Havas SA (HAV) Chief Executive Officer David Jones, who can spend as much as half of the French advertising company’s annual sales on acquisitions, says the European debt crisis will damp prices for assets worldwide.
“I’ve seen crazy valuations for three or four years,” Jones said in an interview from the Cannes Lions conference in France yesterday. “The multiples I’ve seen from India in the last five years are like nothing else in the world. They’ve almost got a different calculator.”
When Jones became CEO last year, French billionaire Vincent Bollore, Havas’s controlling shareholder, said the new executive would help to expand in new markets. Jones said yesterday he’s already been more acquisitive in 2012 than last year to bolster areas such as mobile marketing, health care and finance and target faster-growing markets in Latin America and Asia.
Havas, which owns the Euro RSCG advertising agency, this year bought companies such as Snapworx, a mobile marketing firm in the Philippines, and also opened an office in Shanghai.
While purchases are only one part of his growth strategy, the Puteaux, France-based company, which generated sales of 1.6 billion euros ($2 billion) last year, has as much as $1 billion to spend on deals, he has said.
Shares of advertising companies globally currently trade at 13 times forecast 2012 earnings, said Paul Sweeney, a Bloomberg Industries analyst. That compares to about eight to nine times as recently as in 2008 and 2009, he said.
“Asset prices have surged due to the rebound in advertising and the exceptional growth in developing markets over the past several years,” Sweeney said.
Charles Bedouelle, an analyst with Exane BNP Paribas in London, says while the European debt crisis might have a soothing effect on valuations, competition for fast-growing assets is still strong.
“There’s still a lot of competition,” he said. “Ad companies are in better financial shape collectively than in the past 10 years, with good cash flows, bigger revenues and most are debt free.”
Havas’ larger competitors WPP Plc (WPP) and Publicis SA (PUB) have made nearly three dozen acquisitions between them this year as they look for new assets. WPP said today it agreed to buy digital agency AKQA Holdings Inc., with projected sales of $230 million this year.
Still, the global advertising industry will grow less this year than initially forecast. Researcher ZenithOptimedia yesterday said industry is now predicted to grow 4.3 percent this year, down from an earlier forecast for 4.8 percent. Marketing spending slowed in April and May amid fears that Greece would leave the European Union, it said.
From 2011 to 2014, half of the advertising industry’s growth will come from 10 developing markets, ZenithOptimedia said. Brazil, India, Russia and China will account for 35 percent of the growth, followed by Indonesia, Argentina, South Africa, South Korea, Thailand and Turkey, the researcher said.
Havas fell 4.1 percent to 3.81 euros in Paris trading. The stock has dropped 7.8 percent since Jones was named CEO, while WPP declined 5.5 percent and Publicis fell 6 percent.
Havas in March reported 2011 profit that climbed less than analysts estimated as it paid for acquisitions.
Jones yesterday said the economic slowdown should damp prices in markets such as India and China where prices for advertising assets “skyrocketed” in recent years as western rivals tried to expand outside their home countries.
Jones said Indian entrepreneurs so far knew that they can hold out for higher prices as the country is one of the fastest- growing countries in the world, with a real gross domestic product that expanded 5.3 percent in the first quarter.
Now, growth in India is showing signs of weakness. Economic growth during the first quarter was the slowest in almost a decade as the crisis in Europe, India’s top trading partner, hurt exports. Standard & Poor’s said this month that it may lower the nation’s credit rating to junk.
Deutsche Bank AG and Credit Suisse Group AG cut growth forecasts for China this month on projection that Europe’s debt crisis would crimp the economy.
The economic slowdown will hurt valuations, leaving acquirers with enough cash in a stronger position, Jones said.
“Valuations fall and people’s expectations fall,” he said. “It could be a good thing for Havas.”
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