The Publicis Groupe is acquiring the data-marketing firm Epsilon, but experts have questioned the strategic and the financial decision of the ad holding company 

The Publicis Groupe announced a $4.4 billion buy of data marketing firm Epsilon last weekend. The ad holding company has acquired this business from Alliance Data Systems Corporation. This deal will help the Publicis Groupe offer an end-to-end solution to their clients.

Under the terms of the agreed transaction, Publicis Groupe will acquire Epsilon for a cash consideration of $4.40 billion, representing a net purchase price of $3.95 billion, based on a 2018 Adjusted EBITDA of $485m.

This transaction was approved by The Directoire (Management Board) and the Conseil de Surveillance (Supervisory Board) of the Publicis Groupe. Arthur Sadoun, Chairman, and CEO of Publicis Groupe stated in the press release that, “Our clients are facing increasing pressure from the rise in consumer expectations, the mainstreaming of direct-to-consumer brands and new data regulations. The only response is to deliver personalized experiences at scale. …With this critical move, we are going further, faster and deeper in our transformation, becoming a leader in this data-led, digital-first world.”

With Epsilon in its basket, Publicis can become the first player to offer end-to-end services. Epsilon employs 9,000 people, including 3,700 data scientists and 2,000 technology delivery experts. In 2018, Epsilon generated $1.9 billion of net revenue, where 97% was from the United States.

Experts have expressed skepticism about the ad holding company’s ability to integrate Epsilon, considering the inefficient integration of Sapient a few years ago. Publicis does not have an excellent track record in integrating acquisitions. When the company had acquired Sapient, the digital and tech firm for $3.7 billion in 2014, its integration took three years, and in November, Sadoun said the whole process was “a nightmare.”

However, their experience seems to have prepared them to do better this time. Maurice Lévy, Chairman of the Supervisory Board of Publicis, has said in the press release, “The plan is reasonable and should lead to seamless integration with great potential in growth and cost synergies. We are confident that the plan will deliver the expected results on services, growth, and synergies.”

Since this transaction was focused more on synergies and less on financial point compatibility, the holding company becomes all the more answerable to the shareholders. Experts have also questioned the strategic decision of acquiring the company. With most of the data with Epsilon is from the US, experts have questioned the usefulness of this data for the French multinational. Experts have also predicted that investors will likely focus on the ongoing attrition and its costs in traditional advertising, which would remain about 75% of Publicis’ revenues following the deal.

Since the transaction for Epsilon is for less than $5 billion, experts suggest the asset s may not be as valuable as expected and raises questions on the logic of this acquisition.

In the press release, Lévy has added, “The price is fair, the transaction is headline EPS and Free Cash Flow accretive at double-digit level, it gives a stronger profile of growth and a new and better-balanced mix of product and revenues. Therefore, it will generate value creation that will greatly benefit our shareholders.”

Whether this acquisition will result in real benefits for Publicis or will be another nightmare is something that shareholders will watch for too.