Does Publicis' Epic Acquisition Spree Add Value?
by on 3rd Nov 2014 in News
Publicis Groupe has crowned its 2014 shopping spree with the announcement of its $3.7bn offer for digital advertising specialist Sapient, adding to its recent acquisition of mobile data management platform (DMP) RUN, plus last month's £40m stake in Matomy. But questions still remain on how this adds value to its bottom line.
Publicis today (3 November) announced the pair's definitive agreement of the transaction, which consists of a $25 per share all-cash offer for Sapient, with the resulting entity to be name Publicis.Sapient.
Publicis.Sapient
Publicis.Sapient will be Publicis Groupe’s newly created platform that will leverage the capabilities of the newly acquired SapientNitro, Sapient Global Markets, Sapient Government Services, with existing Publicis entities DigitasLBi, Razorfish Global and Rosetta.
Publicis.Sapient will be led by Alan J. Herrick, who has been Sapient’s CEO since October 2006, with Maurice Levy (pictured), describing Sapient as a "crown jewel".
Levy added: "This acquisition fulfills many of Publicis Groupe’s objectives: we will enhance our leadership position in digital, achieve our goal of deriving 50% of our revenues from digital and technology three years ahead of our 2018 plan, and leverage technology, consulting capabilities to expand in new verticals, and offering new and exciting opportunities to our talents.”
Strategic motive?
The holding group claims the deal means both companies will now have combined revenue in excess of €8bn, combined EBITDA of approximately €1.3bn, and over 75,000 employees worldwide in a note to investors.
This also includes a further breakdown of the strategic rationale for the multi-billion dollar deal including a "globally distributed delivery model", enabled by Sapient's "unmatched technology capability" and portfolio of enterprise technology.
Rivalries
However, not all observers are convinced by the deal. In WPP's recent earnings call, CEO Sir Martin Sorrell (pictured, right) mocked rivals Publicis and Omnicom claiming that its recently acquired $25m stake in AppNexus left it with "nowhere to go".
In his earning's call, Sir Martin said both rivals had been attempting to cut a deal with AppNexus, an option which is no longer on the table according to him, leaving them more reliant on the less agnostic Google and Facebook for their digital performance.
The merits/risks of which, have long been debated in multiple ExchangeWire pieces.
The response to such a mammoth deal has stirred miles of column inches, with Sir Martin telling The Drum, the Sapeint deal by Publicis: "Looks like the behaviour of a jilted lover."
Does this add value?
But Wieser's investor's note questioned whether this significantly raised the value of Publicis shares beyond its prior existing valuation, concluding that "SapientNitro adds little to Publicis strategically".
He added: "Despite absence of talks between Sapient and other holding companies, this represents a 44% premium to Sapient’s most recent closing price, around a 12x EV/EBITDA multiple on 2015 consensus figures (depending on Sapient’s cash balance) assuming synergies are realised.
"This is well above Publicis’ current trading multiple, which is closer to 8x… we find that with reasonable assumptions we can maintain our current price target on Publicis."
Wieser noted that Publicis' pre-existing entities DigitasLBi, Razorfish, and Rosetta already offer world-class digital marketing services, and the money spent on Sapient could have been invested in these shops.
More damningly, he added: "While Publicis has the capacity for such a transaction this deal would make it harder for Publicis to pursue something that might actually be “transformative” in the future."
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