GSI Commerce To Acquire Fanatics

The combination of Fanatics with GSI's online licensed sports merchandise business, which operates the official e-commerce websites for NFL, NBA, NHL, MLB, NASCAR and ESPN, will create a leader in the online licensed sports merchandise industry, GSI said in a statement.

The transaction is valued at approximately $277 million, including $171 million of cash and $106 million of GSI common stock, which consists of approximately 4.8 million shares based on the volume weighted average price on Feb. 8, 2011 of $22.20. As of Dec. 31, 2010 Fanatics had cash of $41.8 million and no debt. Fanatics had net revenues and non-GAAP income from operations (NGIO) in 2010 of $186.3 million and $23.8 million, respectively. The acquisition is expected to close in the second quarter and is subject to the satisfaction of customary closing conditions and expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. GSI expects the acquisition to be accretive to 2011 NGIO per share before giving effect to any potential synergies or share repurchases.

Fanatics was founded in 1995 by Alan and Mitchell Trager and is based in Jacksonville, Fla. The company has over 400 employees and is led by CEO Alan Trager. Trager and his leadership team will remain with the company following the close of the deal.

The Trager family, which owns approximately 63% of Fanatics, has agreed to a four-year transfer restriction period, with 25% becoming unrestricted each year, on the shares it is receiving under the agreement. Insight Venture Partners, which has been Fanatics' institutional investment partner since 2007 and owns more than 30% of Fanatics, will also receive shares under the agreement and has agreed to a 90-day transfer restriction period.

“Fanatics is a terrific company and a great fit with GSI,” said Michael G. Rubin, Chairman and CEO of GSI Commerce. Rubin continued, “The combination of Fanatics with our licensed sports merchandise business, which had net revenues of approximately $300 million in 2010, will enable us to better serve our partners and fans, and together the combined company will be a leader in the estimated $15 billion licensed sports merchandise market. With more than 50% of its revenues generated from the sale of college merchandise, Fanatics is a great complement to GSI's focus on licensed sports merchandise for the professional sports leagues. In Fanatics, we have found a company and management team that shares our passion for the licensed sports merchandise industry and our vision for the growth opportunities that lie ahead. We are excited to welcome the Fanatics team to GSI.”

“We have operated Fanatics with an intense focus on satisfying our partners and customers through offering a broad merchandise assortment with excellent customer service. This has led to strong growth and profitability for our business. The combination with the licensed sports merchandise business of GSI is a great next step for our company and we look forward to working with the GSI team to enhance our service offering and drive continued growth and profitability,” said Alan Trager, CEO of Fanatics.

In conjunction with the acquisition of Fanatics, GSI has entered into a new $400 million credit agreement. The new five-year agreement, which replaces the company's existing $150 million revolving credit facility, includes a $285 million revolving line of credit and a $115 million term loan. The facilities will close simultaneously with and will be contingent upon the closing of the Fanatics transaction.

In addition, GSI's Board of Directors has authorized a share buy-back program of up to an aggregate of $50 million of the Company's common stock over the next two years, commencing on the closing of the acquisition. Shares may be repurchased from time to time at prevailing prices in the open market, including pursuant to Rule 10b5-1 trading plans.

GSI Commerce was advised on the acquisition by Deutsche Bank and Morgan, Lewis & Bockius LLP served as legal advisor for both the acquisition and financing transactions. Fanatics was advised on the transaction by J.P. Morgan and Paul Hastings, Janofsky & Walker LLP served as legal advisor.

Bank of America Merrill Lynch, Morgan Stanley, PNC Bank, Deutsche Bank, and J.P. Morgan served as Joint Lead Arrangers and Joint Book Runners on the new credit agreement.

Non-GAAP Financial Measure

Reconciliation of Fanatics, Inc.'s Unaudited 2010 results from GAAP to Non-GAAP: