Private equity, realising the power of out-of-home media

Infrastructure has emerged as one of the world’s fastest growing specialist asset classes. Expanding populations and the demand for higher living standards create pressure in both developed and developing worlds for greater investment in essential services like roads, airports, bus shelters, malls, etc. The Indian Department of Economic Affairs has calculated that $450 billion needs to be invested in the country’s infrastructure by 2012; and while investment in developed economies like India tends to focus on the renewal of existing infrastructure as much as green field construction, the existing asset base means the demand for investment is no less strong.

Which is why, ever since 2006 the Indian out-of-home industry has been seeing private equity (PE) players like UTI Ventures, 3i, Matrix Partners India, Warburg Pincus, Goldman Sachs and Lehman Brothers entering into strategic partnerships / mergers with their Indian counterparts like Laqshya Media Pvt Ltd, OOH Media, Vjive, and Times OOH to mark the development in the Rs 1,800-plus crore industry.

Getting the industry’s perspective on the same, Soumitra S Bhattacharyya, CEO, Laqshya Media, said, “I would tend to agree that if investments are made in OOH on the basis of over-valued evaluations, then it would mean that investors are realising the profit making potential of this industry and are willing to bet on it. Any development or growth of any industry can only happen if investments and big monies are pumped into it; and if Laqshya has opened the floodgates, if I may say so, or at least made people sit up and take a look at this business, then I think that in itself is something that is path breaking.”

Showing his concern over the evaluation is BS Sujay, Managing Director, Sujay Advertising. He said, “In my opinion, the evaluation of the outdoor companies is being done only based on the properties that have been acquired by them. The projected revenue is what makes the valuation so very high. At this juncture, it is rather difficult for me to state if this is the right approach or an incorrect approach. Since the ventures are taking a stake in the company, it clearly indicates that they are ready to be exposed to the risk and have evaluated them based on their own set of parameters. One positive thing is that the VCs seem to see very high value in the OOH segment, and this will definitely lead to better properties and more options with extensive use of expensive technology. It may further give teeth to the local players to compete with the ‘big players’.”

Mangesh Borse, Director, Symbiosis Advertising, eyes the over-evaluation by PE as a sign of prosperity for media owners in both Mumbai and Delhi. He said, “I don’t feel that outdoor media companies are being over-valued, because unlike other media which need continuous investment, outdoor as a medium needs investment, probably once in three years. Secondly, this media is now being eyed by every brand and media planner and this will continue in the future even more despite the shortcomings, because it is a 24x7 medium and is remoteless, which is a huge advantage over other mediums, as even the most watched out programme has a recall value of 7 per cent.”

He further said, “If Bangalore-based companies are being evaluated as they are, then media owners in Mumbai and Delhi should be robust about the same, mainly because they excel in both experience and market size.”

Citing PE as the sign of prosperity for young and upcoming media owners, Pravin Chaudasama, said, “Despite the scale of the opportunity in the outdoor media market, it takes a unique type of investor to operate effectively in the infrastructure space – one that is both an investment specialist, and also a long-term operator of complex assets. For governments, and young and upcoming entrants into this media, private finance not only opens up a rich source of funds, but also generates operational efficiencies that benefit the general public and the industry on the whole.”

But foreseeing tough times ahead is Kalpesh Vora, Director, Creation Pubilicity Pvt Ltd. According to him, “Outdoor as an advertising industry is not as big as it has been projected by various media. According to me, it is a Rs 1,500 crore industry, and anything beyond this is either speculation or higher projection.”

On PE investments, Vora said, “Any funding will be followed up by returns at the end of the year, which will be a true measurement. Real business and private equity are two different perspectives. Someone had said ‘private equity is huge transfer of funds’. Who knows what the reality is?”

“Private equity in our industry is based on higher projections and aggressive plans for the future, with a factor that ‘market will always go in upswing direction faster’. But what the investors are missing out here is that outdoor as an industry is dependent on several risk factors that run from policy to government to inflation to overall spending by the client, which needs to be accounted for. So, looking at the current trends in both the stock market and stability of the current Government (as election is on the agenda), I think tough times are ahead and the same will remain for the coming one year or so,” Vohra added.

Getting the numbers right both for the OOH advertising industry, PE and VC investment that is currently flowing in the Indian market is Abhishek Kandoi, Director, EncycloMedia Networks Pvt Ltd. He noted, “Firstly, we need to get our numbers right. If we say that outdoors is a Rs 2,000 crore industry, and then there is an investment of Rs 2,500-3,000 crore which has already come in the industry, then we are grossly wrong. We need to check what the real numbers are before actually contemplating the amount of investments that is coming into the industry.”

Doing some quick calculations, he said, “There have been investments seen on a large scale in digital signage (considered to be an arm of the outdoor media), which are up to Rs 800-1,000 crore, and then there are investments in outdoors, which are around Rs 200-300 crore in individual companies. This makes the total investment by the PE players to somewhere around Rs 2,500 crore in total in the last one year.”

“If we look at outdoor as a whole, which includes airports, metro railways, transport media, billboards, LEDs, digital signage, etc, then we are surely talking about wrong numbers for the industry being close to Rs 2,000 crore. There has also been speculation and comments from some large VCs in recent forums, wherein they stated that the industry figures were grossly wrong and that was not because of lack of research from research agencies, but because of the industry being fragmented in a ‘big way’ and lacking accountability,” Kandoi concluded.

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