Publicis Groupe SA, agreed to pay $3.7 billion for Sapient Corp., pushing the third-largest advertising company deeper into digital offerings and the U.S. as it moves past a failed merger with Omnicom Group Inc.
Sapient stockholders will receive $25 in cash for each share, the companies said today, a 44 percent premium to Sapient’s Oct. 31 close in New York. Publicis is paying 19.2 times Sapient’s earnings before interest, taxes, depreciation and amortization. That compares with a multiple of 14.5 times for similar targets over the past five years, according to data compiled by Bloomberg.
Publicis is moving on from the $35 billion merger with Omnicom, which was abandoned in May after executives clashed over how to run the combined entity. The owner of agencies including Saatchi & Saatchi and Leo Burnett said Sapient will help it reach a target of generating half of its revenue from digital offers three years ahead of plan.
“We’ve been investing for many years in digital capabilities for one simple reason: it’s the future,” Publicis Chief Executive Officer Maurice Levy, 72, said on a conference call from New York. “The pace of innovation is accelerating faster than ever. These mean big challenges for our clients.”
Publicis’ shares fell 3.1 percent to 53.58 euros in Paris at 12 p.m.
The deal is a “dynamic” change in strategy for Publicis, according to Nick Hungerford, the CEO of Nutmeg Saving and Investment Ltd. The French group has been “behind the curve” in its digital endeavors and is now “paying a hefty price, a premium of a billion dollars,” he said in an interview with Bloomberg Television today.
Both companies’ boards have approved the offer and Sapient CEO and Co-Chairman Alan J. Herrick will become CEO of Publicis.Sapient.
Since the failed merger with Omnicom -- which would have replaced Martin Sorrell’s WPP Plc as the world’s largest advertising agency -- Levy has delayed his long-mooted departure, saying in September that he will stay at least three more years.
Last month, Publicis cut its full-year sales forecast. The company’s shares have declined 17 percent this year before today. Sapient shares increased 2.8 percent to $17.32 on Oct. 31. and have dropped 0.2 percent in 2014.
Levy said today’s transaction is a “leap in the transformation of Publicis” and called the deal a “cultural fit” for the French company.
Sapient, which also owns SapientNitro, a leading digital advertising agency, would push Publicis further into online activities. The company reported 2013 earnings before interest, taxes, depreciation and amortization of $160.3 million on sales of $1.31 billion, according to data compiled by Bloomberg. Its shares will be delisted once the deal is closed, Publicis said.
Boston-based Sapient, founded in 1990, advises brands, energy and commodity traders and governments on technology and online strategies. Publicis is shifting the majority of its digital activities to the newly created Publicis.Sapient, including DigitasLBI, Razorfish and Rosetta.
Publicis plans to finance the purchase with cash and borrowings, without selling shares. The company received a firm financing commitment from Citigroup Inc. The transaction, which will generated annual cost synergies of 50 million euros ($62 million), is expected to be completed in the first quarter of 2015.
Bank of America Corp. and Rothschild acted as financial advisers and Wachtell, Lipton, Rosen & Katz provided legal assistance to Publicis. Goldman Sachs Group Inc. Blackstone Group LP acted as financial advisers and Cravath, Swaine & Moore LLP was Sapient’s legal adviser.