Jessica Goodfellow
Jun 25, 2019

S4 Capital says Publicis’ Epsilon deal 'risky'

S4 Capital chief executive questions Publicis Groupe’s $4.4 billion acquisition of business that “might not exist in a few months”.

S4 Capital says Publicis’ Epsilon deal 'risky'

S4 Capital does not want to purchase a data company but rather data expertise, believing that Publicis Groupe’s US$4.4 billion deal to acquire Epsilon is “risky” when the business, known for its vast consumer database, “might not exist in a few months”.

“Buying it for future plans is a risky business,” S4C chief executive Michel de Rijk said on a panel at ATS Singapore on Tuesday.

He said acquisitions of data companies are “extremely expensive” and come with a lot of risk, especially due to tightening legislation around the collection and storing of consumer data.

That said, S4C is having “ongoing conversations” around acquiring a data business, but it does not intend to become a data owner—rather it is eyeing an acquisition that will help brands to manage their data better, such as a data management platform.

“It wouldn't be an Epsilon,” de Rijk said, responding to a question on what data company he would buy.

“We don’t want to buy an asset that includes the data itself, we want to buy a solution that helps brands better understand their consumer and their first-party data,” he said. “We don’t want to be a data owner.”

S4 Capital has been on a targeted acquisitions drive since launching in June following the MediaMonks takeover, reportedly worth US$352 million. In December the business purchased US programmatic advertising company MightyHive for $150 million, and just last week it announced a merger with Melbourne-based customer-experience company, BizTech.

De Rijk was speaking on a panel alongside Denstu Aegis Network's president of programmatic services APAC, Sonal Patel​, who spoke of the network's 2016 acquisition of Merkle, and subsequent acquisitions of Namics, DWA, HelloWorld, Filter and Happy Marketer, among others.

"They are investments for the future," Patel said. "We know we are moving into a world where data is going to be gold—it is the asset that keeps you understanding what the consumer wants. The acquisition [of Merkle] was made to look at the gap that the holding company had, which is around utilisation of data, understanding capabilities and flow."

However, Patel acknowledged that the network faces challenges with how it integrates and utlitises the companies it has acquired.

She said Apple's crackdown on third-party tracking cookies in ITP 2.2 is going to have an impact on "what we do with companies we acquire", given the challenges it presents in tracking whether consumers convert to purchase. Additionally, market variances means that in some regions of Asia-Pacific, it "doesn't make sense to pay for data when it is cheaper to get CPM impression of 5 cents".

But perhaps the most significant challenge is integration.

"The challenge any holding group or adtech company has when making acquisitions is how do you get integration when mindsets are different," she said.

Patel (pictured above), who joined Dentsu in April last year from adtech firm AppNexus, acknowledged that integrating a technology business with a legacy holding group is "not easy".

Where tech businesses are process-, product-, capability-first, the agency model is service-first, then delivering on some capabilities, she said.

"That takes time and puts pressures on investors," she added.

However, de Rijk questioned the value of acquiring businesses without integrating them under a single P&L.

"If you are going to run it as a separate entity, separate P&L, and not integrate it into the company then it is not going to contribute to you overall," he said. "That is the challenge holding groups have. You talk about cultural challenges of integration but if you dont put it all together under a single P&L and make sure that company’s understanding is being used across the organisation, then you are not moving forward at the speed that you should."

Patel responded that Dentsu is further forward than some of the other holding groups in thinking about "how the P&Ls between individual brands work within Dentsu", but de Rijk continued to question the value of operating multiple earnings reports.

Earlier, de Rijk said S4C is not "doing anything unique when it comes to the offering"—predicated around bringing creative and media back together—but added that it can move at "a greater speed" than holding companies.

Elsewhere, KnightFrank APAC head of marketing, communications and digital, Wendy McEwan, offered some green shoots of hope for the in-housing debate, but dealt a blow to both S4C and Dentsu's ability to offer local expertise across Asia-Pacific's vastly diverse markets.

McEwan said there will "always be a need for serviced partners".

"In-housing [is taking place] around having that visibility to all touchpoints with your customer and behavioural signals of what is going on with your customer across digital and offline—more so than in-housing the execution of media buying or transaction layer," she said.

"People need and want expertise of partners to help them be successful in how they operate," she added. "It is impossible to keep up with everything that is happening—that is the job of your partner to help sift through what makes sense of your business versus what you want to achieve."

While there will always be partners, McEwan (pictured above) questioned "whether they will look like Dentsu or S4 or be independent based on what I need in my group or in my country".

"Those needs are vastly different in markets across Indonesia, the Philippines, Vietnam, and I might not think S4 or Dentsu can do that," she added.

De Rijk agreed that it makes sense for brands to want to have more insights on their customers and own that data, but he questioned whether brands have the capability to bring full marketing capabilities in-house.

"I don’t believe a lot of brands are capable of building full in-house teams across the full stack—besides the Netflix’s of the world," he said. "Other brands will continue to have service providers—either on a retained or one-off basis."

Patel pointed to Procter & Gamble's troubled in-house programmatic trading system Project Hawkeye as an example of how brands often underestimate the complexity of managing media.

"In one sense the fear for the holding groups is—if there is no third party world how do we survive in first party world. For marketeers, they are not going to want to share first party data with anyone, so they will want to in-house this," she said.

"But P&G tried to do this, it took 12 years and they still couldn't make it, because that service layer is so important. There’s so many intricacies and different companies you have to work with."

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