by Ryan Cottrell on April 15, 2019
Publicis Groupe (Euronext Paris: FR0000130577, CAC 40) today announced it has entered into an agreement with Alliance Data Systems Corporation (NYSE: ADS) under which Publicis Groupe will acquire Alliance Data’s Epsilon business for a net purchase price of $3.95 billion after tax step-up (total cash consideration of $4.40bn) and build a strategic partnership with Alliance Data remaining business. This acquisition will accelerate the implementation of Publicis’ strategy to become the preferred transformation partner for its clients
The Directoire (Management Board) and the Conseil de Surveillance (Supervisory Board) of Publicis Groupe have unanimously approved this transaction considering it a one-time opportunity to seize, given the evolution of the industry and the implying transformation of marketing solutions.
Arthur Sadoun, Chairman and CEO of Publicis Groupe, said
“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. They have to transform to meet this new market imperative
With the acquisition of Epsilon, Publicis Groupe is bringing the necessary technology, expertise and the talent to complement our offer in creativity, media and business transformation, and help our clients leapfrog their competition and grow profitably
In 2018 with an unprecedented run of major New Business wins, we demonstrated that we have the right model to be the preferred partner of our clients in their transformation. This acquisition will accelerate its implementation, turbo-charge our game changers and help us grow faster by offering an even more end-to-end solution to our clients
With this critical move, we are going further, faster and deeper in our own transformation, becoming a leader in this data-led, digital-first world. It’s a one-time opportunity, with very compelling financial terms and delivering double-digit accretion of Headline EPS and Free Cash Flow from Year 1 (2020)
We are thrilled to welcome Epsilon’s remarkable teams and look forward to working together for our clients and growing our relationship with Alliance Data.
Edward J. Heffernan, Alliance Data Systems’ President and CEO, said
“I’m pleased to say today’s announcement represents a trifecta win for Alliance Data, Epsilon and Publicis Groupe. The announcement of this transaction represents the culmination of an extensive assessment of strategic options for our Epsilon business. With this transaction, we have found what we believe to be the right home for Epsilon’s technology, data assets and associates
Publicis Groupe will be the ideal cultural and strategic fit for Epsilon and its Conversant business, and will help drive Publicis Groupe’s own transformation in today’s data-driven digital world
Furthermore, the unique relationships that have been cultivated between Epsilon and our other Alliance Data businesses will remain intact, and we look forward to working with Publicis Groupe to develop an even broader relationship promoting mutual and sustainable growth going forward.
Maurice Lévy, Chairman of the Supervisory Board of Publicis, said
“The Conseil de Surveillance has thoroughly and carefully reviewed this transaction and has approved it unanimously considering that it would be good for all stakeholders
For the clients: it will accelerate the transformation of Publicis making it a more relevant and more competitive partner
For the talents: in a highly competitive environment for talents, Publicis will be in a position to benefit from a remarkable leadership team, 3 700 data scientists and great technology teams and artificial intelligence experts
For our shareholders: the transaction, which was not planned, has great merits from a financial point of view. 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
The Conseil de Surveillance has been convinced by the approach of the Directoire and its Chairman and CEO, Arthur Sadoun, on the integration. The plan is reasonable and should lead to a 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.
Epsilon: a technology leader maximizing the value of its clients’ data at scale
Headquartered in the US, Epsilon is a unique technology and platform company focusing on maximizing the value of its clients’ data. In 2018, Epsilon generated $1.9 billion of net revenue (3), 97% in the United States. Epsilon employs approximately 9,000 employees, including 3,700 data scientists and 2,000 Bangalore-based technology delivery experts
Epsilon’s expertise spans across the entire data lifecycle from client’s first-party raw data to personalized marketing campaigns, using technology, data and platforms to
Epsilon’s success is evidenced by the endorsement of its blue chip clients:
Epsilon has built its assets in technology, data and platforms at an impressive scale. For example, its loyalty software serves 600 million accounts, it has more than 250 million unique consumers identified in the US, and its proprietary platforms Conversant handle 1 billion updates every 5 minutes allowing to further improve messaging based on consumer insights on a real time basis
Epsilon has developed extremely strong artificial intelligence capabilities allowing consumer behavior predictions
In a world where data privacy is paramount, Epsilon remains at the forefront of consumer privacy, cybersecurity and risk management compliance matters
Bryan Kennedy, CEO of Epsilon, said:
“We are thrilled to join the Publicis Groupe family. During extensive discussions with the Publicis leadership team during the recent review process, we found powerful common ground, including shared values and a strong vision for the future of data-driven, digital-first marketing.
