Publicis agrees to buy Epsilon to extend digital reach

Publicis will pay $4.4bn to acquire Alliance Data’s Epsilon marketing unit, the French advertising group says, expanding its digital business and North American footprint.

The deal, announced two weeks after Publicis confirmed it was in talks with Alliance Data, bolsters efforts by the world’s third-ranked advertiser to adapt to a changing market driven increasingly by online client data.

“The addition of Epsilon will propel Publicis as a leader of data-driven personalised experiences at scale,” the Paris-based company said, outlining its biggest acquisition yet that tops the €3.7bn paid for tech consulting firm Sapient in 2014.

Publicis and other traditional advertisers have lost ground in a marketplace increasingly dominated by Facebook, Alphabet’s Google and digital marketing specialists that track and target individual clients via their smartphones, while navigating tougher data-protection laws.

The French group’s shares sagged after a fourth-quarter earnings miss and have fallen 15% over the past 12 months.

The Epsilon purchase is “a very significant investment for a company of our size”, CEO Arthur Sadoun said. “But we’re convinced it’s the right move in a world where data is at the heart of all decisions and the mobile phone has become our main interface.”

Epsilon, with a data trove on about 160-million clients, generated revenue of $1.9bn in 2018, almost entirely in the US.

The $4.4bn cash price amounts to $3.95bn excluding tax, or 8.2 times Epsilon’s 2018 ebitda, Publicis said.

The French company said it will cancel an announced share buyback and finance the Epsilon deal with debt. the acquisition will boost earnings and cash flow by at least 10% from 2020.

January-March revenue was €2.12bn, Publicis said, releasing quarterly sales ahead of the April 17 disclosure date. Sales were down 1.6% on a like-for-like basis but up 1.7% as reported.

Publicis said the decline in ad spending should ease in the second half, reiterating 2019 guidance including higher sales growth and profitability, and a 5%-10% increase in recurring earnings per share excluding currency effects.

15% Percentage by which Publicis shares fell over the past 12 months