Publicis Groupe SA agreed to buy digital marketing firm Epsilon from Alliance Data Systems Corp. for $4.4 billion in cash, propelling the French advertising group further beyond a weakening conventional ad business in its biggest takeover yet.
Epsilon’s services span loyalty programs to email marketing and its Conversant unit collects consumer data including transactions, location and web activity.
The net purchase price after a “tax step-up” will $3.95 billion, or 8.2 times 2018 adjusted earnings before interest, taxes, depreciation and amortisation, Publicis Groupe said on Sunday in a statement.
A three-way battle for online marketing dollars is underway as e-commerce explodes, pitting the traditional ad companies such as Publicis, WPP Plc and Omnicom Group Inc. against global consulting firms and the giant tech platforms: Facebook Inc., Alphabet Inc.’s Google and Amazon.com Inc.
The ad firms easily dominated traditional advertising in newspapers, billboards and television before the market went into decline. In the digital world they are up against companies that harvest data from billions of social media users and often get closer to consumers by handling their transactions.
“With the acquisition of Epsilon, Publicis Groupe is bringing the necessary technology, expertise and the talent to complement our offer in creativity, media and business transformation,” Arthur Sad-oun, chairman and chief executive officer of Publicis Groupe, said in the statement.
“When you look at the increasing challenges that our clients are facing in this data-led and digital-first world, we thought that Epsilon can bring to our existing assets in creativity and technology an acceleration in data and platform that will position us as a clear leader in personalised experience at-scale,” Chairman and Chief Executive Officer Arthur Sadoun said in an interview.
In a separate statement, Publicis said first-quarter revenue increased 1.7 percent from a year earlier, to 2.12 billion euros ($2.4 billion). Client attrition in the US was mitigated by good retention of customers overall, allowing the company to see higher organic growth in 2019 from a year earlier.
Investors are wondering if Publicis is able to absorb such a big acquisition and its shares fell after it was named as a potential bidder.
Publicis said the acquisition will be fully financed by debt and cash on hand and will suspend its share buyback program, so that it can stick to its 45 percent dividend payout ratio pledge.
The owner of agencies Saatchi & Saatchi and Leo Burnett Worldwide has a patchy record in managing acquired companies: digital ad technology is evolving rapidly and the group posted a loss in 2016 after writing down the value of one of its digital businesses.
Publicis made one of the industry’s boldest bets on ad technology in 2015 with the $3.7 billion purchase of Bost-on-based Sapient and Sadoun has staked the company’s future on digital tech businesses that he sees as “strategic game changers.”
While those parts of the business are growing fast, that wasn’t enough to avoid a fall in sales in the fourth quarter that shocked investors and sent Publicis shares on February 7 to their biggest intraday loss since the September 11, 2001,terror attacks.
Alliance Data said in February it was weighing preliminary offers for the unit after announcing a review in November.