Why are ad agencies joining the IPO party?
Storyboard18 caught up with agency heads who touched upon the reasons behind IPOs, changes one can witness after that, and the roadmap of companies after the IPO.
RK Swamy Ltd, an integrated marketing communications company, got listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) after launching its initial public offering (IPO) on March 4. The IPO price band was between Rs 270 and Rs 288 a share. The closing share price was Rs 262.6 on the National Stock Exchange (NSE), as per a media report. On the last day of trading, as per another report, RK Swamy's share price on BSE closed at Rs 263.25.
In an earlier conversation with Storyboard18, Narasimhan Krishnaswamy aka Shekar Swamy, group chief executive officer and whole-time director, RK Swamy Ltd, had stated: "We compete with organisations that are publicly listed in their respective geographies. Publicis Groupe is listed in Paris and WPP in London. American companies are listed in New York. So, they come in with that scale of capital and are then able to compete at a different financial level."
“We need to step up competition with multinational companies. That's one of the reasons we needed to be publicly listed," he said.
India, which comprises of 40,275 advertising agencies, out of them, only a handful have opened up to seeking public funds. Bright Outdoor Media, specialising in out-of-home (OOH) media, has been in the business for the last 44 years. On March 24, 2023, the company launched an IPO, and Crayons Advertising Ltd, an ‘integrated marketing and communications agency’, which has been around since 1986, went public on May 22, 2023.
In 2023, as per another report, LS Digital too had confirmed its plans to go public. Storyboard18 had reached out to them. However, they remained unavailable for comments. Another example is Maagh Advertising and Marketing Services that opened up for an IPO on October 13, 2022.
Indian ad agencies and IPOs
In 2023, Pressman Advertising received shareholder approval for a merger with digital OOH advertising company Signpost India. According to a report, Pressman had listed itself on the Indian stock exchange in 1985.
In a 2014 stock report, the board of directors decided to delist the equity shares of the agency from the Calcutta Stock Exchange and Delhi Stock Exchange. However, they had stated that they will continue to be listed at BSE and NSE. As per a report released in 2023, their share price at NSE was Rs 266.45.
“We'll build a great traditional agency, and then we'll sell to a Publicis Groupe or a WPP and cash out. That is the general model which has been continuing for a long time. But what if you don't want to sell out? What if you want to control and be at the helm of your agency? Then IPO becomes a great way to go,” explained Bobby Pawar, former chairman and chief creative officer, Havas.
According to Bright Outdoor Media’s founder Yogesh Lakhani, people would click ‘selfies’ with him wherever he was seen and used to ask him: “Bright Outdoor Media has a big brand name. Why not go public?”
Lakhani took calculative steps. Despite being around for 44 years, he wanted to achieve a brand name and win the trust of consumers. As things fell in place, he entered the IPO scene in 2023.
According to veteran ad man Nitish Mukherjee, agencies go for IPOs because they want to improve their cash flow situation. The infusion of technology, data analytics, and content have given rise to greater ambitions.
“Most of the smaller agencies manage their cash flow well. So they always have the cash to do what they need to do and are able to pay their bills. As far as IPOs are concerned, be it the underwriting fees, legal fees, cost of marketing etc., they are an expensive process. So until and unless your business is of a certain size, it doesn't really make sense to hit the market,” he said.
According to Naresh Gupta, co-founder, Bang in the Middle, “The agency business is not a very large one, and they don't need a very large working capital. Until agencies don’t look at that, there is no reason for them to go public,” he said.
KV Sridhar, global chief creative officer, HyperCollective, Nihilent Ltd, said that there are IPO advertising agencies which do advertising only for IPOs. Pressman Advertising, Image Ads and Communication, Sobhagya Advertising Service, and Adfactors PR are examples. “Advertising agencies have traditionally been a very straightforward business. If an agency needs funding of Rs 5 crore, Rs 10 crore or Rs 20 crore, they would approach private investors, and not the public. It is too small to get listed,” he said.
Global scene
Papert Koenig Lois (PKL), established in January 1960 and based in Manhattan, was the first ad agency to go public. In 1966, Ogilvy & Mather launched its IPO. In 1989, WPP, a British multinational communications, advertising, public relations, technology and commerce holding company, bought the ad firm.
When the perspective of David Ogilvy, founder of Ogilvy & Mather (O&M), who is regarded as the ‘father of advertising’, about IPOs began to change, in his memo ‘Exculpate My Sin’, he said: “Going public was the worst mistake I made. Can we go private?”
UK-based Saatchi & Saatchi, a multinational communications and advertising agency is another example. Saatchi brothers launched an IPO in 1975. In 1995, M&C Saatchi Group was formed after splitting up from Saatchi & Saatchi. It launched another IPO in 2004. Later, according to media reports, it raised a post-IPO debt round on June 1, 2021.
New York city based interactive agency Razorfish, which is now a part of Publicis Groupe, which was founded in 1995, launched an IPO in 1999 and raised $48 million. A year later, in the dot-com bubble burst, as several other firms saw a heavy erosion in their market capitalisation, Razorfish also saw a drop in revenues and stock price, and had to lay off 20 percent of their staff.
