Japanese advertising company Dentsu Inc. has purchased London-based Aegis Group in a cash deal worth $4.9 billion.
Dentsu has prioritized growth outside of Japan and wants to increase its digital credentials. Despite this, business outside of Japan composed only 16.2% of its revenue in 2011, up from 12.8% in 2006, according to Advertising Age.
In terms of Canadian impact, the deal comes just weeks after Dentsu acquired independent Montreal agency, BOS, giving it a presence in both Toronto and Montreal. Aegis, meanwhile, is the corporate parent to media agencies Carat and Vizeum Canada, as well as agencies iProspect and Isobar.
Here’s the chatter on Dentsu’s acquisition of Aegis:
Mark Sherman, executive chairman at Media Experts
“It was only a matter of time before Dentsu jumped into the media buying business in a meaningful way. With Chindia (i.e. China and India) representing a tremendous growth opportunity for the advertising business, now having traditional and digital media services assets, Dentsu is better positioned to leverage the opportunity in their own backyard as well as establishing a beachhead in Europe and North America. Fantastic, bold move!”
Lauren Richards, communications consultant and former CEO of Starcom MediaVest
“Wow! What a bold move. [I] think it’s fabulous for the BOS group here in Canada. Claude Carrier is a huge lover of the power of media – I look forward to seeing what that partnership can bring, building upon the strength that Aegis has shown here in Canada of late.”
Howard Thomas, president at Thomas & Williamson Inc.
“Obviously like the recent BOS deal, the goal is to grow beyond their traditional markets, but they are paying a huge (cash) premium for this; I am hearing an earnings multiple of 12X, well above recent and historical industry norms. I would love to be an AEGIS shareholder! This is a very big premium – and I think they are clearly paying (maybe overpaying?) at the high end of the market. When you look at the limping global economy – particularly European debt – and upcoming U.S. election, it is a scary time to be buying at that price.
I think the buy is, though, about some key digital assets – notably Isobar and I-Prospect, some very innovative parts of the AEGIS network – and with the recent win/consolidation of GM business within I am sure they are going to focus like a laser beam on offer global digital solutions. Two other thoughts: remember the expression, then there was three? Now we have four global super shops, so this is going to have some interesting alignment challenges. And finally, let’s hope they can keep the key people in place. A huge challenge in these times, but as we know, this business has never been short on courage.”
Mark Sweeney @ The Guardian
Dentsu’s surprise offer of 240p a share is a 48% premium on Aegis’s closing share price of 162.2p on Wednesday and is one of the largest advertising deals ever struck. The deal will shake up the established global advertising hierarchy by creating the fifth biggest player, with £3.8bn in revenues and more than £600m in profits, providing a new rival to WPP, France’s Publicis Groupe and US giants Omnicom and IPG.
“Whatever [WPP boss Martin] Sorrell might say about the deal there is now a new business competing against him, a very different business in shape built for the technology age with 37% of revenues from digital,” said one source involved in the deal. Sorrell, who will not be making an 11th hour counterbid to scupper the deal, believes that the high price tag represents a “trading coup” for Aegis’s biggest shareholder Vincent Bolloré.
Jim Edwards @ BusinessInsider.com
It puts a huge amount of pressure on Havas, which booked $1.9 billion in revenue last year, as the next acquisition target. Bollore also has a stake in Havas. Lo and behold, Havas opened with a sharp jump, up 5% to ~3.90 euros/share, indicating that investors may believe Bollore can engineer the sale of this now-underpowered agency network. A spokesperson for Havas, however, insisted categorically that Havas is not for sale.
Steve McClellan @ MediaDaily News
Is Havas next? Or Interpublic Group? In the wake of Dentsu’s offer for London-based Aegis Group, industry chatter focused on which firms might be next in the ongoing round of consolidation in the marketing services sector.
“We continue to expect that Havas, Interpublic and Publicis in particular remain highly likely to become involved in some kind of ‘transformative’ M&A activity at some point in the next several years as well,” wrote Brain Wieser, senior research analyst in a note following Thursday’s unveiling of the Dentsu-Aegis deal.
Potential acquirers, he speculated, include Korean holding company Cheil, reportedly in talks to buy U.S. agency McKinney and publisher Meredith, which has invested in a number of ad shops in recent years. Hearst, IBM and Accenture could also be looking to buy. Other potential targets include Sapient and Toronto-based holding company MDC Partners, which itself has been on buying spree, making about two-dozen acquistions over the past two-plus years.
Martin Sorell @ Bloomberg
“It’s $5 billion, a very big premium. If you look at premia for U.K. acquisitions, it runs between 30% and 50%. This was 48% from the pre-trade price.
“It doesn’t actually do much for Dentsu in terms of differences of geographical distribution. They’ll still be 60% Japanese, they’ll still be 80% in mature markets, and digital will only be 20% of the business. But Aegis is a very interesting opportunity for them. The conclusion from analysts this morning was that the strategy was right but price is very high and the execution risk is substantial.”
Eric Pfanner @ DealB%k (New York Times)
“International expansion is critical, because the Japanese ad market has been shrinking in recent years. Dentsu this year acquired a boutique agency in New York, ML Rogers, and Bos, with offices in Toronto and Montreal. The deal for Aegis accelerates that international push.
Merger and acquisition activity has been accelerating in the advertising business, which has weathered the global financial and economic crisis better than some other media industries. Last month, WPP, the world’s biggest advertising company, agreed to buy control of AKQA, a digital agency, in a deal valuing it at $540 million. This month, Publicis agreed to buy the 51 percent of BBH that it did not already own.
There had been speculation that Dentsu would make a move since it ended a nine-year alliance with Publicis, the third-largest agency company after WPP and the Omnicom Group, in February. To unwind that partnership, Publicis bought back a 9 percent stake in Dentsu, giving the Japanese agency additional financial resources for acquisitions.”
The news also generated a lot of buzz in the Twittersphere:
Jayne Pimentel, head of business development at Adaptly, on Twitter
Wow. I assumed LBi was nxt – surprise! RT @nytimes: DealBook: Dentsu of Japan to Buy Aegis of Britain for $5.1 Billion
Howard Thomas on Twitter
Big deal to lessen dependency on local Asian market: Japan’s Dentsu to purchase Aegis for $4.9 billion … #expansionism
William Lederer, CEO at Kantar Video, on Twitter
More media buying industry global consolidation: 7 companies, now 6=75% of spend. Expect 4 in 5 years growing to 80%.
