Will the $4.4 Billion Epsilon Acquisition Create New Data Challenges for Publicis?

It's the second biggest deal in the history of advertising, behind only Dentsu's $5 billion acquisition of Aegis Group in 2012. But what did Publicis Groupe really get when buying Epsilon earlier this month? What sort of value will this bring to clients, and how does it change the positioning of the "Big Six" holding companies? On a more basic level, will it add new dimensions to an already complex business model? Publicis CEO Arthur Sadoun told Adweek that the purpose of the acquisition was to "boost our creative product." But the real prize, according to Forrester vp, principal analyst Fatemeh Khatibloo, is the "data product solution" that Epsilon built over the course of 20 years, combining its retargeting platform Conversant, the transactional information from thousands of retailers in its Abacus Alliance data co-operative, and the "demographic and psychographic data" it has collected from public sources. Paul Cimino, global head of data strategy for Prohaska Consulting, called the acquisition "a continuation of 'madtech convergence,'" or "mar-tech and ad-tech coming together because of the almost gravitational need for advertising data to connect to first party, CRM data." In short, Publicis is now firmly in the data business. [kickout id="2"] The most obvious comparisons are Dentsu's $1.5 billion purchase of Merkle in 2016 and IPG's decision to buy Acxiom for $2.3 billion two years later. Those deals took two of the largest data providers off the market, and as Cimino said in respect to two of the remaining competitors, "This puts tremendous pressure on Experian and Equifax to do something." Along with all that data comes a new set of responsibilities. Endless layers of information "At a glance it sounds smart and bold: Take a holding company with a strong creative background and a decent tech division and add a ‘true’ data-oriented agency of a very large scale," said Dept Agency CEO Dimi Albers. "But the big question is: Are they solving a problem or actually adding one (or more)?" Albers referenced Publicis' troubled acquisition of Sapient Nitro, stating, "That part of the business has not grown substantially since the deal went down." He also said Epsilon is "still in the longtail of integrating" Conversant after buying that company in 2014, the same year Publicis bought Sapient, and called this another potential complication for the holding company. Other parties questioned whether Publicis is ready to manage the security and privacy issues it has inherited. "They bought an agency services firm—one that was compromised in 2011 by one of the largest-ever consumer data breaches," said an executive who spoke to Adweek on condition of anonymity. "It makes Cambridge Analytica look quaint; they lost $4 billion, and it cratered a lot of the CRM business." An Epsilon spokesperson disputed that estimate, pointing to a 2011 Wall Street Journal interview in which CEO Bryan Kennedy said, "People recognize that these things happen." Epsilon has not faced any other major cybersecurity incidents since 2011, but the issue is more prominent than ever. Privacy regulations like the European Union's GDPR or the California Consumer Privacy Act (CCPA) could also play a significant role in determining how the acquisition affects Publicis Groupe's business in coming years. The U.S. ad industry is currently hard at work lobbying Congress to develop federal laws that are in keeping with its own interests, even if those don't always line up perfectly with the wishes of American voters. Much of the first-party data highlighted by Publicis will be drawn from the reservoirs of Epsilon clients like the NFL. Forrester's Khatibloo said that, because Conversant uses cookies, pixels and tags to track consumer behavior across platforms and devices, Publicis will now know that a given individual who has frequented the football league's website "has also purchased from the women's apparel, toddler clothing and high-end electronics categories—and how much money they've spent over the course of a year." "That's all PII-based [personally identifiable information]," Khatibloo added. Wave of regulation The potential rub lies in the fact that, even if this information is "pseudonymized," Publicis Groupe will still know exactly who each of the individuals are—and this change comes at the very moment when consumers are more concerned about sharing their data with marketers than ever before. The anonymous executive also raised the issue of "re-permissioning," or ensuring that data collection practices are compliant with GDPR and other regulations when ownership shifts from Epsilon to Publicis Groupe. This process could make consumers more aware of the sheer volume of information that the holding group owns, thereby increasing the likelihood of a backlash. Epsilon CEO Bryan Kennedy assured Adweek that his company "sits at the forefront of data privacy," which he said is one of the reasons Publicis was interested in the first place. "We were the first in the EU to offer our own consent tool," Kennedy said. "Our clients all look to us to help them be sure that they are in compliance with existing and future regulatory shifts, whatever those may be." [kickout id="1"] At the same time, Khatibloo said future legislation like that currently being considered by Congress could determine "whether they're going to need to rethink their entire PII data strategy or not." For example, a federal law allowing consumers to opt out of the sale or collection of their personal information "could materially damage the entire data broker ecosystem in the U.S." Kennedy insisted that Epsilon has "a set of assets that is built with privacy, by design, as a major part of their functionality as consent and 'right to remember' rules change." But the devil is in the details. The horse race heats up Now that most of the major holding companies own a significant data asset, where does the acquisition put Publicis? "Is it meant to signal to the agency's client base that this particular data set is better than others out in the market?" asked Ana Milicevic, principal and co-founder of Sparrow Advisers. That would seem to be the case; when speaking to Adweek, Sadoun dismissed Acxiom as "only about data." Khatibloo said, "This is the kind of comment that makes me wonder if Publicis really understands what it bought. Acxiom is an awful lot more than just data." That company, she added, maintains "enormous" databases in addition to campaign management and email solutions. Overall, Khatibloo believes the Epsilon deal only gets Publicis "to parity" with competitors like Dentsu, IPG and WPP, whose primary resource is Wunderman Data Products. Though she sees no short-term risks, she said, "I don't see that the Epsilon acquisition leapfrogs them ahead of any of the other companies." "There remain questions," said Mitchell Caplan, managing director of consultancy Flock Associates, when asked about the deal's real-world implications. "While saying the acquisition will make them 'a leader of data-driven personalized experiences at scale,' Publicis needs to quickly, simply and clearly start to articulate the true value to clients. The next 90 to 120 days will be critical." Milicevic added, "On the plus side, whenever this type of consolidation starts to happen in a sector, it creates an opening for a new generation of data companies—and that new generation, fueled by transparency and willing participation of consumers, is extremely exciting." Years from now, those companies will undoubtedly attract the same sort of M&A interest as Epsilon, Merkle and Acxiom.