LONDON — Japanese ad giant Dentsu is buying marketing group Aegis for 3.2 billion pounds ($5 billion), the biggest deal in its history as it seeks to expand outside its home market with the British firm's European and digital business. Revealing how badly Dentsu needs growth outside its shrinking home market, it will pay a 48 percent premium to secure the takeover after European groups WPP and Publicis snapped up rival agencies in recent years. The price represents 20 times full year 2012 expected price earnings, compared with the 10-11 times at which WPP and Publicis trade, said analyst Ian Whittaker at Liberum Capital. The deal means Japan is the second most active overseas acquirer this year with more than $20 billion worth of deals, behind the United States but surpassing all major European nations and China in outbound M&A. Analysts described the deal as a perfect strategic fit after Aegis Chief Executive Jerry Buhlmann turned the group around to grow in Asia Pacific, the US, emerging markets and digital marketing in recent years. “The quality of the offer, the strong likelihood of deal certainty, the fact the offer was cash and the fact it was a meaningful serious approach meant that we entered bilateral discussions with them," Buhlmann said of Dentsu's approach. Aegis, which has Coca-Cola, GM and Disney on its client list, has long been seen as a potential takeover target, although it had for years been linked to the French group Havas as French financier Vincent Bollore was the largest shareholder in both. Aegis has performed strongly since selling its Synovate market research unit last year to focus on the faster growth areas of media buying and selling and digital communications. In 2011, the group increased the proportion of its revenues from digital to a sector-leading 35 percent. Analysts said the deal underlined the value present in advertising companies despite a tough economic climate and could lift the whole sector. “We see the deal as underlining that the advertising sector still represents significant value," Bernstein analyst Claudio Aspesi said. “The premium paid by Dentsu suggests they are confident of continuing long term growth for Aegis, despite recent negative commentary on the outlook for the European ad market." For Dentsu, the deal enables it to find new growth outside its home market, which is eroding. Though the company dominates traditional Japanese print and broadcasting sectors, overall ad industry revenue fell 2.3 percent to 5.7 trillion yen ($72 billion) in 2011 — the fourth annual contraction for an industry that in the past decade has shrunk by almost 6 percent. “Dentsu and Aegis will be the market leader in the Asia-Pacific region, enjoying a strong presence across Europe and the fastest growing agency network in the US," President and CEO of Dentsu, Tadashi Ishii, said. “In recent years, under the leadership of Jerry Buhlmann and his team, Aegis has been recognised as the most successful independent media and digital communications agency with strong performance momentum and talented, client-focused employees." Dentsu said it had already purchased or had irrevocable undertakings in relation to around 30 percent of Aegis' stock, including shares from Bollore. — Reuters
