Mergers and acquisitions

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche ...

...of acquisitions.

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10 May 2013 - 3:15pm | posted by | 0 comments

Could Maurice Levy’s last deal be his biggest coup?

One big deal left for Publicis boss Maurice Levy?One big deal left for Publicis boss Maurice Levy?

One of the most astonishing things about those two titans of the advertising world, Publicis’ Maurice Levy and WPP founder Sir Martin Sorrell, is their phenomenal energy.

Sorrell is now well into his 60s and Levy is 71, but neither man shows any signs of letting up or slowing down. Both still seem to have the same hunger they had 20 or 30 years ago – as evidenced by their recent dazzling grabs for LBi (Levy) and AKQA (Sorrell).

But there are signs that Levy may at last be thinking about stepping down. At the end of last month, he spoke candidly to the media at a Publicis Groupe investor event at LBi’s offices in London.

Publicis’ results – organic revenue growth of about 1.3 per cent - weren’t bad, but nothing spectacular. But take the long view, and a more interesting picture emerges. Over the past 10 or 15 years, Publicis has consistently invested in digital, and its investments in this field have by and large paid off very handsomely.

Levy remains an astute gambler, never betting the whole business (as Sorrell did when he bought Ogilvy and J Walter Thompson back in the ‘90s – albeit this worked out well), but taking carefully assessed risks, with just the right amount of piratical daring. LBi cost Publicis over £330m – there’s no way a wily operator like Levy would pay that much if he didn’t think there was something there, and that it wouldn’t fit in very nicely with his existing digital operations.

However he admits that after LBi there isn’t much left to buy in Europe (which isn’t perhaps the main focus for Publicis anymore anyway). But he has unveiled a six-year growth plan, and last month revealed that he had a €3bn acquisition war chest (€500m for each year).

So, with Europe largely out of the running, where will Publicis’ acquisitions come from? Given the group’s past record, future deals are likely to focus on digital technology businesses in markets like Brazil, Russia, China, Turkey and India (at the end of April, Publicis snapped up Neev, a leading Indian software provider) as well as countries in South East Asia.

But there’s one acquisition which Levy could make, which would see him step down in style, and which he has consistently denied could be on the cards. This particular acquisition may not only be the crowning point of his long career and could go down as perhaps the biggest and most daring bit of M&A the advertising world has ever seen (what better way to go out than with an almighty bang?).

I’m talking about Publicis buying the Interpublic Group (IPG). We haven’t written about IPG much in past Drum blogs, and that’s because they haven’t been as active as their peers in recent times (although Green Square did handle the FRUKT transaction into IPG’s Omnicom last year).

However, between 1999 and 2001, IPG bought a staggering 185 marcomms companies and it is the oldest, and once the biggest, of “the Big Four” (the others being Publicis, WPP and Omnicom; although the “Big Four” might better be described as the “Big Five”, as Dentsu, is gaining global scale and presence following its acquisition of Aegis.

IPG has some great businesses including the sports and entertainment agency Octagon, global media giant Universal-McCann, digital specialist R/GA and leading PR firms like Weber Shandwick and GolinHarris. It also has some of the most famous names in the industry – McCann Erickson, Draftfcb (whose roots lie in Foote Cone & Belding, America’s first big ad agency), and Lowe. Many of the latter have seen better times, but they remain profitable.

Of all the holding groups, IPG was hardest hit by the events of 2007/8, having survived a major accounting scandal in the mid-2000s, and its share price tanked. At one point (October 2008) it slipped below the $4 mark and rumours surfaced of it being unable to survive. IPG’s price has picked up in recent months to around $14.50, but that’s still a long way short of its turn-of-the-century $52 high.

IPG does make strategic acquisitions that suit its component companies, but it doesn’t have the same aggressive growth strategies of its rivals. This is why some began to suggest last year that Publicis could snaffle it up. Its market cap is about $6.4bn (compared to $14.5bn for Publicis, $16.4bn for Omnicom and $21.5m for WPP). It’s the smallest of the Big Four, but six billion bucks is still a lot of money, even for seasoned gamblers.

Since the rumours started in 2012, both sides have denied any takeover talks, but the rumours won’t go away. Indeed, Levy’s public evasiveness on the issue has only served to fan the flames further.

But the real reason why the rumours keep resurfacing is because there’s a logic to them. Further consolidation in the industry is inevitable, and the smallest players will be the first to be eaten up by the big beasts.

Of course there’s the question of what Publicis (and really Publicis is the only one in the running – nobody seems to think that Omnicom or WPP would be interested in IPG) would want IPG for, apart from bulk: the former is now strong in America, and the latter’s assets are perhaps no longer as attractive as they once were. And although Levy is a gambler, he has an aversion to overleveraging his company. But IPG does consist some great assets and a canny buyer could separate out the elements that it needs (either keeping them standalone or merging into existing businesses) and sell off the rest. And of course, there’s the IPG client list which includes Yum!, Coca-Cola, GM and Pfizer, although Publicis would have to have an eye to ensure there would be no conflicts with its own.

Levy has built his business over four decades. Despite his protestations (in the American trade paper AdWeek) earlier last week to the contrary, he’ll want to leave some sort of legacy. An “Interpublicis Group” of his making would certainly rival WPP as the world’s biggest ad network, and a successful, hostile, incursion into American territory would make any red-blooded Frenchman proud.

Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector.

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