Paris: Publicis, the world’s third largest advertising agency, has agreed to buy digital ad specialist Sapient for $3.7 billion in cash as it seeks to accelerate growth after a botched merger earlier this year.

Publicis said on Monday that the deal values US-based Sapient at $25 per share, which represented a 44% premium to Friday’s close. It will be financed through existing cash and new debt and will not affect Publicis’s credit rating.

For Publicis chief executive officer (CEO) Maurice Levy, the deal is part of a push to revitalize the group at a time when its quarterly top-line growth has lagged rivals WPP Plc and Interpublic among others.

Levy has blamed the poor performance on the hangover from Publicis’s failed “merger of equals" with world No. 2 ad agency Omnicom, which was announced in August 2013 and abandoned in May over control and cultural clashes.

Levy is betting that Sapient—which earned 63% of 2013 sales in the healthy ad market of North America and has 13,000 employees, 8,500 of whom are in India—will help Publicis get back on its feet.

In India, K.V. Sridhar, erstwhile chief creative officer of Leo Burnett (a Publicis agency), joined SapientNitro as its chief creative officer earlier this year. He declined to comment on the impact of the acquisition on the Indian operations of the two companies.

Publicis CEO for South Asia, Nakul Chopra, too, said that only the global office could comment on the development.

“It’s all about future-proofing yourself. Agency networks are all about the culmination of marketing, technology and creativity. It’s a no-brainer that big networks will want to consolidate in that direction. The deal will provide Sapient inroads into clients from fast moving goods companies, automobile and telecom companies which are part of Publicis portflio," said the digital head of a media buying agency in India.

“Publicis and Sapient will be a technology leader to help our clients go digital," said Levy on a conference call.

“The deal will create a foundation for accelerated growth," he said, by giving it access to new markets and revenue stream

The deal will speed Publicis’s roughly seven-year-old effort to earn more revenue from so-called digital advertising, which includes everything from online marketing to brand building on social networks and automatic ad buying for major customers.

Last year, 38.4% of Publicis’s sales came from digital, and it had been aiming to reach 50% by 2018, something that the Sapient deal will make happen immediately.

Sapient counts global corporations, including car maker Fiat, consumer products group Unilever and retailer Marks and Spencer among its customers.

Charles Bedouelle, an analyst at Exane BNP Paribas, said the deal was strategically sound but expensive: “It’s a good asset at a steep price, and will likely push back cash return story by two years."

Publicis did not say when the Sapient acquisition would add to group profits, but expects €50 million ($63 million) in annual cost savings from the combination.

Publicis’s management and supervisory boards unanimously backed the deal, as did the board of Sapient, which will recommend shareholders tender their shares. As a result, Sapient will be delisted from the Nasdaq stock exchange.

Sapient boss Alan Herrick will continue to run the company and is to join Publicis’s management team, while Jerry Greenberg, co-chairman of Sapient’s board, will become a board member of Publicis.

The transaction is expected to close in the first quarter of next year. Citigroup has committed to financing the bid.

Bank of America Merrill Lynch and Rothschild advised Publicis, while Goldman Sachs and Blackstone advised Sapient. Reuters

Mint’s Shuchi Bansal and Vidhi Choudhary contributed to this story.

Close