PARIS: Publicis Groupe SA will pay US$4.4 billion in cash to acquire Alliance Data Systems Corp.’s marketing unit Epsilon, as the French advertising group seeks to deepen its digital expertise and expand in the US
The takeover, the biggest ever for Publicis, was announced by the Paris-based company in a statement on Sunday, two weeks after it confirmed it was in talks with Alliance Data. Publicis shares rose as much as 4.4% to 49.26 euros in early Paris trading.
The owner of agencies Saatchi & Saatchi and Leo Burnett Worldwide is focusing more on data analytics as sales from traditional advertising drop with consumer giants relying less on TV commercials and billboards and shifting spending online. Epsilon runs loyalty programmes and email marketing and collects data including transactions, location and web activity.
Clients are facing mounting challenges in a “data-led and digital-first world,” Publicis Chief Executive Officer Arthur Sadoun said in an interview. He said Epsilon will bring “an acceleration in data and platform that will position us as a clear leader in personalised experience at scale.”
Traditional marketing firms like Publicis and WPP Plc are now up against consultants focused on business transformation including Accenture Plc, which is also getting into creative work. At the same time, tech giants Facebook Inc. and Alphabet Inc.’s Google threaten to cut out agencies as buyers of ad space.
Shares of Publicis, the third-largest ad holding company by market value, have fallen 13% over the past year. The stock dropped after the company was named as a potential bidder for Epsilon, as investors questioned its ability to absorb such a big transaction.
Publicis said the acquisition would be fully financed by debt and cash on hand and it would suspend a share buyback program to keep a 45% dividend payout ratio pledge. The net purchase price will be US$3.95 billion after an acquisition-related tax impact, Publicis said.
Analysts from Morgan Stanley and Liberum highlighted benefits of the Epsilon deal in research notes on Monday, including that it gives Publicis more consumer data, but noted the decline in traditional advertising sales for the company in the first quarter.
In a separate statement on Sunday, Publicis said it posted a 1.6% drop in first-quarter organic revenue, after selling its PHS pharmaceutical unit. The company said the decline reflects the loss of a handful of consumer goods clients.
What Bloomberg intelligence says
“Organic growth in net sales is the primary measure of success, and one where Publicis’ progress is in reverse, making the 2020 goal of 4% growth increasingly aspirational.”
While Sadoun is staking the company’s future on digital tech businesses that he sees as “strategic game changers,” Publicis has a patchy record in managing acquired companies. The group posted a loss in 2016 after writing down the value of one of its digital businesses.
Under Sadoun’s predecessor as CEO, Publicis supervisory board Chairman Maurice Levy, the company made one of the industry’s boldest bets on ad technology in 2015 with the US$3.7 billion purchase of Boston-based Sapient. On Sunday, Sadoun called the Sapient and Epsilon businesses complementary.
“Sapient is about business transformation and consulting. Epsilon is about platforms, data and technology to enrich first-party data,” he said.
Plano, Texas-based Alliance Data said in February it was weighing preliminary offers for Epsilon after announcing a review in November. In addition to the Publicis offer, Alliance Data had attracted bids from Advent International and Goldman Sachs Group Inc., people familiar with the matter said last month.