Publicis nabs Epsilon for $4.4bn

by Scott Denne

Faced with a receding topline, Publicis once again turns to a blockbuster acquisition to bring it back to growth. The ad-agency holding company has printed its largest tech deal to date with the $4.4bn purchase of marketing services firm Epsilon. While the move increases Publicis’ ability to offer data-driven marketing services, the buyer’s outlook on the transaction appears overly optimistic, as was the case in its previous $1bn-plus tech acquisition.

With its (now) second-largest tech deal, the $3.7bn pickup of Sapient in late 2014, the France-based advertising giant sought to make itself into ‘the leader at the convergence of communications, marketing, commerce and technology.’ Two years later, it wrote down $1.5bn of that purchase price. In the roughly four years since the Sapient buy closed, Publicis’ stock price has lost 30% of its value, while its 2018 net revenue dropped by almost 4%.

And like that earlier transaction, Publicis offered up an ambitious outlook for Epsilon. The acquirer expects the asset to deliver 5-10% annual growth. But as part of Alliance Data Systems, Epsilon hit the low end of that range just twice in the past five years and hasn’t reached the high end of that range since 2013. Last year, its topline shrank by 4%. Publicis claims that Epsilon’s 2018 results were caused by anomalies, such as retail bankruptcies. But that excuse gets at why the projected benefits of this deal may not materialize. Both Publicis and Epsilon serve traditional brand categories, including automotive, CPG and retail, so it’s not getting exposure to any new growth markets.

That’s not to say Publicis didn’t learn anything from its last foray into 10-figure tech M&A. It’s paying a more conservative price for today’s acquisition, valuing the target at 2x trailing revenue, compared with 2.5x for Sapient. The former, according to 451 Research’s M&A KnowledgeBase, matches the median multiple across all Publicis tech transactions. And in terms of EBITDA, Epsilon fetched just 10x, half of what Publicis was willing to hand over for Sapient.