Oh dear, just when you thought Publicis Groupe was turning the corner – some big recent media wins and the annointment of Arthur Sadoun as Maurice Levy’s successor – the car goes skidding off the road.
The French-owned marcoms giant is being forced to write off €1.44bn (about £1.2bn) from the value of its digital division Publicis.Sapient which it’s blaming on a poor performance from another of its expensively-acquired digital agencies Razorfish. Publicis paid $3.7bn for Sapient following the collapse of its merger with Omnicom a few years ago and, at first, Sapient seemed to be revive the company’s performance.
Publicis figures were expected to be disappointing (over the piece they were, with organic “growth” of minus 2.5 per cent) following account losses in the US but nobody expected the Razorfish disaster, accepting that the disaster was confined to Razorfish. Publicis reported a full year 2016 loss of €527m.
Publicis isn’t the only marcoms giant to reach for the red ink. WPP is expected to report a near $200m write-down in the value of its stake in comScore following the emergence of problems at the digital research outfit. WPP, though, will still report an overall profit.
For Publicis is this just one of those things or a sign of deeper underlying problems? All the marcoms giants have rushed into digital, paying top dollar for acquisitions and boasting that nearly half (it always seems to be nearly half) of their businesses are now digital. The trouble is they don’t make as much money from digital as the other bits of their business: margins are lower (and likely to reduce further as clients look beadily at programmatic buying) and there’s much more competition, from the likes of Accenture and tech-only specialists.
The Publicis supervisory board, controlled by the Badinter family, presumably knew about this nastiness when they appointed the post-retirement Levy chairman. Maybe the heavy write-down is partly to clear the decks for new Publicis Groupe CEO Sadoun. But it makes Publicis vulnerable to a takeover, possibly from French-based consultancy CapGemini.
It also signals, despite Levy’s brave words to the effect that it will be business as usual some time next year, a further year of job losses and rationalisation – some of which could be quite spectacular.
Here’s Maurice explaining his less than thrilling 2016 results to what we used to call (in our ignorance) a fragrant hackette.