Corporate Finance

“The most significant risks lie in integration”

Four years on from being appointed director of M&A in 2013, Stéphane Estryn takes a look back over the expansion strategy of advertising giant Publicis, and details the principal risk factors and successes of their operations.

Four years on from being appointed director of M&A in 2013, Stéphane Estryn takes a look back over the expansion strategy of advertising giant Publicis, and details the principal risk factors and successes of their operations.


Leaders League. In the majority of companies, M&A activity is overseen by a financial director, how is Publicis different?

Stéphane Estryn. Maurice Lévy, who leads Publicis since 1987, has always taken the view that the function of M&A is not only technical but also strategic. That's why he put the M&A team under his authority. The role of a director of M&A is closely related to the executives and their view for the company. The CEO is often very sensitive to these operations, mainly for three reasons: first, the implementation of the strategic vision will depend on the success of the M&A transaction; second, the risks associated with this the type of operation are significant; third, according to the size of operations, the company may need to invest a large number of money, which engages the responsibility of the CEO with respect to management and shareholders. The larger a group is, the more difficult it is to be agile: being directly attached to president enables me to benefit from a rapid system for decision making.

 

Your average of 20 acquisitions around the world each year is quite high, isn’t it?

This strategy allows us to gain market share more quickly. We have doubled in size for the first time in 2001 with the acquisition of the British agency Saatchi & Saatchi, and then the takeover of the American Bcom3 a year later. Since then, we have carried out numerous transform operations: Digitas in 2006, then Razorfish, Rosetta, LBi and Sapient. An acquisition can be motivated by different factors: the desire to be strengthened in growing countries, the development of our clients and the need to expand our capabilities. For example, the acquisition of Sapient, concluded in early 2015, has enabled us to place in the market of consulting and e-commerce.

 

What are the risks in an acquisition?

The first risks are exogenous: macro economic risk, but also the general context of the business in the target country such as legal system, the risk of corruption, currency, etc. We can also find which are related to operations, even if in the service industry, we are not particularly affected by the risks they face. In essence, the most important risk lies in integration: like a marriage, the fit with the partner and their behavior during closing, are critical to the success of the operation. We need to be on the same page but also have the same values and the same ethics. The match between our two cultures is the key to the success of the acquisition.

 

Nevertheless, earn-out clauses allow you to mitigate these risks.

Calculating part of the price of the transaction based on the future performance of the company, in fact, allows motivating the shareholders to act for the benefit of the transaction. From a financial point of view, the main risk is not in three or five years, but at the end of the earn-out, when the leaders of the acquired company may decide to leave the agency, either develop within Publicis Group or go through other adventures. We need to anticipate this situation by making leaders loyal apart from the financial aspects, and if they leave, their departure should not create any uncertainty.

 

In 2014, Publicis canceled its merger with the American giant Omnicom. Why was this deal not closed?

We realized at that time that we did not have the same vision of this merger between us. Once this disequilibrium has been felt, we chose not to continue the transaction. This was a courageous decision on the part of the executive group, also a difficult situation because we have already mobilized many forces around the project. This is a closed chapter. With the acquisition of Sapient and the reorganization of the group, we are confident for the future.

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Accenture's CEO and CFO interview by Leaders League Group

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