The rumours over the past few days about Publicis opening talks with private equity should come as no surprise. On both sides of that table, there are some clear drivers and challenges for what would be the most notable transaction in the marketing world since the launch of S4 Capital in 2018.
From Publicis Groupe’s standpoint: it is one of the major marketing groups (third by market cap right now) and it has recovered well since mid-November, so on the face of it there is no need for such upheaval. However, during Q3 2020, when this conversation may have started, the French firm’s share price was 25% down from its March high and it is still facing some strong headwinds. The prospect of taking on a private investor should in theory provide flexibility to the group as it would be released from the stringent requirements and constraints that come with being a publicly listed business. Publicis Groupe’s quarterly reporting materials are full of their aims to expand in data, content and technology; is a Public-to-Private (P2P) transaction the catalyst to achieve this ambition?
On the Private Equity side: commentators are speculating that CVC is the investment house in question. This makes sense as they’ve had success in our segment of TMT; Teneo being one example. However, there is a litany of other private capital firms that are seeing success in this space too – Investcorp, Shamrock and New Mountain Capital to name a few. So, it would not be surprising if Publicis Groupe’s suitor is actually a new entrant to the market.
Financial investors like sure things and there is no better indicator than the success of a peer; this is particularly true at scale. This is all against the backdrop of the pandemic too: almost every agency has seen margins grow with a reduction in certain overheads. The astute funder will see an opportunity to make those changes permanent and retain peer-beating double-digit margins. Building on key digital assets like Sapient is likely the plan of attack.
Finally, the transaction itself. Key to success with any P2P is managing information and, usually, maintaining secrecy to avoid competitive bids and triggering disclosure obligations but the figurative horse has already bolted in that regard. Also, P2Ps are generally less common simply because going public should, in theory, be the final step in a company’s journey. For example, Dell was taken private in 2013 by Michael Dell only to be listed again 5 years later. Any PE firm that buys out a public company obviously wants to exit at some point and the ultimate exit route for any company? The public markets.
A year ago, we predicted heightened private equity activity in our space, which is proving to be the case. We also mused about WPP or Omnicom being taken private, given their recent woes, but the rationale applies to any of the major groups. This scenario is only going to continue given the significant amount of private capital waiting to be deployed and this applies to all businesses – from small founder-led firms to the largest marketing groups in the world. Vive l’investissement.
