PARIS Publicis (PUBP.PA), the world's No.3 advertising group, is to buy U.S.-based Rosetta Marketing Group for an initial $575 million, to boost its digital and interactive offerings.
The French company's acquisition -- its third U.S. digital advertising deal in recent years -- comes as the growing popularity of internet video and social media is boosting web display advertising, while traditional advertising in newspapers and magazines is slowing.
"The transformation of the advertising market will be colossal," Chief Executive Maurice Levy said in a conference call on Tuesday, adding that Publicis wants to accelerate its move toward digital, which is seeing double-digit sales growth.
On top of the initial transaction value, Rosetta's manager-shareholders could receive a fee in 2014, based on the agency's performance between 2011 and 2013, Publicis said. A Publicis spokeswoman declined to disclose the share ownership of Rosetta.
Levy said Rosetta would have to turn in a "quite exceptional performance" for those additional payments to be made, adding that the Rosetta deal would slightly boost Publicis's margins, by roughly a "tenth of a point."
Princeton-based Rosetta is expected to have annual revenue of nearly $250 million in 2011, with clients mainly in the healthcare, financial, retail and technology industries.
The acquisition is in line with Publicis's target to raise its revenue derived from digital to 35 percent over the next three years, Publicis said, from 28 percent last year.
It follows Publicis's previous U.S. takeovers of Razorfish in 2008 and Digitas in 2006.
"The high multiple paid for this size of asset will probably surprise (the) market, but Publicis' track record reassures in this field, highlighting how much large digital assets are worth," CA Cheuvreux analyst Richard Houbron wrote in a research note.
Exane BNP Paribas analyst Charles Bedouelle estimated that Publicis, which competes with WPP (WPP.L) and Omnicom (OMC.N) would earn more than 31 percent of revenues from Digital in 2011.
The transaction is expected to close in the second or third quarter. Rosetta will be run as an autonomous brand within Publicis and under the leadership of founder and Chief Executive Chris Kuenne.
Publicis shares fell 0.6 percent to 38.23 euros by 1634 GMT having risen to as high as 38.88 euros earlier.
(Editing by Erica Billingham and Elaine Hardcastle)