Advertising giant Publicis to buy Sapient in a bid to boost digital revenues

Profile picture for user ddpreez By Derek du Preez November 2, 2014
The worlds of advertising, IT services and digital media are increasingly blurred and this latest deal highlights that everyone wants a slice of the digital revenues pie.

Following the failed merger with Omnicom earlier this year, French advertising giant Publicis has now confirmed that it will be acquiring Boston-based

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Sapient for $3.7 billion in a bid to not only expand into North America, but to also boost its digital revenues to 50 percent by as soon as 2015.

The move highlights how companies that haven't traditionally operating in the 'IT' sector, but have experience with front end engagement on the web, are now looking to branch into the increasingly lucrative digital consulting space.

For example, earlier this year members of the Management Consultancies Association in the UK said that they are turning themselves into 'digital specialists' to profit from companies gearing up for growth as the economy recovers. Members also said that digital and technology services now accounted for a quarter of consulting revenues, up six percentage points on 2012.

Publicis obviously recognises this opportunity and has said that it will pay cash for Sapient - $25.00 per share, which at the time of the announcement was a premium of over 40 percent on trading prices.

The company has said that it will focus on digital transformation, marketing, omni-channel commerce, consulting and technology.

Maurice Lévy, chairman and CEO of Publicis, said that the deal will also not only help the company expand into geographical territories, but will help it grow its revenues. Digital revenues will now also account for half of Publicis' business by next year, which is way ahead of previous plans. He said:

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 fulfils 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.

Alan J. Herric, Sapient president, CEO and co-chairman (who will continue to run the company and join the Publicis management team) said that the deal will also be of benefit to its current clients. He said:

This transaction provides substantial value to our shareholders, offers an ideal cultural match for our people and provides an opportunity to share a wealth of new capabilities with our clients. The Sapient team has been on a 24-year journey building a company with the objective of creating significant impact for our clients and the industries in which they operate. With Publicis Groupe, we have found a partner that accelerates the level of transformation we can drive into the marketplace.

Publicis believes that the acquisition will allow it to be a leading player in the “global communication, marketing, omni-channel e-commerce and technology” fields, which will see it bringing in over $11 billion in revenues and have a combined workforce of over 75,000 people worldwide.

The management team have also released a 'strategic rationale' behind the acquisition, which highlights how Sapient will be able to quickly increase Publicis' exposure to digital, how it will be able to take advantage of Sapient's front-end and back-end technology capabilities, how it will be able to quickly expand its global footprint and also quickly accelerate revenue growth. Interestingly, the companies have also identified that they will be able to drive cost savings through the integration of mutual digital production capabilities.

Research director John O'Brien over at TechMarketView points out how the acquisition is a deal that “sees the worlds of advertising, IT services and digital media/interactive increasingly blurring”. He said that following the deal, Publicis will no longer just be an advertising company, but will be one that is “firmly in [the] IT services marketplace”.

O'Brien commented:

As we have seen recently with the move by Accenture to create Accenture Digital and buy into the digital marketing and services space, the stakes are getting higher to establish a leadership position in digital technology services.

Sapient is one of the early innovators in the e-commerce services space that sprung up during the dotcom boom. And until now, it has been one of the few remaining players left while rivals have either been acquired or died off. Sapient ensured its success building an offshore delivery model based out of India, and broadening out into verticals such as Government and financial services (Global Markets). Its Sapient Nitro division is closest to the digital media space.

Publicis is serious about making this work. Sapient’s CEO and co-chair will now join Publicis’ senior management team, and co-founder and co-chair Jerry A Greenbery will be CEO of the new Publicis.Sapient business. Publicis also wants to exploit Sapient’s vertical model to expand into new markets, notably financial services and energy. Exciting times.

This is the second recent acquisition Publicis has made that signals its move into the enterprise technology market, following last week's deal to buy RUN – a real-time data management and multi-channel programmatic buying platform, which enables marketers to execute data-driven campaigns.

Again, Publicis highlighted how the deal was part of the company's strategic plan to boots its digital revenues and confirmed that it was invested in

technology, data, content, social and multi-channel. As senior analyst at TBR, Seth Ulinski, sugges – this marks a shift from a pure-play services model to a hybrid model, combining services and proprietary software for Publicis, mirroring that of global IT service firms IBM and Accenture. He said:

TBR believes agency holding companies are in the beginning stages of executing a strategy in which they seek to capture revenue via traditional services (i.e., strategy, planning), as well as proprietary ad tech platforms. This hybrid agency model looks and acts much more like that of an enterprise IT solutions vendor. Considering the opportunity ad tech software presents for margin expansion and increased share of wallet, we anticipate further ad tech investments (acquisitions or development of in-house tools) by agency holding companies.

TBR believes head-to-head competition between agency holding companies and IT services firms is minimal today, but will heat up as digital marketers launch increasingly complex, cross-screen campaigns powered by an array of ad tech platforms.

My take

I completely agree with Ulinski – there is a huge opportunity here for companies like Publicis, which have a whole host of experience with consulting companies on digital front-end issues, to start making acquisitions that mean that they are more closely aligned with the likes of Accenture and Capgemini. This is where end-users are focusing their efforts and there is money to be made.

Expect companies that have been firmly placed in a particular vertical in the past, such as advertising, to suddenly start appearing in the traditional IT services market.