Our discussions illuminated the unmistakable market opportunity that combining our complementary offerings would represent. I strongly believe that joining Publicis will benefit Epsilon and Conversant’s people and bring great value and new opportunity to the clients we serve.”
An acceleration of Publicis strategy to become the preferred partner to clients in their transformation
In today’s fast changing environment, clients are shifting their investments towards data/technology-driven marketing solutions which allow them to foster customer engagement, support growth and reduce costs.
Publicis has set a clear ambition to combine creativity, data and technology to address its clients’ needs and become a leader in marketing and business transformation. This model has been gaining momentum as exemplified by Publicis Groupe’s #1 position in New Business ranking in 2018 and the growth of its “Game Changers”.
Today, the acquisition of Epsilon is a one-time opportunity to accelerate the implementation of Publicis’ strategy to deliver personalized experience at scale.
With Epsilon at the core, Publicis will become the first player to offer a unique end-to-end services to its clients. It will result in enhanced growth of its existing businesses while opening up new opportunities in an enlarged $1.5 trillon industry
Epsilon will fuel the entire Publicis organization, complementing its existing Solutions and boosting its Game Changers:
Conversely, Epsilon’s potential will be fully unlocked within Publicis Groupe, thanks to well identified value creation levers. In particular, Epsilon will benefit from Publicis’ client portfolio and global reach to expand further in the U.S. and overseas. Publicis also intends to replicate the success of Epsilon’s unique Auto platform to other verticals (such as Health, Financial Services, Telecommunications, Retail)
Compelling transaction terms with attractive shareholder value creation
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 after deducting the benefit of acquisition-related tax step-up. This implies an 8.2x multiple, based on a 2018 Adjusted EBITDA (1) of $485m
The transaction will be double digit accretive to Publicis’ headline EPS and Free Cash Flow per share (2) from year one (2020). As an illustration, based on 2018 Pro-Forma figures, headline EPS accretion would equal +12.5% (4) and FCF accretion +18.3% (5), excluding any transaction-related synergies
Publicis remains committed to its 45% dividend payout ratio and will put on hold its share repurchase program in the context of this acquisition
The transaction will be fully financed with debt and cash on hand, maintaining a financial profile in line with current BBB+ / Baa2 ratings, with full deleveraging four years after completion of the transaction
The transaction remains subject to customary approvals and is expected to close in Q3 2019
Allen & Company LLC, BNP Paribas, Citi and J.P. Morgan acted as financial advisors and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to Publicis Groupe
On Monday, April 15, 2019, at 8:00 AM CET/2:00 AM ET and at 2:00 PM CET/8:00 AM ET, Publicis Groupe and Epsilon will host webcast presentations to discuss the transaction. Links to the webcast and accompanying documents will be available on Publicis Groupe’s Investor Relations website
This press release contains inside information within the meaning of Article 7 of Regulation (EU) N° 596/2014
Certain information contained in this document, other than historical information, may constitute forward-looking statements or unaudited financial forecasts. These forward-looking statements and forecasts are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements and forecasts are presented as at the date of this document and, other than as required by applicable law, Publicis Groupe does not assume any obligation to update them to reflect new information or events or for any other reason. Publicis Groupe urges you carefully to consider the risk factors that may affect its business, as set out in the Registration Document filed with the French Autorité des Marchés Financiers (AMF) and which is available on the website of Publicis Groupe (www.publicisgroupe.com), including an unfavorable economic climate, an extremely competitive market sector, the possibility that our clients could seek to terminate their contracts with us at short notice, the fact that a substantial part of the Group’s revenue is derived from certain key clients, conflicts of interest between advertisers active in the same sector, the Group’s dependence on its directors and employees, laws and regulations which apply to the Group’s business, legal action brought against the Group based on allegations that certain of the Group’s commercials are deceptive or misleading or that the products of certain clients are defective, the strategy of growing through acquisitions, the depreciation of goodwill and assets listed on the Group’s balance sheet, the Group’s presence in emerging markets, exposure to liquidity risk, a drop in the Group’s credit rating and exposure to the risks of financial markets.
1. 2018 reported Epsilon EBITDA adjusted for standalone carve out costs of €21m, share based compensation charge of €30m to align with Publicis’ accounting policy, €60m of run rate cost reductions being implemented at Epsilon and before any potential cost synergies derived from this transaction. Conversion from € to $ at the 2018 average exchange rate of 1.18.
2. Headline EPS and FCF on a fully diluted basis.
3. As per Publicis Groupe accounting principles
4. EPS adjusted for stand-alone carve-out costs and the run rate cost reductions being implemented at Epsilon
5. FCF per share reflecting above adjustments, as well as yearly tax step-up effect