Publicis to Acquire Rosetta for $575M

Publicis Groupe said today it will acquire Rosetta, one of the largest independent digital marketing agencies, for $575 million.

Publicis CEO Maurice Lévy said the Rosetta deal brings digital marketing consulting services to the global organization. When asked how Rosetta differs from two other Publicis agencies, Digitas and Razorfish, Lévy said: “Rosetta is very different from Digitas, which comes from the direct-marketing world. And Razorfish is coming from the world of digital agencies.”

Rosetta CEO Chris Kuenne said the Publicis deal offered his agency the opportunity to expand globally. “Last fall, the [Rosetta] board sat down on how to globalize – including getting ready to go public, talking to other marketing services and technology companies. We’re under pressure from our clients to begin building out our geographic footprint,” Kuenne said during a telephone conference call with reporters and analysts today.

Rosetta, which is based in Princeton, NJ, has 1,100 employees working in strategy, marketing, creative, and technology. Kuenne said he expects that number will grow to 1,350 by year’s end. Rosetta’s clients have included Kleenex, Nationwide, and Botox.

When asked whether Publicis should be increasing its investment in emerging markets like China instead of acquiring a U.S. agency, Lévy said, “We have a few things that are cooking and we cannot discuss.”

In September 2010, Rosetta acquired Level Studios, which had three offices in California. At that time, Rosetta CEO Chris Kuenne said the deal made it the fifth largest digital agency in North America with combined revenue of $215 million. Earlier last year, Rosetta purchased Wishbone, a marketing agency specializing in the healthcare sector.

Publicis, one of the big four advertising and marketing companies with $6.5 billion in annual revenue, has made a big push into digital advertising, acquiring Razorfish from Microsoft in 2009 for $530 million and Digitas in 2006 for $1.3 billion.

While the price tag for Rosetta is higher than Razorfish, Lévy said another measure suggests that the price is about the same. Publicis paid 13.7 times EBITA (define) for Razorfish and will be paying 12.5 times EBITA for Rosetta, he said.

Digital activities accounted for 28 percent of Publicis’ total revenue in 2010, compared with 22 percent during 2009, according to its annual report. According to the Guardian, the deal will means total revenue from digital at Publicis will be more than 30 percent.

One agency under the Publicis umbrella, Publicis Modem East, has encountered tumult with the loss of more than 10 vice president and director-level staffers in recent months.

Dan Salmon, a research analyst with BMO Capital Markets, said Publicis appears to be following a successful approach it took with Razorfish and Digitas. “It sounds like they will take [Rosetta] to Europe and China very quickly and pursue an international growth plan for a primarily U.S.-based agency… That’s exactly what they did with Digitas and Razorfish. It’s a formula they are very well versed in,” he said.

One key difference, though, is that Rosetta will remain a standalone agency and will not be part of Vivaki. And Kuenne, who will remain as Rosetta’s CEO, will report to Jean-Yves Naouri, Publicis chief operating officer. “That’s an interesting element,” Salmon said, pointing out that Naouri is considered heir apparent to the CEO’s position.