Dentsu-Aegis: Deal of the decade?

For many, Dentsu’s US$4.9 billion acquisition sparked memories of Publicis Groupe’s US$3 billion buyout of US-based agency Bcom3 Group and given the size of this transaction and the names it involves, it is being touted as the deal of the decade.

Although the deal comes as a surprise to some, speculation about Dentsu making a huge investment were rife after it sold its stake in Publicis earlier in the year.

But together, the Dentsu-Aegis force is now almost comparable to the size of IPG, one of the four big holding groups globally and its client list now includes many of the world’s biggest blue-chip brands including Toyota, General Motors, British Gas, eBay and Disney.

Importantly, the deal brings a level of scale to Dentsu across Asia and Europe. The acquisition is also part of Dentsu’s strategy to rebalance its business away from the Japanese market into regions with more opportunity for growth, China in particular.

A balancing act?

Response from the industry has so far been mixed. What is agreed however is that the moves gives Dentsu a geographic footprint to match three global players WPP, Publicis and Omnicom.

The holding group already owns a majority market share in Japan, the second biggest ad market in the world, according to latest figures from ZenithOptimedia. The Japanese advertising market stood at US$46 billion in 2011, second after the US with US$152 billion.

Although, Japanese market has been in long term decline and suffers from much lower growth rates than other major Asian markets, Dentsu’s dominance continues.

Industry consolidation has been an ongoing story for the past decade and a half but a big move such as this, nonetheless, carries substantial implications.

“Media Investment Management will continue to be a scale business,” said R. Gowthaman, CEO for South and Southeast Asia, Mindshare, adding that there are far too many players in the market place chasing too few monies and the sad result is extensive commoditisation.

“This is very similar to the telecom mad rush, one see in some of the emerging markets call rates are crashed to remain in the game leading to poor quality of service and bandwidth. Ditto with our industry too.”

“I strongly believe such trends will only augur well for our business and clients. Ultimately they will benefit from quality product and quality service.”

With Dentsu as a group taking clear digital focus (it recently launched a digital marketing division Dentsu Mobius), it’s good news for clients.

“Dentsu is positioning themselves firmly in the international market for digital services which can only be a positive offering for international brands looking for an agency with a large digital foot print,” Linda Locke, marketing director, Club 21 said.

Paying the right price

Financially, many say the deal is overpriced but it is good news for stakeholders, another senior industry professional Marketing spoke to on conditions of anonymity said, referring to the 48% premium Dentsu paid on each Aegis share based on the company’s Wednesday’s closing share price of 162.2 pence.

However, Dentsu’s share prices dropped 6.3% to 2,162 yen as investors judged its purchase as overpriced. Nonetheless, the industry sees this as an investment worth making. The only challenge many said the combined entity would face is cultural integration – assimilating a European company into a large Japanese firm.

“The cultural fit will be a challenge given the Dentsu is a very traditionally run Japanese firm,” a source said.

What’s next?

As the dust settles down on the deal, it is natural that all eyes will turn to the only independent industry group left, Havas Media.

“Havas is now a strong acquisition target and that explains the 5% jump in its share prices soon after the Dentsu-Aegis deal was announced,” another industry professional told Marketing.

Speculations are on as to what would be Vincent Bolloré’s next move. The business tycoon, who held a 26.4% stake worth over £800m, in Aegis has been chairman of the Havas board of directors since July 2005.

While the future of Havas will only be known with time, what is clear is that the competition for the global independent holding group will only become steeper.

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