Publicis, the world’s third-largest advertising agency, has agreed to buy digital ad specialist Sapient for $3.7 billion in cash as it seeks to accelerate growth after a botched merger earlier this year.
Publicis said on Monday the deal values U.S.-based Sapient at $25.00 per share, which represented a 44 percent premium to Friday’s close. It will be financed through existing cash and new debt and will not affect Publicis’ credit rating.
For Publicis Chief Executive Maurice Levy, the deal is part of a push to revitalise the group at a time when its quarterly top-line growth has lagged rivals WPP and Interpublic among others.
Levy has blamed the poor performance on the hangover from Publicis’ failed “merger of equals” with world number 2 ad agency Omnicom, which was announced in August 2013 and abandoned in May over control and cultural clashes.
Levy is betting that Sapient – which earned 63 percent of 2013 sales in the healthy ad market of North America and has 13,000 employees, 8,500 of which are in India – will help Publicis get back on its feet.
“Publicis and Sapient will be a technology leader to help our clients go digital,” said Levy on a conference call.
“The deal will create a foundation for accelerated growth,” he said, by giving it access to new markets and revenue stream
The deal will speed Publicis’ roughly 7-year-old effort to earn more revenue from so-called digital advertising, which includes everything from online marketing to brand building on social networks and automatic ad buying for major customers.
Last year, 38.4 percent of Publicis’ sales came from digital, and it had been aiming to reach 50 percent by 2018, something that the Sapient deal will make happen immediately.
Sapient counts global corporations, including car maker Fiat, consumer products group Unilever, and retailer Marks & Spencer among its customers.
Charles Bedouelle, analyst at Exane BNP Paribas, said the deal was strategically sound but expensive: “It’s a good asset at a steep price, and will likely push back cash return story by two years.”
Publicis did not say when the Sapient acquisition would add to group profits but expects 50 million euros ($63 million) in annual cost savings from the combination.
Publicis’ management and supervisory boards unanimously backed the deal, as did the board of Sapient, which will recommend shareholders tender their shares. As a result, Sapient will be de-listed from the Nasdaq stock exchange.
Sapient boss Alan Herrick will continue to run the company and is to join Publicis’ management team, while Jerry Greenberg, the co-chairman of Sapient’s board will become a board member of Publicis.
The transaction is expected to close in the first quarter of next year. Citigroup has committed to financing the bid.
Bank of America Merrill Lynch and Rothschild advised Publicis, while Goldman Sachs and Blackstone advised Sapient.