Advertising major Publicis to buy Alliance Data's Epsilon for $4.4 billion

Publicis said the acquisition would be fully financed by debt and cash on hand and it would suspend a share buyback program to keep a 45% dividend payout ratio pledge

Publicis Groupe SA will pay $4.4 billion in cash to acquire Alliance Data Systems Corp.’s marketing unit Epsilon, as the French advertising group seeks to deepen its digital expertise and expand in the US
 

The takeover, the biggest ever for Publicis, was announced by the Paris-based company in a statement on Sunday, two weeks after it confirmed it was in talks with Alliance Data.

The owner of agencies Saatchi & Saatchi and Leo Burnett Worldwide is focusing more on data analytics as consumer giants rely less on TV commercials and billboards and shift spending online. Epsilon runs loyalty programs and email marketing and collects data including transactions, location and web activity.

Clients are facing mounting challenges in a “data-led and digital-first world,” Publicis Chief Executive Officer Arthur Sadoun said in an interview. “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 personalized experience at scale.”

Traditional marketing firms like Publicis and WPP Plc are now up against consultants focused on business transformation including Accenture Plc, which is also getting into creative work. At the same time, tech giants Facebook Inc. and Alphabet Inc.’s Google threaten to cut out agencies as buyers of ad space.

Shares of Publicis, the third-largest ad holding company by market value, have fallen 14 percent over the past year. The stock dropped after the company was named as a potential bidder for Epsilon, as investors questioned its ability to absorb such a big transaction.

Publicis said the acquisition would be fully financed by debt and cash on hand and it would suspend a share buyback program to keep a 45 percent dividend payout ratio pledge. The net purchase price will be $3.95 billion after an acquisition-related tax impact, Publicis said.

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). The company said it was able to offset client losses in the US with customer retention elsewhere, leading to higher organic growth.

Patchy record
 

While Sadoun is staking the company’s future on digital tech businesses that he sees as “strategic game changers, Publicis has a patchy record in managing acquired companies. The group posted a loss in 2016 after writing down the value of one of its digital businesses.

Under Sadoun’s predecessor as CEO, Publicis supervisory board Chairman Maurice Levy, the company made one of the industry’s boldest bets on ad technology in 2015 with the $3.7 billion purchase of Boston-based Sapient. On Sunday, Sadoun called the Sapient and Epsilon businesses complimentary.

“Sapient is about business transformation and consulting. Epsilon is about platforms, data and technology to enrich first-party data,” he said.

Plano, Texas-based Alliance Data said in February it was weighing preliminary offers for Epsilon after announcing a review in November. In addition to the Publicis offer, Alliance Data had attracted bids from Advent International and Goldman Sachs Group Inc., people familiar with the matter said last month.