UPDATE: July 2, 2019: Publicis Groupe announced in a news release Tuesday that it has completed the purchase of Epsilon for a net value of $3.95 billion. The data marketing firm's services are available immediately to Publicis' U.S. clients and will roll out internationally in the coming months. Epsilon will become the agency's main data offering, integrating the existing PeopleCloud platform. Epsilon CEO Bryan Kennedy, who is retaining his position, will join Publicis' executive committee and report directly to the group's Chief Executive Arthur Sadoun. 

UPDATE: April 15, 2019: Publicis Groupe announced in a news release Sunday that it has entered an agreement to acquire the data marketing firm Epsilon from Alliance Data Systems Corporation for $4.4 billion. The deal is one of the largest in agency history, according to Ad Age. The ad holding group outbid a competing joint offer from Goldman Sachs and Advent International. Epsilon brings some 9,000 staff to Publicis, including 3,700 data scientists, along with large-scale technology offerings, like a loyalty software program that already serves 600 million accounts. The unit also boasts a number of blue chip clients across categories like automotive, retail and consumer packaged goods. In the release, Publicis also said it plans to work in a "strategic partnership" with Alliance. "Our clients are facing increasing pressure from the rise in consumer expectations, the mainstreaming of direct-to-consumer brands and new data regulations," Publicis Groupe CEO Arthur Sadoun said in a statement. "The only response is to deliver personalized experiences at scale."

Dive Brief:

• Publicis Groupe is in talks to purchase the data marketing firm Epsilon, the company announced in a press release today (April 1).

• Epsilon, currently for sale by parent company Alliance Data Systems Corporation, offers data management services and targeted marketing solutions around personalization, with a business largely focused on North America. Alliance Data has additionally received a joint offer from Advent International and Goldman Sachs for Epsilon, Bloomberg reported last week, citing anonymous sources familiar with the matter.

• In the release, Publicis cautioned that such discussions don't always lead to a deal. "It has happened — again recently — that the Group studied potential targets but chose not to make any offer as the contemplated transactions did not meet the necessary criteria," a company statement read.

Dive Insight:

Publicis purchasing Epsilon marks a significant move by the ad holding group as the race for agencies to build out their data capabilities and fend off newcomer competitors like consultancies heats up. The deal for Epsilon closely mirrors rival IPG's $2.3 billion acquisition last year of Acxiom Data Marketing Solutions, the data-marketing division of Acxiom whose functions are essentially similar to Epsilon's. Like Acxiom, Epsilon likely has a wealth of legacy consumer data that could make Publicis a more appealing draw for client business, particularly in regions where the group has recently struggled with growth, like North America.

While it remains too early to tell just how much Acxiom has bolstered IPG's bottom line, the deal, which was completed in October, has appeared to be a savvy one at a time when agencies are broadly struggling to adjust to the fast pace of technological disruption. IPG executives speaking at the 4A;s Decisions 20/20 conference last week, which Marketing Dive attended, nodded to Acxiom as helping them lend credibility to their client discussions around strategically melding data and media together. Michael Roth, IPG's chairman and CEO, told analysts on a call discussing Q4 earnings in February that the company was pleased with Acxiom's performance to date, though the unit's business won't actually be factored into IPG's broader organic growth until Q4 2019.

Publicis, on the other hand, has hit a rougher patch amid cuts in ad spending by brands in categories like packaged goods. The company's organic revenue, a key indicator of growth for agencies, dropped 0.3% in Q4 earnings reported in February versus the 2.5% gain forecast by analysts, according to a separate Bloomberg article. The poor showing led to the steepest intraday drop in shares for Publicis since 2001 and created a ripple effect impacting competitors in the market, including Omnicon, WPP and IPG.  

Buying Epsilon now could be a way for Publicis to steel itself against further business pressures and also better prepare for an increasingly complex data marketing space that's facing stiffer privacy laws, namely the GDPR in the EU and state-side bills like California's CCPA set to go into effect next year. Publicis has also invested heavily in internal systems that are supported by data, such as its artificial intelligence-powered assistant Marcel, which has had a mixed reception both internally and from the industry at large.

Alliance Data first announced it was looking to sell Epsilon in November last year in a bid to reduce debt and return value to shareholders. Epsilon accounted for roughly 30% of Alliance's total revenue in 2017, but some analysts except the organization might've been nudged toward a sale of the unit after seeing the high price Acxiom commanded, per The Wall Street Journal.