extensive investment plan in manufacturing to improve product quality and lower unit manufacturing costs as well as in marketing to facilitate revenue and earnings growth over five years. The initiative will likely drag down Vistaprint’s net margins in fiscal 2012 from the fiscal 2011 level.

On a GAAP basis, Vistaprint expects the Webs transaction to lower earnings in fiscal years 2012 through 2014 and become accretive after that. On a non-GAAP basis, the transaction is expected to be dilutive in fiscal years 2012 and 2013 and become accretive thereafter.

Irrespective of the acquisition, Vistaprint will likely deliver modest EPS growth from fiscal 2012 to 2013, and then strong growth in fiscal years 2014 through 2016. This muted guidance keeps us on the sidelines for the near term.

The nagging tension over the Euro-zone debt crisis also poses some concerns given Vistaprint’s increasing exposure in that region. This is validated by the deceleration in sales growth in Europe in the first quarter of 2012.

Vistaprint, which competes with the likes of TeleTech Holdings Inc. (TTEC) and Sykes Enterprises Inc. (SYKE) currently, retains a Zacks #3 Rank that translates into a short-term Hold rating.