Publicis to buy US digital ad firm Sapient for $3.7bn

Maurice Levy, chairman and chief executive officer of Publicis Groupe, attends the company’s 2013 annual results presentation in Paris on February 13 this year. Levy has blamed Publicis’ recent poor performance on a failed merger with world No 2 ad agency Omnicom, announced in August 2013 and abandoned in May over control and cultural clashes.

Reuters

Paris

 Publicis, the world’s third-largest advertising agency, is to buy US-based digital ad specialist Sapient for $3.7bn in cash as it seeks to accelerate growth after a botched merger earlier this year.

The French group is hoping rapid growth in both North American and Internet advertising, which are far outpacing European and traditional ad formats, will help it catch up with sales gains at rivals such as WPP and Interpublic.

Chief executive Maurice Levy has blamed Publicis’ recent poor performance on a failed merger with world No 2 ad agency Omnicom, announced in August 2013 and abandoned in May over control and cultural clashes.

But some analysts said Publicis’ offer of $25 per share, a 44% premium to Sapient’s closing price on Friday, was a hefty price for a company whose growth may have peaked, and that the deal could also dash hopes among the French company’s shareholders that cash might be distributed to them.

Publicis shares fell as much as 5% in early yesterday’s trade. They were down 2.6% at 1128 GMT, the biggest fall on France’s blue-chip CAC 40 index.

“A good asset at a steep price,” said Exane BNP Paribas analyst Charles Bedouelle of the deal, adding it would “likely push back (Publicis’) cash return story by two years.”

UBS analyst Tamsin Garrity said Publicis had been under pressure from investors to return cash, and was expected to announced share buybacks at a strategy day on Friday.

“The acquisition of Sapient makes such returns unlikely,” she added. Garrity has a neutral rating on Publicis shares.

Levy defended the decision, saying the company would generate more value in the long term by buying Sapient rather than buying back its own shares. He pledged to update investors on his approach to dividends and buybacks sometime in November.

“This operation is extremely important for securing the future of Publicis,” Levy said. “It is far better to invest and deliver a higher growth and higher profits ... which will lead to a re-rating, rather than simply buy back our own shares.”

“The deal will create a foundation for accelerated growth” by giving Publicis access to new markets and revenues, he added.

Publicis said the deal would be financed through existing cash and new debt, and would not affect Publicis’ credit rating. It did not say when it would add to group profits but forecast €50mn ($63mn) in annual cost savings.

Sapient’s sales grew 14.1% to €1.1bn last year, far outstripping Publicis’ sales growth of 1.2%, though the French company had a higher operating profit margin. The US-based group earned 63% of its 2013 sales in North America and has 13,000 employees, 8,500 of which are in India.

“The risk that growth slows at Sapient is one of the transaction’s more important considerations,” said Pivotal Research Group analyst Brian Wieser.

He noted the deal gave Sapient an enterprise value (equity plus debt) of around 12 times its forecast earnings before interest tax, depreciation and amortisation (EBITDA) for 2015, far above Publicis’ current multiple of about 8 times.

Martin Sorrell, the chief executive of Publicis’ rival WPP, was even harsher, telling financial blog Business Insider that Publicis had rushed into the Sapient deal to compensate for its botched marriage with Omnicom.

“It looks like the behaviour of a jilted lover,” he said.

Buying Sapient will speed Publicis’ roughly seven year-old effort to earn more revenue from digital advertising, which includes everything from online marketing to brand building on social networks and automatic ad buying for major customers.

Last year, 38.4% of Publicis’ sales came from digital, and it had been aiming to reach 50% by 2018, something that the Sapient deal will make happen immediately.

According to Zenith Optimedia, the digital ad market is expected to grow 17.1% this year, driving total ad market growth of 5.3%.

Sapient’s main SapientNitro unit is a digital agency on a par with Publicis’ Razorfish and WPP’s AKQA with customers including carmaker Fiat, retailer Marks & Spencer, and consumer goods group Unilever. Sapient also has a technology consulting business serving government and banks, which brings in a third of revenues but is less profitable than the ad business.

Chrysler US sales up 22% on pickup truck demand

Reuters

Detroit

 Fiat Chrysler Automobiles US October sales rose 22% on strong pickup truck demand, the company said yesterday.

The Ram pickup truck brand, anchored by the Ram 1500, reported sales of 39,834 vehicles, a 36% increase from a year ago. Chrysler Group and its Ram brand took advantage as Ford Motor Co has lowered production of its top-selling F-150 pickup truck in recent months. Ford is transitioning to a new aluminum-bodied version that will begin sales late this year.

Major automakers in the US market are expected to show a rise of about 6% from a year earlier. A poll by Thomson Reuters of 29 economists forecast a seasonally adjusted annualised sales rate of 16.5mn vehicles.

Each month, auto sales are an early snapshot of US consumer spending.  It was the best October for Chrysler sales since 2001, and the company’s 55th consecutive month of year-over-year sales gains.

Chrysler’s 22% sales gain matched expectations of analysts polled by Reuters.

Nissan Motor Co and Honda Motor Co each reported strong crossover model sales and record October US sales for their core brands.

Nissan Motor sales rose 13.3% to 103,117 vehicles, beating expectations of an 11% rise. Nissan brand sales rose 15%, while the Infiniti luxury brand’s sales fell 1.2%.

Sales of the Nissan Rogue crossover increased 14% to nearly 14,700 vehicles. Sales of the Sentra small car jumped 56% to 13,129. Honda Motor sales rose 5.8%, missing expectations of an 8% rise.