On the heels of its aborted “merger of equals” with Omnicom Group, Paris-based Publicis this morning announced a not-so-equal deal to acquire Boston-based marketing, technology and management consulting firm Sapient in an all-cash deal for $25 per share.
Further details of the deal were not disclosed at presstime, but the offer -- which needs to be approved by the boards of both companies -- represents a 44% premium over Sapient’s shares, which closed Friday at $17.32. That puts the market value of the deal at $3.7 billion.
The companies described the offer as a “definitive” agreement, and said there was a “termination fee” of $125 million associated with it.
The deal signals a deeper investment into technology resources, a path Publicis has been focusing on for some time in its acquisitions and roll-ups. Beginning with the $1.3 billion acquisition of tech-savvy Digitas in 2006 and including its offer to acquire Sapient, Publicis will have invested more than $5 billion on technology-centered marketing and management services deals over eight years, including such gems as Razorfish ($575 million in 2009), Rosetta ($530 million in 2011), LBi ($540 million) and Nurun ($125 million this year).
Like all of those organizations, Sapient combines a mix of technology, management and creative services, with its best-known asset being award-winning digital shop SapientNitro.Founded in Cambridge in 1990, just prior to the digital explosion, Sapient initially positioned itself as a “different kind” of IT consulting firm focusing on project work and enterprise solutions. It acquired Nitro Group in 2009 for $50 million, and it quickly became its creative public face and flagship unit, winning ad industry attention and awards for breakthrough digital media user design, not just in online and mobile media, but also real-world executions and experiential media, especially digital out-of-home.
“SapientNitro, is a world-class digital agency, ranked by Gartner alongside Publicis’ Razorfish, WPP’s AKQA, Interpublic’s R/GA and IBM Interactive as among the leaders in its field,” Pivotal Research Group analyst Brian Wieser wrote in a note to investors this morning, adding: “However, Sapient is more than just an agency: approximately one third of revenues originate with IT consulting services to government and financial institutions.”
That said, Wieser’s initially assessment was that the deal “adds little to Publicis strategically” and, in fact, makes it harder for the agency holding company to do a deal that would be truly “transformative,” like acquiring Interpublic.
Wieser also criticized Publicis’ digital agency roll-up as “not [helping] its growth rate relative to peers.
“This may be due to several factors in part or combination (perhaps because at other holding companies digital services are important to all types of agencies, whether their revenues are characterized as digital or not; alternately as agencies become larger, their growth rates naturally slow). The risk that growth slows at Sapient is one of the transaction’s more important considerations,” he wrote.
Liberum’s Ian Wittaker and Lisa Hau were more pointed in a note to investors this morning, describing the deal as a “panic buy,” and reiterating their “sell” rating shares of Publicis stock, mainly because it puts a more strategic deal off-the-table.
“The acquisition will dash hopes of a greater cash returns which bulls have pushed for and there will be some concern this could be a panic buy,” the analysts wrote, adding, “Our concerns revolve around fears that Publicis may be falling behind other agency groups in an environment where secular issues are mounting.”
In a statement, Publicis CEO Maurice Levy, countered: "Sapient is a ‘crown jewel,’ a one of a kind company born in the technology space with strengths in marketing, communications, consulting and omni-channel commerce, all of which are equally important to best help clients achieve their digital transformation. It will also give Publicis Groupe access to new markets and creating new revenue streams. This acquisition fulfills many of Publicis Groupe’s objectives: we will enhance our leadership position in digital, achieve our goal of deriving 50% of our revenues from digital and technology three years ahead of our 2018 plan, and leverage technology, consulting capabilities to expand in new verticals, and offering new and exciting opportunities to our talents.”