Why does Maurice Lévy want to spend €416m on buying LBi?

Few would challenge the Publicis policy of investing in digital assets in the manner pursued so energetically by chief executive Maurice Lévy. It has proved to be a good strategy so far.  And, as a target, LBi has made great progress from its darker days to become a well respected business.

But why is LBi worth €416m to anyone?

It’s easy to play with figures and come up with some sort of justification, but the fact remains that LBi has a poor and erratic profit record, that it made €17.5m for its shareholders last year and it will have to grow consistently fast to justify the implicit price/earnings multiple of 23.7 ( – perhaps the reason for LBi’s forecast of a 26% rise in profit this year, announced this morning).  Even allowing for the estimated extra profit that might be generated from the Mr Young acquisition, the historic multiple only falls to 22.6.

The plus points about LBi are easy to see.   It is now a solid multi-disciplined digital agency that combines technical skills with marketing expertise.  It is big.  And it is international.

But, of all the global groups, Publicis has probably invested most heavily in digital assets already – nearly €2 billion was spent acquiring Digitas, Razorfish and Rosetta.  Wouldn’t it prove more profitable in the medium term to invest in the organic expansion of those agencies rather than buy yet another?

Or is the name of the Publicis game the desire to expand market share by taking out potential competition?   Is the move a defensive one – intended to ensure that no-one else gets their hands on LBi?  Everyone would have known that, with private equity funds involved, LBi would come up for sale soon as its existing public share listing was unlikely to offer the most favourable exit route for them.  Would Publicis want LBi to fall into the hands of WPP, Interpublic, Havas or even Sapient?

Has Publicis decided that it can work its cost cutting magic on LBi and gradually rationalise all Publicis digital businesses into fewer, but even stronger and more profitable, global brands?

Or is there another, rather simpler, explanation?   Will this deal help Maurice Lévy achieve global dominance before he retires?  A deal with Interpublic alone (if that company is also in Lévy’s sights) would probably still leave Publicis in the shadows of WPP and Omnicom, but perhaps a few extra million dollars of revenue from LBi would be enough to achieve that aim.

Even so it’s hard to believe that a few silver tongued private equity investors would have been able to persuade Lévy to part with so much money for LBi.  Surely nobody pays top dollar to buy another business just to be the biggest boy on the block…or do they?

Bob Willott is editor of “Marketing Services Financial Intelligence”.

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