Publicis Groupe’s acquisition of Sapient: some market implications
Let’s be honest: when holding companies acquire agencies — a near-weekly occurrence these days — there’s really not much effect on anyone other than their investors. But Publicis Groupe’s acquisition of Sapient is different. Maybe not better, but different.
Counter to what the mega ad agency groups such as WPP, Interpublic Group, and Omnicom may want their customers to believe, there’s minimal difference in how the agencies operate or deliver services to their customers from pre- to post-acquisition. In fact, agencies within the holding companies often compete with each other for the same business, and they rarely, if ever, collaborate on a single client account. They are more analogous to musicians on a common record label: ego-driven, competitive, and any collaboration amongst them is more a product of their personal relationships or convenience than any systemic imposition.
But Publicis Groupe is trying desperately to change all that, at least by appearance. The world’s third largest ad agency group has had its sights set on transforming itself into a digital powerhouse for the past 7-8 years, and has acquired notable digital agencies such as Digitas, Razorfish, Rosetta and LBi as part of this quest. And since the failed Omnicom merger earlier this year, Publicis CEO Maurice Levy has made at least two major shifts to signal his new expectations for a more collaborative environment: 1) its 2-month old “Always-On” offering based on a technology platform partnership with Adobe and a pledge for “converged services” from its digital agencies — a subject that inspires eye-rolls and yawns from agency executives who have yet to be informed about how such talk will materialize into the real world, and 2) a series of executive changes and a reorganization last month to form Razorfish Global — a new agency network consisting of Razorfish, Rosetta, Level Studios and others, headed by the former chief of Rosetta. Both of these announcements seem to be more about shifting deck chairs among the top brass than about material changes in the way services are delivered to clients. But they are a start, and more than most have done.
But then there’s the Sapient acquisition by Publicis for $3.7B in cash, announced yesterday. This acquisition has change written all over it. Certainly, Levy admits that his acquisition of the last stand-alone digital agency of scale — with revenues of $1.356B and 13,000 employees — helps to overcome the failed Omnicom merger and fast-tracks the achievement of his goal for the group to realize 50% of its revenue from digital by 2018. But more than that, the acquisition propels Sapient senior management to the top of the pile, forming yet another new agency network, Publicis.Sapient (pronounced “Publicis-dot-Sapient”) and raising the eyebrows of all within Publicis. Headed by Sapient CEO Alan Herrick, Publicis.Sapient will combine all of the holding company’s primary digital assets including Sapient, Razorfish, Rosetta, and DigitasLBi. No one knows exactly what all this means just yet, but we can make some educated speculations and provide some analysis:
- The buying power and scale achieved by bringing the digital power houses within Publicis.Sapient together is unparalleled. Revisiting partnerships with leading technology vendors to ensure that clients receive the maximum benefit on pricing and support should be a high priority.
- Sapient has a great track record with eCommerce, as do Rosetta, Razorfish and DigitasLBi. The Publicis.Sapient network is undoubtedly tops in the world in that category.
- Approximately 8,500 of Sapient’s 13,000 employees are based in India — as with most on-shore / off-shore models, delivery isn’t always smooth. Sapient has worked in this model for decades, but they still struggle as much as any to achieve high quality consistently.
- Given Levy’s enamorment with Sapient’s offshore model, it is highly likely that Sapient India becomes a shared service for the large network of traditional ad agencies within the group. This, to Levy, would appear far simpler than acquiring numerous smaller digital firms to pair with each of the creatives.
- That being said, the offshore team at Sapient does not have a lot of bench strength today as utilization is high (this is a good thing). To serve as a shared service would require additional expansion and many new hires, likely over a short period of time. This could prove to be difficult.
- Sapient itself is challenged by the cultural mal-alignment between technologists and creatives; the offshore model would pose extreme culture clashes if paired with many of the ad agencies within the holding company. Overcoming these challenges would be no small feat.
- Like many firms of its size, Sapient struggles with consistent delivery, especially outside the U.S. Some customers hail their innovation and transformative capabilities, while others complain of quality challenges and delivery efficiency. This is very common for systems integrators, especially given the project-based nature of the business and the lack of proximity to line-of-business stakeholders when working through IT, for example. But for high-touch, relationship-based media and creative agencies, this sort of reputation can be catastrophic. One would be wise to proceed with caution about pairing the two and allowing competitors to paint them with the same brush.
- The overlap of the existing client bases among Sapient and the other Publicis companies is only moderate. Levy claims that this will afford Publicis with opportunities for cross-pollination. On paper, this is true. But Sapient is on an awful lot of short-lists given their high ratings by the legacy analyst firms, so if they are not working with a brand that is working with, say, Rosetta, then it is likely that they were not selected for a reason. As for cross-pollinating with the traditional ad agencies, that remains to be seen. DigitasLBi is larger in revenue than the SapientNitro division of Sapient, and we have yet to see much cross-pollination between their portfolio and that of the rest of Publicis, and that acquisition took place eight years ago. It’s just not in the DNA of how these holding companies work.
- IF, and that’s a big if, competition amongst the Publicis.Sapient agencies is minimized, this is great news for other non-Publicis agencies such as Wunderman and VML (both WPP), MRM//McCann (Interpublic Group), and even Accenture Digital, since Sapient is often on the same short-lists as the likes of Razorfish and/or DigitasLBi.
- Question: Will the Always-On platform (powered by Adobe) initiative be scrapped or consolidated into Sapient’s EngagedNow platform, or will it continue separately? The answer will be telling in terms of the network’s seriousness with regards to its commitment to collaborate.
- Mr. Levy said last year that he was setting aside $4B for acquisitions of this kind. Unless he goes back to the well for more, this takes care of most of that, so acquisitions should settle down at Publicis for the short- to medium terms.
I like Sapient. They do a lot of great work and deserve many of the accolades they receive. They have shown consistent growth over the years for a reason. My cautions about this deal have little to do with Sapient itself, and far more to do with the many challenges of integrating it into the rest of the Publicis organization in a meaningful way as Levy indicates he wants to do. This could be one time the holding company may be wise to let its new “crown jewel” continue to operate independently rather than forcing a square peg into a round hole.
It should also be noted that, since the deal has not officially gone through, others could still submit bids for Sapient. But this is unlikely to happen, especially given the 44% premium Publicis paid over Friday’s closing stock price. If anyone were to do it, however, the top candidate might be Omnicom, given its failed merger.
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