Digitas Goes For 10 Digits, Publicis Pays $1.3 Billion To Bolster Digital Roster

Publicis' acquisition of Digitas offers a rare glimpse into the real market value of pure-play digital agencies. At $1.3 billion, the cash deal represents a 23.5% premium over what Digitas shares had been trading at, and establishes market multiples of 3.3 times Digitas' projected 2006 revenues and about 21 times its estimated EBITDA for the year.

While some market analysts say that is consistent with historic interactive agency acquisition multiples, at least one Madison Avenue dealmaker believes it signals the desire of big general agencies to gobble up stand-alone digital assets.

"The deal reflects the scarcity of pure-play interactive marketing companies of any significant size," says Abe Jones, managing director at AdMedia Partners, a New York investment bank specializing in ad industry deals. "There's aQuantive and the independently held AKQA."

The management of both those shops no doubt are watching the markets reactions to Publicis' deal closely. AKQA, in fact, has been the subject of takeover speculation, as mainstream agencies and the big holding companies look to accelerate their positions in digital media and interactive marketing services.

Shares of publicly traded aQuantive, the biggest pure-play interactive shop--which also has recently gone on a buying spree--are trading at approximately 19 times 2006 EBITDA.

In late 2004, aQuantive acquired independent interactive agency SBI.Razorfish, which was merged with Avenue A to form Avenue A/Razorfish, for $160 million. Razorfish, in 2003, had net revenues of $93 million.

At least one respected analyst, Merrill Lynch's Lauren Rich Fine, thinks the Digitas deal would have been worth more, except for the fact that the agency's largest client has been cutting back on its billings.

"Digitas' performance over the past year has been hindered by lower spending by its largest client General Motors, which accounted for 17% of revenues in [the third quarter]," she said in a research note released after the deal was announced on Wednesday.

Another source that is somewhat more partial believes the deal was a fair value for both Digitas' and Publicis' shareholders.

"We spent a great deal of time trying to find the right price for everyone involved. The price that we offered and the first reaction of the market says we are right on target, and had a right estimation of the price," says Publicis Chairman-CEO Maurice Levy. "It is an acquisition that will be accretive from day one." -- Tom Siebert contributed to this story.

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