Publicis Surges as $4.4 Billion Epsilon Deal Deepens Data Push
Publicis Groupe SA agreed to buy digital marketing firm Epsilon from Alliance Data Systems Corp. for $4.4 billion in cash
(Bloomberg) -- Publicis Groupe SA made its boldest move yet into digital marketing with the French advertising group’s $4.4 billion purchase of Alliance Data Systems Corp.’s Epsilon unit. The shares rose the most intraday in six months.
The owner of agencies Saatchi & Saatchi and Leo Burnett Worldwide is betting Epsilon’s trove of consumer data from loyalty programs and email campaigns will help it shift away from traditional TV commercials and billboards, where sales are falling as consumer giants spend more online.
Publicis announced the takeover -- its largest ever -- on Sunday as it reported a 1.6 percent drop in first-quarter organic sales, after the loss of a handful of clients. Epsilon collects data including transactions, location and web activity, and is less exposed to consumer-goods companies, Publicis Chief Executive Officer Arthur Sadoun said on a call with analysts on Monday.
Clients are facing mounting challenges in a “data-led and digital-first world,” 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 personalized experience at scale.”
The big ad holding companies including Publicis and WPP Plc are now up against consultants focused on business transformation, such as 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 Paris-based Publicis, the third-largest ad holding company by market value, rose as much as 4.6 percent in early Paris trading to 49.38 euros, trimming their decline over the past year to 11 percent. The stock had dropped after the company was named as a potential bidder for Epsilon late last month, as investors questioned its ability to absorb such a big transaction.
Publicis plans to fully finance the purchase with debt and cash on hand and suspend a share-buyback program to keep a 45 percent dividend-payout-ratio pledge. The net purchase price will be $3.95 billion after an acquisition-related tax impact, Publicis said.
Analysts from Morgan Stanley and Liberum highlighted the 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.
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.”
--Matthew Bloxham, media analyst
Click here to view the research
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 $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.
--With assistance from Geraldine Amiel and Thomas Pfeiffer.
To contact the reporter on this story: Angelina Rascouet in London at arascouet1@bloomberg.net
To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, John J. Edwards III
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