Last Major Independent Digital Agency Falls

On November 3^rd, Publicis Groupe announced it had agreed to acquire Sapient for $3.7 billion in cash. After factoring in Sapient’s net cash on hand, the deal yields an enterprise value of $3.4 billion. The multiple Publicis will pay is quite attractive, even after considering expected synergies the two companies are claiming can be realized in 2015. We can’t help but question how much of the so called synergies are real versus numbers made up to soften the deal multiple. In any case, here is the strategic and financial snapshot of the transaction.

Scarcity – A transformational deal usually commands higher valuation multiples and no doubt this deal is a transformational one for Publicis. While Publicis has made numerous acquisitions in the digital marketing space, the targets have predominantly been small tuck-in acquisitions that strengthen presence in a certain geography or vertical. Sapient is the last independent digital agency with scale and strengths in consulting, marketing and technology. Publicis either had to step up or move on, and they clearly chose the former.

Accelerate Growth – Publicis has been growing at a mid-single digit rate in the last couple of years while Sapient has been growing 10%+. Can Sapient continue to grow at this rate under the Publicis umbrella? Publicis acquired Razorfish in 2009 when Razorfish was generating double digit growth rates.  We understand Razorfish has since grown ~4% annually. We believe Sapient will do better given its scale, brand, and strong management team.

Complementary Geographies – Sapient is strong in North America while Publicis has more clout in Europe, Latin America and Asia. Sapient has recently been pushing hard to enter Asia and this deal should accelerate that process.

Valuation Metrics:

• Publicis offered $25 per Sapient share, which represents a 44% premium over the previous day’s closing price and a 63% premium to the last six month average price
• 2014E Revenue and EBITDA multiple of 2.4x and 20.1x, respectively.  If adjusted for synergies, EBITDA multiple would be 15.5x