Stuart Elliott
The French advertising giant Publicis Groupe struck a deal recently to buy Razorfish, the interactive agency that Microsoft has owned since acquiring the agency?s parent company, aQuantive, in 2007.
Publicis, which owns interactive agencies such as Digitas, agreed to pay about $530 million in cash and stock for Razorfish. The deal had been widely expected. After the deal closes, probably in the fourth quarter, Razorfish will maintain its current management as an autonomous unit of the VivaKi division of Publicis.
Microsoft held an auction for Razorfish, attracting bids from some of the most dominant names in advertising, among them the world?s largest agency company, WPP, and the largest agency company in Japan, Dentsu. The deal is ?another step forward in realising our strategic vision of building a world leader in digital communications, a critically important space for our clients,? Maurice Levy, chairman and chief executive of Publicis in Paris, said.
After the deal closes, Levy said, Publicis will derive about a quarter of its revenue from interactive and digital advertising. The company had expressed the desire to achieve that goal in 2010, so Levy will be able to check that box early.
The acquisition is being made for 1.4 to 1.5 times the annual revenue of Razorfish, which was estimated for last year at $400 million. That level is about typical for deals in the current subdued economic climate.
A big part of the deal is what is being called a strategic alliance agreement between Microsoft, based in Redmond, Washington, and Publicis, which also owns agencies such as Saatchi & Saatchi, Leo Burnett, the MediaVest Group and ZenithOptimedia.
The alliance agreement, which is to run for five years, calls for Publicis to buy a minimum guaranteed level of display and search advertising using Microsoft properties such as MSN.com and Bing, the new search engine. Trade publications have estimated that guaranteed level in the hundreds of millions of dollars.
The alliance agreement also calls for Microsoft to spend a minimum guaranteed amount with Razorfish.
Razorfish, formerly known as Avenue A/Razorfish, works for marketers such as Best Buy, Ford Motor, McDonald?s, MillerCoors, Levi Strauss & Co, and Starwood Hotels and Resorts.
The mix of cash and stock that Microsoft will receive is to include about 6.5 million shares of Publicis. Dentsu is another large shareholder in Publicis, owning about 15%, along with the family of the founder of Publicis.