Publicis’ $4.4 billion acquisition of Epsilon: analysts skeptical

Analysts also questioned how well Epsilon will fit into Publicis’ strategy.

Morgan Stanley analysts said Epsilon should add to the data and analytics services Publicis can provide its clients, but said investors will likely focus on the ongoing attrition in traditional advertising, which would remain about 75% of Publicis’ revenues following the deal.

Barclays analysts said in a note this deal gives Publicis first-party data on U.S. customers, but questioned how useful they would be. “At first sight, Epsilon does not seem to fit Publicis’ strategy that well.”

Credit Suisse analysts said the deal echoed other agency acquisitions in recent years, such as Dentsu Aegis Network’s purchase of a majority stake in Merkle, or Interpublic Group of Cos.’s buy of Acxiom’s marketing solutions unit. But the analysts were cooler about this deal, noting that Epsilon “is a more varied asset with other agency-like revenue streams, it has a mixed historical track record and is a big departure from the organic strategy Publicis was following.”

Liberum analysts said the deal is an “overall positive” since it increases Publicis’ ownership of first-party data at a time where the importance of ownership is increasing.

But Liberum noted the price was also “much cheaper” than $5 billion suggested in press reports, “which suggests competition for the asset was maybe not as much as expected (and may raise questions as to how ‘must have’ the asset was).”

On a call with analysts Monday, Liberum analyst Ian Whittaker asked why there wasn’t more competition for the deal given how attractive it apparently was to Publicis.

“You’ve said the asset is very good, it fits into your strategy, you’ve … talked about potential longer-term growth, and yet the multiple you’ve paid for it doesn’t seem particularly demanding on that,” he said.

“We do know that in the beginning there were lots of players,” Sadoun countered, “and we do know in the end there were around three.”

Sadoun added, “We are talking about a business that not only does data, that not only does technology to actually enrich data, that not only has platforms, which are three distinct things, but that they were doing the three of them in a connected way, which makes them extremely unique in the market and difficult to compare with other assets that you know. That’s why we were so interested.”

He said Publicis had been interested “three times,” including before Epsilon was up for sale.

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