Merger Monday is back with a vengeance. We had a little break over worries about tightening rates, weaker global conditions, missed quarters, weaker retail sales and a potential Ebola outbreak, but deals are back today and on a day when the averages were certainly soggy, they created a much-needed spark that kept them from giving up last week's huge gains.
Now, the two deals we have today are typical of the current activity in this market. Lab Corp. (LH), a clinical testing company, buying Covance (CVD), a company that tests new drugs, creates a logical line extension for a company that was pretty tapped out for growth. Covance is a premier contract research organization that rivals Quintiles (Q), my favorite, and Parexel (PRXL) , which reported a terrible quarter last week. What matters is that this $6 billion dollar deal rekindles the incredible combinations going on in the health care space. These companies can't seem to help but merge. I'd take the 25% gain and run.
It's the other deal, though, Publicis, the huge French advertising firm, one of the big four advertisers, buying Sapient (SAPE), a consulting firm, for $3.7 billion that merits much more attention. When I first read about this one, I was a bit mystified. I know Sapient as a smaller-scale Accenture (ACN) or SAP (SAP), a company you bring in to help you figure out a big-think strategy.
But that was before I took the deep dive into Sapient's website and saw the why of this deal. It has to do with a division called SapientNitro, and while the stock of Publicis was nicked for a couple of percent, I can see the synergy and recognize how this acquisition can make Publicis more relevant in the digital world.
In fact, this deal cuts to exactly what's really going on in the world and explains why this market likes social media and marketing, and why the stocks of Google (GOOGL), Facebook (FB) and Twitter (TWTR) remain undervalued despite various missteps and execution issues that have kept them from rallying of late.
Let me explain.
Or more precisely, let Kevin Spacey tell you. When I was rooting around the SapientNitro website, I came across a speech Spacey gave about the relevance of content, most specifically, storytelling. The notion of the speech was, frankly, brilliant. It talked about how all people really want to do is hear and see great stories. They don't care how, when, and where they hear them. They want to be engaged and they want to be inspired.
For example, Spacey said that there's an explosion of storytelling right now and it's happening faster than anyone can believe. He picked two examples that really hit home as we try to figure out how to value stocks. Rather than be data consumers, Spacey said that people want to be data generators. Each Facebook participant, for example, produces 90 pieces of content each month. That adds up to 30 billion pieces of new content shared across all platforms -- an astounding number of stories.
Spacey then talked about how there are 2,900 days of video uploaded every 24 hour period on YouTube, more in one month's time than with all three major networks over 60 years. It's basically what he called a "torrent" of content that's agnostic about how and where it is received: handled devices, televisions, and websites -- it doesn't matter.
What does this have to do with Sapient? How about this: Whole Foods (WFM), which reports Wednesday, is trying hard to distinguish how it's different from the other guys. It hired SapientNitro to tell the story and, according to Adweek, it created a digital screen on a wall that runs an Instagram feed showing product that's growing in the fields of six local farms that provide produce to the store. It's a non-cliché way to explain how Whole Foods, despite its national footprint, is still a local farm-to-table experience.
Firms as diverse as Coca-Cola (KO) and Audi hire Sapient to tell their particular stories, and videogame companies use Sapient to show the wonders of using their games on handsets.
One could argue that none of this amounts to a hill of beans if it doesn't translate to sales. That's too cynical. The whole process of advertising may be too cynical for the average user, yet people trust stories that are presented in different and novel ways that break through the newfound clutter that Facebook, Google, Twitter, and so many other websites create. This deal is a defensive one for Publicis. The CEOs of the consumer packaged-goods companies I follow are desperately trying to stay relevant with younger people, and younger people don't care where the stories are. They just want good content. The advertisers are always trying to figure out what is the rate of return for putting money with a Google or a Twitter or a Facebook, and I think the traditional ad firms don't have the expertise to create the stories that can be viewed on handsets or on walls or on screens. So, they have to hire or just plain buy in this case SapientNitro and then figure out what to do with the rest of Sapient.
Which brings me back to Facebook, Google and Twitter. All three have had very difficult reporting periods. First came Google, with its desire to hire like mad to be able to figure out how to place its dollars on the best future bets. It didn't matter that the stock sells at 14x next year's earnings -- if you back out the cash, this market values disciplined spending and prefers cheap layoffs to expensive hiring. Then came Facebook, which deemed 2015 an investment year when Wall Street was looking for a harvesting year. When Mark Zuckerberg started talking about long-term and the need to create new billion-dollar franchises, he might as well as been saying he intends to start a huge bonfire and throw as many dollars into it as possible to see if any of them catch fire.
Finally, there's Twitter, which is kind of like Publicis. It knows there's something out there. It knows that lots of content is being created by individuals, which costs Twitter nothing. Management can only stare in wonderment that every single TV personality promotes Twitter. There are little blue birds everywhere. But Twitter's known for two things: ubiquity and staff turnover. The former is worth billions to the bottom line but so is the latter, except the latter subtracts billions.
Still, we know that one-third of the ad dollars in this country are going toward what I would regard as non-traditional venues, and Publicis sees the writing on the digital wall that it had better figure out how to advise people about the best ways to tell stories in the new world.
To me that says own the stocks of the new networks with the billions of stories and videos created not by the advertisers but by the generators. I just wish that each of the new networks, meaning Google, Facebook and Twitter, knew how to tell their own stories.
Maybe they will end up hiring SapientNitro to do so. At this particular moment, after those particular quarterly reports, it might not be such a bad idea.