Maurice Lévy tries to pick up Publicis after failed deal with Omnicom
The latest phrase to enter Maurice Lévy’s vocabulary is “to be ubered” and the head of Publicis Groupe, one of the world’s largest advertising groups, is using it with alarming frequency.
“Everyone is starting to worry about being ubered,” Mr Lévy tells the Financial Times in an interview, referring to the car-hailing app that is trying to upend the traditional taxi industry. “It’s the idea that you suddenly wake up to find your legacy business gone . . . clients have never been so confused or concerned about their brands or their business model.”
Mr Lévy’s own sector is no exception.
The “digital tsunami”, as he calls it, has caused more upheaval to advertising than at any time since the advent of radio and television. The rise of competitors such as Google and Facebook has changed the way people consume information. This has presented huge challenges to the likes of Publicis, whose brands include Saatchi & Saatchi and Leo Burnett, as well as interactive agencies such as Razorfish.
The failure in May of Publicis’s planned $35bn mega-merger with US rival Omnicom, seen at the time as a logical “size matters” response to the tsunami, has only underscored the scale of the challenge.
So how does Mr Lévy intend to survive and prosper in this brave new world? One answer is that he is doing what every other company is: hiring mathematicians and data scientists to help deliver the specific algorithms clients need to reach specific consumers.
“We employ geeks, techies and gamers,” he says. “Today, advertising campaigns are so highly targeted that they are often not even seen by the general public.”
Another answer came last month when Mr Lévy announced that the group would acquire Sapient, the Boston-based consultancy that specialises in digital but also provides business and technology services to the capital and commodity markets.
At the time the deal was announced, Mr Lévy called Sapient the “crown jewel” in omni-channel commerce and consulting. He told the FT that the all-cash $3.7bn acquisition, which he expects to close in the first quarter of next year, would break down the doors of other sectors just as digital is bringing the advertising world closer to the lucrative realms of consultancy and IT.
“It gives us a full set of services,” he says.
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Publicis certainly needs a lift. The Paris-based group, founded by Marcel Bleustein-Blanchet in 1926, has notched up several quarters of disappointing growth. Sales were €1.75bn between July and the end of September — an organic growth of just 1 per cent compared with a year earlier.
By contrast, US rival Interpublic reported organic growth during the same period of 6.3 per cent. Even more galling, Omnicom grew at a spirited 6.5 per cent.
Mr Lévy says that his group’s poor recent performance is directly related to the failed tie-up. “We involved our people more than they [Omnicom] did, we believed more in the merger, we invested more time and passion,” he says. “We were pregnant with the idea of the merger and so have suffered while they enjoyed good growth.”
Mr Lévy says Publicis is reverting to maximising organic growth. Last week, he restated medium-term targets, promising shareholders that revenue would grow two percentage points, on average, higher than the rest of the industry in coming years. He also promised to increase operating margins — 16.2 per cent this year before including Sapient — by between 200 and 400 basis points.
But in a world in which most people agree that size matters, analysts are sceptical that Publicis’s planned acquisition of Sapient provides the necessary boost in scale. Sapient’s $1.26bn in revenues last year are small compared with Publicis’s €6.95bn, for example. Contrast all of that with the now-shattered dream of bonding with Omnicom’s roughly $14.6bn in annual revenues.
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Moreover, Sapient’s business may be mainly digital — boosting Publicis’s overall revenues from digital to more than 50 per cent of the total well before its 2018 target — but it is also highly concentrated in the US. That will do little to expand the group’s footprint in emerging markets, which last year accounted for less than a quarter of the Paris-based group’s overall revenue.
Analysts also question whether the convergence opportunities in consulting and technology that Mr Lévy has signalled will materialise. Bernstein Research, for example, recently argued that consulting companies tend to be highly specialised and their deep knowledge of their sector already allows them to provide the value-added services Mr Lévy has identified.
The report, entitled “Christmas came early . . . to Sapient”, a reference to the 19.5 times earnings before interest, taxes, depreciation and amortisation at which Publicis’s offer values the company, concluded: “The crossover between financial services and digital marketing is not natural or convincing.”
Publicis shares fell on the day it announced the acquisition. The stock is down about 11 per cent since the start of the year. Meanwhile, Omnicom shares are up 4.2 per cent over the same period. Shares in Havas, Publicis’s much smaller Paris rival, are up 13.6 per cent. Of Publicis’ main rivals, only UK-based WPP has seen its shares fall this year — though only by 4.4 per cent.
With the verdict still unclear on the Sapient acquisition, there is nevertheless one thing on which everyone agrees: the deal does nothing to resolve the puzzle of succession.
A tie-up with Omnicom would have provided the 72-year-old Mr Lévy with an elegant solution, crowning his 27 years at the top of Publicis with the biggest merger in advertising history and gradually handing over the reins to John Wren, his counterpart at Omnicom.
As things stand, Mr Lévy has had to buy time to find the right replacement by extending his original retirement date by 18 months until the group’s annual general meeting in May 2017.
Sitting in his office, connected by a door to the impeccably preserved room — complete with Picassos and a Giacometti — from which Bleustein-Blanchet used to run things, Mr Lévy says that choosing his successor is a job for Publicis’s board.
And it is one that he insists will begin at the end of next year. In the meantime, he says, his responsibility is to ensure that there is an internal candidate ready in time.
Has he already started that process?
“I have never stopped,” he replies.
Digital tsunami blurs the lines
The “digital tsunami”, as Maurice Lévy calls it, has blurred the razor-sharp lines that once separated IT from advertising, forcing the world’s biggest marketing groups to partner with software companies.
In September, Publicis announced an alliance with Adobe, the US technology group, to offer a range of digital marketing tools.
The “Always-On Platform”, as Publicis calls it, will help clients manage their campaigns across devices as well as to measure their effectiveness. The company says it will also help them to target potential customers more effectively.
In the same month, Omnicom announced a strategic alliance with Salesforce.com, the San Francisco-based cloud computing company, to provide customers with a range of customer relations management tools.
The alliances do not involve any equity, sending a clear message to investors in the advertising groups that the companies do not intend to sink money into acquiring IT companies.
But they illustrate the growing importance of providing digital tools to support the growing demand for targeted, online campaigns. The days of the blockbuster television advertising campaign are not yet over. But it seems clear that the era of digital campaigns that are highly targeted to specific people are here to stay.
