Why Publicis Groupe paid a 44% premium to create Publicis.Sapient
“Christmas came early for Sapient share owners,” WPP’s Chief, Sir Martin Sorrell, made this remark on the recently concluded Publicis-Sapient deal. While Mr Sorrell calls the Publicis Groupe USD 3.7 billion acquisition of Sapient the “behaviour of a jilted lover”, for many industry observers, the deal squarely puts Publicis Groupe back on track in its merger & acquisition strategy towards building its digital capabilities. The deal also breathes back positivity in the Maurice Levy led Publicis Groupe operations, especially after the termination of the merger deal with Omnicom earlier this year.
A 3.7 billion dollar deal
Sapient’s closing shares on October 31 were priced a little more than USD 17 per share. Publicis Groupe has paid USD 25 per share, making it nearly a 44 per cent premium pay for the acquisition. For industry observers, the deal is definitely priced on the higher side but with good reason.
Simon Kemp, We Are Social
Making an interesting observation here, Simon Kemp, Regional Managing Partner, We are Social Asia, pointed out, “USD 3.7 billion is a huge sum by anyone’s standards – on the day when we reported that global internet users have just passed the 3 billion mark – that equates to more than USD 1 for every internet user. Having said that, the risk of not investing in digital is probably a more important consideration for a company like Publicis. I’d see this as a bold statement to the financial markets that Publicis Groupe is willing to do what it takes to stay apace with competitors by expanding its digital portfolio.”
Scott Bales
A similar view comes from author and entrepreneur Scott Bales. “It is difficult to comment on the deal price because we are still mid-year and from the public financial reports, we are only half way to gauge revenue growth or drop but if you looked at Sapient’s closing stock price on October 31 and the USD 25 per share figure, a 44 per cent premium is no small deal. There are two factors that may have motivated Publicis to pay this premium – first, it needed a strong and positive move to come out of the setback from the Omnicom deal falling through. Second, and more important, being strong in the digital practice is absolutely critical today,” Mr Bales observed.
Take capability, add scale
The experts echo Publicis Groupe’s rationale behind the buy – one of the consequences being a 50 per cent increase in the Groupe’s digital revenues, that has allowed it to achieve its target three years ahead of projections.
The first impression of the deal is marrying Publicis Groupe’s global scale to Sapient’s focussed and sophisticated digital offer. The cultural fit may be argued by some but Publicis has enough experience in acquiring global independents and what it takes to help the businesses grow.
“It is not just about the creative skillsets in digital but also how it is translated to user experience, analytics, programmatic and all the new age capabilities that marketers are looking for today. Sapient has most of these but I would say it was underutilised because it lacked global scale, which Publicis brings. This combination makes it a very strong asset. Sapient has some of the best creative talent in the business. That is a definite value-add for Publicis Groupe. From a Sapient viewpoint, one must not underestimate the fact that this deal allows Sapient to focus on its core duties. The creative team can just focus on creative alone. This deal overnight beefs up Sapient’s teams and gives it strength across markets,” stated Mr Bales.
Just acquiring however, is not enough after the initial benefits. “What happens next is what matters most. I would be looking to see how Publicis intends to nurture and grow Sapient’s offering, not just how it plans to integrate it within the existing Publicis network. If they want to benefit from the reputation ‘bonus’ of acquiring Sapient, they’ll need to make it something more than it is today, which could be a tough ask while they deal with the back-office issues,” Mr Kemp cautioned, voicing observations of a large industry section that urges holding companies to proactively add value to entrepreneurial set ups that are aligned via acquisitions.
Client matters
At present Sapient works with some of the biggest names in the business including the likes of The Coca-Cola Company, GlaxoSmithKline and Unilever amongst others. Industry leaders have different views on how the deal will impact Sapient client relationships in the long run.
Phu Truong, TubeMogul
“This is a very smart move by Publicis to accelerate its expansion into the digital space. They are positioning to be a digital leader and the deal shows tremendous foresight in understanding the role that digital and data technology will play in business and communications. The digital advertising market is outpacing all other channels in annual growth rates and we expect that trend to continue. There is a big opportunity in providing brands with the right mix always on digital offerings that meet the needs of marketers who are trying to engage with consumers across multiple platforms and devices,” commented TubeMogul’s Southeast Asia Managing Director, Phu Truong.
Mr Truong sets the tone of the expectations that marketers have in the region from their agency partners.
“Sapient’s clients will already have a good understanding of the agency’s capabilities, regardless of this deal. It may make it easier for Sapient to offer cost efficiencies on activities that span different media channels. The important question for clients will be whether this will come at the cost to Sapient’s ability to partner with agencies outside the Publicis network. This deal is more likely about the potential benefit to Publicis’ network of clients,” Mr Kemp said.
Mr Bales raised a more difficult question when he said that some of the relationships may come under scrutiny. “The nature of the business is such where digital heads, CMOs and the creative talent pool work with a range of businesses from independents to the network companies. Sapient scored where there was requirement of an independent. But it is a different world under a holding company umbrella. How this will translate to Sapient’s business will become obvious only in the next 12 months. The acquisition may force some to revisit their decision to align with Sapient,” he concluded.
The creation of Publicis.Sapient is one of the most talked about digital agency acquisition deals after perhaps the WPP-AKQA acquisition. AKQA has aggressively taken forward its creativity meets technology positioning even as part of the WPP set up and in the last two years, added several new offices to expand its offer. The Sapient acquisition may well be the right step from Publicis Groupe at the moment but growing this business will also have to become a key priority for the Groupe.
