Why are independent advertising agencies aiming to go public?

India’s ad industry is in the midst of an Initial Public Offering (IPO) season. In March, Bright Outdoor Media Ltd’s public issue opened with the aim of raising Rs 55.48 crore. And, in a bold move, Crayons Advertising Ltd submitted its share-sale prospectus a month ago to NSE Emerge for a highly anticipated IPO.

Now the buzz is that RK Swamy is drawing up a listing pitch and has appointed i-bankers for public issue. RK Swamy Advertising Associates has initiated the process to unlock value and launch an initial public offering (IPO), setting the stage for one of the most unusual stock market debuts of the year, multiple people with knowledge of the matter told Moneycontrol. The firm, which morphed into RK Swamy BBDO, and is now known as the RK Swamy Hansa Group, operates across four key service areas—advertising, interactive and media , market research, brand activation and data analytics.

Reactions to these share sales have been mixed. Some experts say the IPOs can spur immense growth; others say the share sales may be premature.

With the advertising industry in India facing a challenging and dynamic landscape, many are curious to see how Crayons Advertising, for instance, fares in the public markets and what innovative strategies it has up its sleeve in a competitive industry.

“It's too early for them. The revenue numbers are too low,” said the founder of another indigenous advertising agency on condition of anonymity.

Revenue metrics

According to the share-sale prospectus, the total revenue of the company increased by Rs 87.4375 crore and 82.01 percent from Rs 106.6122 crore in the fiscal year ended March 31, 2021 to Rs 194.0497 crore in the fiscal year ended March 31, 2022.

The increase in revenue was on account of an increase in sales because of geographical expansion of geography, said the report.

Even so, Crayons Advertising seems to be on the right track, as the company's decision to file for an IPO clearly suggests that it has reached a level of financial stability and growth potential that warrants a public listing.

The revenue metric is not a hard and fast rule and can vary depending on the industry, market conditions and other factors.

The company seems confident in its ability to leverage its strengths and capabilities to create value for investors.

Planning to offer 6.43 million equity shares at a face value of Rs 10 each, the company is also looking at doubling revenue in the next three years.

“We are raising funds through the IPO process to aid our transformation as an omni-platform integrated advertising agency. We will invest in our tech-enabled capabilities – led by building a digital studio and expanding our intellectual capital by recruiting global talent. These investments will further strengthen our leadership in events and integrated campaign segments of the business,” said Kunal Lalani, founder and managing director of Crayons Advertising.

Lalani added that experiential advertising will be the future, delivered through a holistic blend of ideas, platforms, emotions, and expressions, to capture attention and stir engagement.

“In doing so, new-age advertising agencies like us will increasingly need to invest in captive capabilities such as AV (Audio Visual) studios, AI (Artificial Intelligence) tools, AR/VR (Augmented Reality/Virtual Reality) equipment, data sciences, market research, etc. Going public will offer timely access to funds while maintaining creative independence and enable us to evolve into a more transparent, scalable, and value-creating enterprise for our stakeholders,” he explained.

Global agencies that have gone public

Globally, ad agencies have experienced a complete turnaround by going public. Several network companies have sold shares in the past, and the IPOs have had a significant impact on their business.

For instance, WPP, one of the world's largest advertising companies, went public in 1985 and has since grown through several mergers and acquisitions. The public listing has allowed WPP to access a vast pool of capital, which has enabled it to expand its operations worldwide.

Similarly, Omnicom and Publicis Groupe went public in the 1980s, which enabled them to invest in new technologies and expand their reach globally. Going public has provided these agencies with increased visibility, credibility, and access to capital, which has helped them grow and stay competitive in an increasingly crowded marketplace.

Dentsu, the largest advertising agency in Japan and fifth-largest globally, went public in 2001, enabling it to access capital for expansion and acquisitions. Since then, Dentsu has diversified its services, including digital marketing and data analytics. Although it has faced challenges such as declining revenue and high-profile scandals, Dentsu remains a major player in the advertising industry, with its public listing playing a crucial role in its growth and success.

Home scenario

In India, in 2013, Kolkata-based Pressman Advertising became one of the earliest advertising agencies to go public. In 2022, Pressman Advertising merged with Signpost India to create a larger entity that would benefit all stakeholders. At the time of the merger, Pressman was debt-free and had cash reserves of about Rs 40 crore.

Some experts caution that going public is a serious business decision and needs to be handled maturely.

“Going public generates immense reach and recall in a diverse country like India. There are no doubts about it. However, when that happens, you are not only answerable to the board but also to the public. So your actions will be scrutinized more minutely. Agencies who have solid systems and processes in place should opt for IPO,” said a former CXO of a leading creative agency.

Optimism among Indie networks

Like Crayon, a lot of other companies in the space have IPO dreams. One of them is Schbang. Harshil Karia, founder of the independent agency, said: “Going public is on our vision board. However, we still have a few years to get there. We strongly believe that our revenues and internal systems have to justify why we want to go public.”

Karia says Indie agencies should look at global advertising networks’ salient models while preparing IPO plans.

“They have strong governance mechanisms with respect to making the services less individual-dependent. When you are listed on the stock market, it’s all about predictability. That’s the name of the game. To come to that maturity, agencies do take time,” he said.

According to Karia, advertising agencies should take inspiration from the Information Technology industry if they want to go public. “Agencies, much like IT companies, can have a combination of products, services, and proprietary tools in their kitty to build a business model that will generate predictable revenues which is important when you want to list on stock markets,” Karia added.

(This story has been updated to reflect the news of RK Swamy's possible IPO plans.)