This week’s news that Alliance Data Systems Corp.’s Epsilon
is in play underlines the critical importance that old school marketing
businesses and financial buyers are attaching to assets that they believe will
give them the edge in digital.
It also underlines the exponential growth in the financial valuation
of the most attractive assets in certain areas, especially in the extraction
and management of data.
French advertising and marketing giant Publicis Groupe released
a statement to the market saying that it is contemplating the potential
acquisition of Epsilon in order to further drive its move into digital marketing.
What is more, should a deal eventually be consummated, it
would represent the biggest ever acquisition by Publicis of any other company.
That is pretty remarkable given that Publicis, just like old school counterparts
such as WPP, essentially built its business over decades through an unending
spree of bolt-on acquisitions.
Epsilon, which has also attracted a joint offer from private
equity shop Advent International and Goldman Sachs, could reportedly fetch as
much as $5 billion.
Why is Epsilon so attractive to the likes of Publicis and Advent/Goldman?
Well, for an established advertising group like the French company, a property such as Epsilon can bring in valuable online data-mining expertise. This kind of
know-how would enable Publicis to help clients target shoppers more effectively:
at the same time, this will reduce Publicis’s reliance on conventional
advertising, which is in decline.
For the financial buyers, any investment would be a big bet
that properties with the data skills that Epsilon possesses, have a lot more road to run
in terms of revenue and profit growth – and ultimately, therefore, market
valuation.
The stakes for Publicis though could not be higher. The group owns some of the
most august “old” brands in the ad business such as Saatchi & Saatchi; and
Leo Burnett Worldwide. But its top management know, as storied as the past of
those agencies may be, their growth trajectory will not sustain a large global
group long into the future.
Publicis paid $3.7 billion in 2015 for ad tech company Sapient.
The jury is still somewhat out on that purchase. Then in 2016, it took an accounting
loss after having to write down the value another digital business.
It can’t afford to get Epislon wrong. But then it also can’t
afford to stand by and do nothing either.
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