Agencies mushroom in India as global Adland consolidates

When Omnicom bought out London-based creative shop Adam & Eve earlier this year, one couldn’t have predicted that that was just the beginning of a slew of acquisition news. Now, a couple of months later, London-based companies BBH and Aegis are sold out. Long time investor Publicis Groupe made BBH its 100 per cent subsidiary and Japan-based Dentsu has offered cash purchase of Aegis Group – the deal is expected to be completed by end 2012.

The year has also been marked with several digital acquisitions, one of the most talked about being WPP’s takeover of AKQA. However, it really is the creative agency and holding company sale that strongly indicates consolidation in the western advertising world. 

The reasons could be many – a tough economy finally catching up with companies, more so with the independents. Economic slowdown playing a role in driving pricing that is agreeable to both buyer and seller and hence leading to faster closure of such deals. Or it all could merely be a matter of timing. 

Arvind Sharma, Chairman, Indian Subcontinent, Leo Burnett stated that the current economic situation may be a reason why after a gap of almost five years, acquisitions have once again surfaced in global Adland. He added, “While some the biggest takeovers have happened irrespective of the economic scenario, an economic downturn may be able to drive a better price.”
 

What is interesting from an India viewpoint is that if anything at all, 2012 has been marked with a slew of new agency launches, led by independents. And there are many factors that are contributing to this surge in new players. 

Second wave of creative entrepreneurs
The entrepreneurial spirit is true for all segments in India at present, and advertising is merely a reflection of this, believes Prasoon Joshi, Executive Chairman and CEO McCann Worldgroup India and President – South Asia. In a conversation with exchange4media, he said, “Irrespective of the state and the sector, there are enough and more examples of people beginning their own businesses. India has immense potential at the moment and there is still a sense of buoyancy due to that. India’s growth is spread across markets and not limited to any one centre.”

Most of the new agencies that came to fore this year including the likes of ITSA, Bang in the Middle, February, Company, The Page, Kettle Communication and Clayground are all Delhi based, capitalising on the new opportunities that Delhi and Gurgaon are creating for the communication industry. The launch of TMC by Sudha Natrajan and Raghav Subramaniam in media service is another example of entrepreneurship in the domain. The success and growth of agencies such as TapRoot, Creativeland Asia, Scarecrow, Salt and various others has also been a source of encouragement for the aspiring creative businessmen.

Bringing a different thought to the conversation, BBDO India’s Chairman and National Creative Director Josy Paul said that consolidation led to fragmentation. He explained that while consolidation was one side of the picture, the bigger picture revealed that the more holding companies were acquiring, the more encouraged creative professionals felt to branch out on their own and create a value proposition that they can look to sell out at a later stage.

India – cornerstone of global strategies
Holding companies are still investing heavily in India and acquiring a good creative shop or a company that is strong in India is an integral part of the global expansion strategy. BBH buyout is a case in point. Publicis Groupe believed that the BBH acquisition gave it stronger foothold in a market like India. Some of the established creative independents such as TapRoot are already in conversation with holding companies such as Omnicom to look at an alliance that will strengthen Omnicom in India, which is one of its weakest markets.

India’s significance was reiterated once again when the newly launched third media agency brand from Interpublic Group’s Mediabrands, BPN (Brand Programming Network), chose India as the launch market. BPN was launched in India on June 2012. It would roll out to 22 other markets including US and Netherlands in the rest of the year.
 

One key contributor leading to agencies mushrooming in India was the ‘room for risks’ that the market allowed. “We may have slipped down from a 25 per cent growth figure to a seven per cent (according to the last ZenithOptimedia ad forecast) but we are still speaking growth and that allows elbow room for both buyer and seller. In a market such as India, there are many new initiatives and players. The market itself is changing and creating new opportunities,” said Sharma.

Needed dose of differentiation and specialisation
Like any other business, scale can lead to sameness. Mindshare South Asia’s Leader Ravi Rao believes that there is a lot of sameness that has penetrated the fabric of the large creative agencies in India. He observed, “Many of these new shops bring with them a lean, mean and fresh approach. India has immense growth potential but the ad business here has enough sameness that one can break through.”

The growth of domains such as retail, modern trade and new consumer touch points also is making place for creative specialists that can focus on these areas better than larger agencies that still pride on traditional media. The result is enough space for new agencies if they know how to fill the creative gap in some of these areas.

“Independents that are able to value add and bring an alternative skill-set to agencies will be approached. The ones that can deliver will be able to command their price and be acquired to strengthen the combined offer of a larger set-up,” said Rao.

Indian advertising business may still be about professionals flexing their entrepreneurial muscle but industry leaders believe that the road ahead will be about survival in a tough market and consolidation. Some, who stayed on top of the game, will benefit from it all. And some will continue with smaller takeaways.

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