Publicis Groupe to Acquire Digital Shop Rosetta for $575 Million

Marks Change of Heart for Fiercely Independent CEO Kuenne

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Publicis Groupe has agreed to acquire Rosetta, taking the largest privately owned digital agency off the table. The purchase price is $575 million in cash, plus potential deferred payments dependent on the agency's future performance.

The deal means the third-largest agency holding company now owns three of the 10 top digital shops by 2010 revenue: No. 1 Digitas, No. 4 Razorfish and No. 8 Rosetta, according to Ad Age DataCenter. Hamilton, N.J.,-based Rosetta, with primarily health care, retail and financial services clients, had $218 million in revenue last year, up 23% from the prior year. That makes it bigger than AKQA, one of the few remaining digital acquisition targets, because it's not already owned by an advertising holding company.

In January, Ad Age named Rosetta its top pick of shops to watch in the coming year.

Rosetta's health-care expertise was likely attractive to Publicis. It shares a client in Johnson & Johnson, for which Razorfish does corporate brand and other marketing work.

The sale represents a major change of heart for Rosetta CEO Chris Kuenne, who has been very vocal about plans to keep Rosetta independent and grow not by selling, but by acquiring other companies. Last fall, Rosetta picked up Level Studios, a California-based mobile shop. Before that , acquisitions included health-care shop Wishbone ITP in 2009 and Ohio-based digital shop Brulant in 2008.

Mr. Kuenne opened Rosetta's doors in 1998 after having spent a decade in the marketing department at J&J, leading the Band-Aid and Tylenol brands business. His subsequent work as a partner at First Manhattan Consulting Group, where he led its retail marketing practice, has helped to reel in the agency's smattering of retail clients, such as Hallmark, Crane & Co., Things Remembered and Sunglass Hut. Mr. Kuenne will continue to lead the agency, reporting to Jean-Yves Naouri, chief operating officer of Publicis Groupe .

"Rosetta's value proposition is unique in that it combines its savoir-faire in consulting and strategic services with its expertise in technology and creative agency services," Maurice Levy, chairman-CEO of Publicis Groupe , said in a statement announcing the deal. Publicis hopes to increase its share of revenue from digital from its current 28% to 35% in the next three years. The addition of Rosetta brings that total to 30%, according to the holding company.

The acquisition is an interesting turn of events for Rosetta's Mr. Kuenne, as he has publicly taken shots at Publicis and its digital shops.

Last year he told his hometown paper, the "US1," that his agency is taking market share from four holding company giants -- Interpublic, Omnicom, Publicis and Havas. Said the article:

"'We are really focused on becoming the No. 1 interactive agency on the planet.' says Kuenne. 'Numbers 1 and 2 (Digitas and Razorfish) were recently acquired by Publicis. We are growing faster and are more profitable than they. While we are smaller than those two companies today, we are on a trajectory -- we grew by 35 percent in 2008 and they grew eight percent. Our profitability is 70 percent higher than the industry average.'"

Just last summer, Mr. Kuenne told Ad Age : "Everybody comes knocking and calling and we're not really interested. There's a race on in the agency world to assemble three key things: the right assets, the right people and the right culture. M&A takes care of part one, but has the potential to screw up the other two."

In announcing the deal, Mr. Kuenne said in a statement: "We recognize that in order to achieve our long-term business and geographic growth potential, we need the reach and resources of a global group, and we are particularly proud to be joining one of the most advanced digital communications groups in the world. We have found a culturally compatible, growth-oriented partner in Publicis Groupe ."

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This story was updated May 17 to include the purchase price and other details of the deal.

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