The well-known Japanese international advertising and public relations company, Dentsu, was listed on Tokyo Stock Exchange in 2001.
After the IPO, how does the scene change?
Bright Outdoor Media's Lakhani was not actively involved in the pre-IPO marketing strategy. Post-IPO, word-of-mouth was the only strategy. Since March 24, 2023, Lakhani’s company has set up 24 LEDs in Mumbai. Out of so many tenders he won, one was for erecting 16 LEDs from Vile Parle to Kandivali flyovers.
“After launching the IPO, work has increased. Every six months, the balance sheet needs to be submitted to the BSE. That means a lot of paperwork and transparency,” he said.
Post IPO, Bright Outdoor Media has tied up with several small firms. One of them is Solar Industries, which provides solar power to railways. And railways gave Bright Outdoor Media hoarding space in front of the railway stations.
Storyboard18 had reached out to Crayons Advertising, but remained unavailable for comments.
Mukherjee explained that agencies must have a solid plan in place to play out for over five to 10 years. The two big questions they must ask is: What sustains you and what helps you scale up? Within that, the questions should be: “Do you have the right kind of talent? Do you have the right kind of clients? Do you have the right kind of assets?”
“There is also a need to have a proven track record for the above. If these three factors are in place, agencies will probably succeed in their IPOs. Agencies must also understand that once they launch an IPO, scrutiny will be a lot tougher and accountability a lot higher. Because these are public funds."
Pawar has a different viewpoint. He thinks that after the agency launches an IPO, it isn’t going to do ‘as well as it thinks’. The other aspect is also whether the market values the category and the company.
According to HyperCollective's Sridhar, if an agency goes for an IPO, they are going to be constantly under pressure for shareholding profits. Week to week, then month to month, and quarter to quarter, the agency will have to deliver profits. Else, its value will diminish.
Rohit Raj, former co-founder of The Glitch, a full-service agency, thinks that a listed company will be able to scale and become a big entity, and will be able to talk to the 'big guns', but its work and processes will slow down. It will not be able to do the kind of hustle that the others are able to do.
He supported this with an example.
The Glitch was acquired by WPP’s GroupM in 2018. The minute they got attached to WPP, there were processes in place, even in the case of hiring.
“Hiring at The Glitch would be like after one meeting, two meetings, and we would roll out the offer letter or turn around and just make that offer in the room. Whereas with WPP, there were structures- in place that had to be adhered to. In an IPO scenario, where you're answerable to public money, if you lose the pitch tomorrow, your share price might come down. Worry is 3x that,” Raj explained.
How to tap potential investors?
In 2013, Interpublic Group’s media holding company, IPG Mediabrands, bought out digital agency Interactive Avenues. Anupam Mittal, founder and chief executive officer of Shaadi.com and Westbridge Ventures II Investment Holdings, who were investors, made their exit.
Storyboard18 reached out to Mittal for comments. He remained unavailable.
“People want to invest in organisations. They want to invest in institutions. They want to invest in places which already have organisational structures, which far outlives any individual performances that might happen,” stated Mukherjee.
“At the end of the day, the person who buys the share will look at the kind of returns he will get in 5-10 years, at least. And he follows it up on a quarter-on- quarter basis to see whether the company is actually delivering and has the ability to generate those kinds of returns,” he explained.
Where does the future lie?
Bang in the Middle, the new-agency communications agency, has been around since 2012. According to Gupta, India is not a country where brands want to work with home-grown agencies. “Most Indian brands work with multinational agencies. So, we don't see a reason why we should even think of going public,” he said
Ogilvy’s Indian subsidiary Ogilvy India has helped in building credibility for Indian brands like Bajaj Auto, Dabur, Aditya Birla Fashion & Retail, CEAT, Wipro, etc. Leo Burnett Orchard clientele consists of Ola Cabs, Emami Navratna, Food Panda, Voot, Colors TV, and Viacom18, to name a few.
Most agency heads, right from Sridhar to Mukherjee, that Storyboard18 interacted with hinted that the financial size of the agency is a deterrent to an IPO.
Raj remembers when the team at The Glitch sat down once to have a ‘moonshot’ (aspirational big goals) meeting. He added, “Tomorrow, if we had to scale, and if WPP didn't buy us, what would we do? Can we compete with WPP? If I have to compete with WPP, I need to have stronger segments. If Glitch, OML and a third disrupting agency who's handling the creator space joined hands, we would face a huge mothership. That is probably where the path to IPO would have lied."
However, Mukherjee is positive about this recent trend in the industry. He said: “Companies abroad would have never thought that they would set up offshore facilities; they never thought that Indian companies would have the kind of exports they have today. But if you read the future, I think the scale of businesses, even Indian businesses, is growing. When Indian agencies start supporting them, they will need to build that scale and they will need to build that heft,” he said.
Raj agrees with Mukherjee. “I foresee the birth of another WPP or Martin Sorrell who's going to come in and say, ‘I am going to buy all of these 10 crore, 15 crore, 20 crore and 100 crore companies, will put them together, which will then become the agency of the future’.”
