Publicis Groupe to Acquire Digital Agency LBi in $540 Million Deal
In what marks yet another massive acquisition in the digital-agency space, French ad holding company Publicis Groupe has reached a deal to buy LBi, one of the last independent digital agencies with global scale left in the industry. The all-cash offer is valued at approximately $540 million.
Amsterdam-based LBi has some 2,200 staffers in 32 offices spread across 16 countries. The purchase by Publicis is a turn of events, as it comes after speculation mounted this summer that U.S. based ad holding company Omnicom Group was in talks to purchase the digital agency.
At the time, LBi publicly issued a statement that said "such discussions are at a very preliminary stage and there can be no certainty that an offer will be made for the company." It noted that it was holding conversations with various firms, and in the ensuing months, rumors surfaced that the purchase price LBi was asking was deemed to expensive by Omnicom Group execs.
Other concerns cited by industry executives at the time were that LBi makes much of its money in Europe, a region suffering from uncertain economic times and stagnate ad spending. Plus its creative reputation isn't quite that of firms such as AKQA, which WPP recently acquired for an estimated $540 million on $189 million in 2011 revenue.
The Dutch agency has, however, been growing in the U.S. despite little brand recognition in the market. Annual U.S. revenue grew 16% in 2011 to $53.5 million, according to Ad Age DataCenter. Overall, Its revenue was just under $250 million in 2011 with $22 million in net profit, according to its annual report.
Its client roster includes Sony, Neutrogena, Macy's , Puma and Volvo.
It appears that Publicis Groupe , in order to continue growing revenue from digital advertising, was willing to pay a premium. LBi joins Digitas, Razorfish and Rosetta in becoming another major digital agency brand that sits under the holding company. In a statement, Publicis Groupe said the proposed deal will lead to an increase in share of revenue derived from digital operations to over 35%, in line with its strategic goals.
There is the matter though of Publicis figuring out how LBi will work with other assets. Razorfish CEO Bob Lord is in the midst of an exercise to reorganize the holding company's digital offerings.
"The acquisition of LBi is another step forward in further strengthening our digital operations," said Maurice Levy, chairman and CEO of Publicis Groupe , in a statement. "Within the global advertising landscape, LBi is a well-known partner for extraordinary digital customer experiences, based on a blend of creativity and expertise in technology, strategy and social media. The integration of LBi will further enhance our capabilities and, through a wider pool of resources and talent, help deliver innovative and best-in-class services to our clients, which is our relentless focus."
"We are thrilled at the prospect of joining Publicis Groupe and are convinced this transaction not only provides highly attractive value to our shareholders, but equally to our clients, staff and partners," said Luke Taylor, CEO of LBi, in the statement. "Publicis Groupe has consistently demonstrated a clear and emphatic belief in the importance of digital media and is recognized for grooming and managing its talent worldwide. Our entire strategy to date is built on a commitment to relentlessly drive and optimize value for our clients. There is now a unique opportunity to pace set the market and collaborate across new geographies and marketing services so that we can accelerate our strategic plans aimed at providing clients with a globally integrated offering."
Industry observers will likely call Publicis' move to ink a deal with LBi a response to WPP's high-profile buy of AKQA, which was announced during the Cannes International Festival of Creativity this summer. WPP and Publicis--which rank as the first and third largest ad holding companies by revenue respectively--have for the past several years had the biggest appetite for large deals in the ad space, particularly when it comes to digital.
With LBi off the table, it leaves very few indie global digital agencies ripe for picking for any potential buyers. One of them is Profero, and SapientNitro is another. Going forward, the pace of digital acquisitions may continue but the size of the deals are likely to shrink dramatically.
The size of this deal also signals that Publicis Groupe wouldn't likely be able to finance a "big-bang" style deal akin to a purchase of a smaller holding company like Interpublic (a rumor that cropped up again this summer) anytime in the near future. Despite the persistent talk of such a merger, Publicis' Mr. Levy has denied that such discussions have taken place, and as recently as yesterday, Interpublic's CEO Michael Roth said he's not pursuing a link-up with a rival holding firm.