FORTUNE — The Carlyle Group (CG) today announced that it has agreed to acquire stock imagery company Getty Images for $3.3 billion from fellow private equity firm Hellman & Friedman. The deal comes four years after Hellman & Friedman took the company private for $2.4 billion, a 55% premium to where Getty was trading on the public markets.
What follows is a conversation I had about the deal with Eliot Merrill, a Carlyle managing director who will serve on the Getty board of directors:
FORTUNE: You’re paying a 37.5% premium to what Hellman paid in 2008. Why is the company worth so much more today?
Merrill: Getty was then and still is a leader in its industry with a tremendous collection of assets. But the makeup of those assets has really changed over the last several years with much more digital and other product diversification. The client base also has diversified. It has evolved into a much different business than it was in 2008.
Did Carlyle try buying it in 2008?
Let’s just say we have very deep knowledge of the company, and have known [Getty CEO] Jonathan Klein for a long time.
You mentioned more digital assets. How does Getty survive when anyone can just use Google to search for, and steal, digital images?
We’re wise enough to the fact that there is always going to be some piracy. But the company has a very sophisticated image recognition system that helps it find when images are being used without its authority. But unlike with music, Getty is not in the business of suing those who violate. It tries to work with them to become customers.
The core of Getty’s business is to find corporate agencies and other large businesses that need premium content. The vast majority of those buyers are in the content and don’t want to skirt the law, or fly too close to the sun.
What is Carlyle’s basic investment thesis for Getty?
Two parts. First, the continued globalization of the business. We think we can be helpful to Getty with that because of Carlyle’s large global footprint. The digitization curve is much more advanced here and in Western Europe than in a lot of other counties in places like Asia and the Middle East, which we expect to follow the same general glide-path.
Second, there is a proliferation of digital media that uses still imagery and we don’t see that as a trend that’s going to stop. The screens people are using to consume media on a mobile basis are getting more sophisticated and having low-resolution images won’t do anymore.
$3.3 billion is a pretty large buyout for 2012. Was debt easy to secure?
If you look at the debt markets in general, you’d have to say they’re in pretty good shape. We were able to line up five great banks on terms we think are fair.
Getty was getting pummeled in the stock market when Hellman bought it, and now you’re the second straight sponsor to own it. Is Getty one of those companies that’s better off being held by private equity rather than by the public?
We’re very happy to have it sponsor owned right now, but I also believe that it could be a very good public company again someday. And maybe there are some strategics would might be interested down the road.
One of the things that’s really attractive is that the two founders — Jonathan Klein and Mark Getty — are reinvesting back in the business alongside us. It’s a powerful statement that the two people who know the business better than anyone else believe in its future.
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