Publicis Groupe is merging Digitas -- which it bought just over six years ago in a $1.3 billion transaction-- with its newly acquired digital shop, Amsterdam-based LBi.
Publicis Groupe CEO Maurice Levy has an insatiable appetite for digital acquisitions, even at high-ticket prices. Digitas was his earliest big digital buy, and at the time it was done --after nearly a year of courting-- it was one of the biggest acquisitions the ad industry had ever seen. In contrast, the sale of LBi last year to the Paris-based holding company came after the the agency shopped itself around to various firms for months. Publicis Groupe ultimately paid about $540 million for LBi as part of Mr. Levy's quest to increase the amount of revenue derived from digital operations. The group claims that the percentage of its revenue from digital marketing is currently at about 35%.
Many observers who have watched as Publicis Groupe amassed a collection of digital agencies over the past few years have wondered what the ultimate plans were for all of these parts. This merger at least partly answers that question. In the fight for digital dollars, it gives Publicis more heft.
According to the Ad Age DataCenter's most recent full-year data, Digitas had an estimated $554.2 million in 2011 worldwide revenue, while LBi had $273.8 million. That puts estimated combined 2011 revenue at $828 million, coming out on top of SapientNitro and making Digitas a contender for being the world's largest pure-play digital network. (Global revenue figures for rivals such as WPP's AKQA or Interpublic Group of Cos.' R/GA were not available, but revenue in 2011 in their home countries was $150 million and $220 million, respectively).
The smashing together of two sizable digital-agency networks to form DigitasLBi is the biggest restructuring move of Publicis' digital assets since late 2011, when Bob Lord was tasked with making sense of the holding company's various digital companies and setting a course for Publicis Groupe's digital future. Mr. Taylor will report to Mr. Lord, who is the CEO of Razorfish and Publicis Groupe's digital technology division.
Publicis Groupe now has two global digital networks which it plans to use to chase business; DigitasLBi and Razorfish. For the moment, other agencies like Rosetta, and Rokkan, the latter which joined the Publicis fold in late 2012, will continue as stand-alone digital shops.
The two primary reasons for combining Digitas and LBi are geography and scale. Its biggest operation will be in the U.S., which has roughly half of the total of employees, but other hubs of the combined operation include the U.K., where there are 700 staffers; Germany, where there are 450; and India, where there are 400.
Mr. Levy told Ad Age in an interview before the announcement: "This means that Digitas clients in North America who were hesitating in giving their business to Digitas on a global basis because they felt they were not strong enough in some outside markets can now press the button and use DigitasLBi everywhere ... and obviously the other way around. The clients of LBi in Europe can now use Digitas in the U.S."
While the merged offering has a total of about 25 offices, it has plans to invest in adding staff, and possibly make acquisitions in key markets.
"What we need to do is to strengthen the position in Asia, but not so much open more operations," said Mr. Levy. "We need to gain critical mass in some countries. The second aspect, which I believe is extremely important, is to strengthen the operations in Latin America."
There's little overlap in services, Publicis Groupe executives told Ad Age. However, there's at least one major client conflict in American Express -- a major Digitas account -- and Visa, which is a client of MRY (the youth-marketing agency formerly known as Mr. Youth that LBi acquired in 2011). Due to the conflict, MRY will not be part of the merged entity. It will remain a standalone shop led by founder and CEO Matt Britton. As it will now become an island within the holding company, it's possible that Publicis Groupe may call on MRY to serve as a shop to help the holding company manage client conflicts, executives familiar with the matter said.
To be sure, this merger will be a major cultural change for both shops. Digitas, with its U.S. heritage is long entrenched within Publicis Groupe, while the European LBi is a newcomer to the company. A team of senior execs from both agencies and from the holding company have been appointed to oversee the merger process. The smoothness with which it all takes place over the next several months will fall on the shoulders of Stephan Beringer, CEO, Digitas and Razorfish International. Colin Kinsella, meanwhile, will continue in his role as CEO, Digitas North America, while Ewen Sturgeon remains CEO of LBi, Europe, Middle East and Asia.
For such a big network, it's a bit surprising that the head of the less-established and smaller of the two agencies has been named CEO. But Mr. Levy said that Mr. Taylor's international experience made him the best fit for the role.
"It's not a misjudgement or a misappreciation of what Colin is doing," said Mr. Levy. "He's doing a great job and we're very pleased. It happens that the breadth and depth of the experience of Luke is more appropriate to lead such an operation."
"We are transforming more and more into a digital company [and it] is something which is working well. ... I believe we are very well positioned for the future," Mr. Levy said.
Contributing: Brad Johnson