|Photo: Chris Cassidy|
Maurice Levy began wooing Digitas almost a year ago over dinner in a five-star restaurant.
Related Story:Publicis to Acquire Digitas for $1.3 Billion
Deal Is Industry's Biggest Since WPP Bought Grey in 2005
The biggest ad-industry deal since WPP Group bought Grey Global Group in 2005 will improve Publicis' nontraditional marketing capabilities at a time when consumers are spending more and more time on the internet and TV advertising's effectiveness is called into question. It will also provide Paris-based Publicis with a stronger foothold in the U.S., especially with General Motors Corp., a major client for both companies.
Digitas, with $350.4 million in worldwide revenue last year, is the fourth-largest marketing-services agency in the U.S. and the third-largest interactive agency in the country, according to Advertising Age's rankings. Publicis will pay Digitas shareholders $13.50 a share, a 23% premium over share prices as of Dec. 19 and almost 30% over the average Digitas share price for the past three months. The addition of Digitas will increase Publicis' digital profile; post-acquisition, 34% of the group's revenue will come from digital and marketing services as opposed to 28% now.
Need for media-buying scale
For Digitas, a 26-year-old company that's been publicly traded since 2000, the decision to sell was ultimately driven by the need to achieve media-buying scale with the few giant online media sellers such as Google, Microsoft and Yahoo.
"They love what we do, but neither Digitas nor anyone else was that big a part of their revenue," said David Kenny, chairman-CEO of Digitas. "No one told me we had to merge to get scale, but it was clear that someone had to become the market leader and get standards."
Through the acquisition, Digitas now has access to what's arguably the ad world's premiere media operation in Publicis Groupe Media, whose major clients include GM and Procter & Gamble. How Digitas' media operation will fit into the organization remains to be seen. Publicis Groupe Chairman-CEO Maurice Levy said that will be hammered out by Mr. Kenny along with Jack Klues, head of Publicis Groupe Media, and Renetta McCann, CEO of StarcomMediaVest Group.
Deal's roots run deep
The roots of this deal run deep. One of Mr. Kenny's first jobs in the ad business was working on Oldsmobile, which employed Publicis' Leo Burnett as its agency. On the Burnett team were Mr. Klues and Roger Haupt, who in recent years frequently urged Mr. Levy and other Publicis leaders to consider buying Digitas.
Messrs. Levy and Kenny didn't meet until early 2006, when the two had a quiet dinner that followed an afternoon session at the Harvard Business School, where Mr. Levy sat in on a class as students discussed Publicis. Mr. Kenny, 45, came away from the meeting unconvinced that he needed to sell to Publicis, or anyone else, to get the size he needed to deal better both operationally and technologically with the major portals.
The year turned out to be something of a roller coaster for Digitas. Its shares were battered this summer amid an untrue rumor that American Express was putting a large chunk of its business into review, as well as the disclosure that a few major clients had fled Digitas' Chicago office. Throughout the tumult, he was approached again and again by Mr. Levy, whose friendly advances he continued to reject.
"When Maurice first came to dinner, I didn't necessarily think that was the way to get scale," said Mr. Kenny. "I did like the cultures of Publicis agencies enough to take second and third meetings. Each time, Maurice would go away and talk to Jack Klues and triangulate a vision." Talks eventually picked up again in November. On Dec. 4, negotiations began in earnest.
Speculation likely to slow
The news will likely slow speculation over where Mr. Levy's ambitions lay. Since announcing his intentions to make an acquisition, Publicis has been interested in targets as large as Interpublic Group of Cos., the third-largest holding company, as well as much smaller interactive and PR firms, according to executives familiar with the situation.
However, Mr. Levy said the Digitas purchase doesn't preclude the possibility of future acquisitions, especially given the company's solid balance sheet. "We will be looking at other possibilities," he said, adding: "We are opportunistic, but we are focused and we are resilient. We were rebuffed the first time and second and the third, but we came back. We have been able to convince David this is the right thing to do for his clients, his people and shareholders."