Dentsu is exploring the sale of its international business in a potential deal that could be worth billions.
The advertising holdco has appointed Mitsubishi UFJ Morgan Stanley and Nomura Securities to look for potential suitors for either a full sale or a minority stake in the business, according to a report in the Financial Times.
A firm decision on Dentsu International’s fate is expected by the end of the year.
A sale would impact global agency brands Carat, iProspect, Dentsu X, Dentsu Creative and Merkle.
At Dentsu’s second quarterly results briefing, the holding company unveiled plans to cut 8 per cent of its international workforce, around 3,400 roles in a major restructure.
It follows a poor performance from Dentsu’s international business; revenues in the APAC region declined by 6.6 per cent, its Americas region dropped by 5.1 per cent, while EMEA remained flat.
In contrast, Dentsu Japan, which accounts for 40 per cent of the group’s revenue grew by 5.5 per cent and has consistently outperformed its international arm in recent years.
At the time, Dentsu president and global chief executive Hiroshi Igarashi lamented the performance and said its three international regions are “expected to continue facing challenges”, particularly in its CXM and creative businesses.
The Financial Times reports that Dentsu’s Japanese owners have lost patience with its international arm and is now open to cutting its losses.
A limited pool
Potential suitors on Dentsu’s radar include rival advertising holding companies or private equity firms, but the question remains who.
Brian Wieser, a principal at Maddison and Wall, and one of the world’s leading media and advertising analysts, believes the pool of potential suitors is limited.
In his Maddison and Wall substack, Wieser believes that IPG and Omnicom, which are already combining later this year, are unlikely to have the appetite, nor would Publicis Groupe, the best performing advertising business at present.
That leaves private equity firms, WPP and Havas, large independent agency groups like Stagwell, or a large consultancy such as Accenture.
Wieser said that although Dentsu’s international business retains some value—with revenues of $5 billion and global clients including P&G, Microsoft and Kraft Heinz—it is unclear if any potential buyer would want to pay an amount that Dentsu would find acceptable.
“Left to its own devices, but separated from the parent company, the company could be viable on its own, returning to its roots as a modern-day Aegis,” Wieser wrote. “To illustrate that mid-sized agency groups can do alright, look no further than the successes the independent Horizon Media has experienced and the steady growth we have seen from Havas.”
What went wrong?
Dentsu acquired UK media group Aegis in a £3.2 billion ($4.8 billion) deal in 2012 and dropped the Aegis name in 2020. At the time, Aegis’s Australian network included Mitchells, Carat, Vizeum and Visual Jazz Isobar.
Unlike other global holding companies, Dentsu Japan largely operated independently to its international business.
This changed in 2022 when Dentsu decided to integrate the growing international business into Dentsu Group, with Dentsu International CEO Wendy Clark departing, and the group being led from Japan.
Wieser believes this is the moment when the performance of Dentsu’s international business started to cave in.
“It was evident from the outside that the leadership team in Japan was not generally as plugged in to the rest of the industry, which was a critical miss from the earliest days of the Aegis acquisition: deep client relationships were then and remain key to success in marketing services,” he wrote.
Whether Dentsu decides to sell or stay put, Wieser believes that a quick decision is in the best interests of the business, its clients and workforce.
Read next: Dentsu To Cut 8% Of ‘international’ Staff After ‘extremely Challenging Performance’
