Numbers do matter in agency acquisitions, but here's what matters more for the ad world

For years, now, multiple Networks have acquired or in some cases even partnered with independent agencies across the globe. Some of these agency acquisitions have begun picking pace in India recently.

The latest of them is Havas acquiring digital marketing agency PivotRoots and integrating it with Havas Media India. Earlier, this year, FCB Group India also acquired a majority stake in Kinnect to form FCB Kinnect.

Having said that, while it takes significant numbers in the form of retainers, employee base, profitability, speciality, etc. for a Network to show interest in independent agencies, it is important to understand that not all entrepreneurs of the ad world are there for cashing in on acquisition deals but look for benefits not just for themselves but for the acquiring networks as well.

Rohan Mehta

According to Rohan Mehta, CEO of FCB Kinnect and FCB/SIX India, the acquisition of Kinnect by FCB was a progressive one which started with a minority stake first in August 2021 and then progressed forwards to a majority in April this year.

With that context being set, the right time for any agency to be open for acquisition offers, in his view, is defined by the maturity of the agency above anything else because an agency needs to be fairly sizable, scalable and profitable before it can even be considered by the networks, let alone the agencies being open to acquisition deals.

“For us, we went through, in my parlance, first a toddler phase, then a teenager phase, and then a grown-up phase and once when we were grown up enough, we said that maybe one plus one could be significantly more than two. In fact, in 2019-20, we found ourselves as the largest independent (probably 30-40% larger than anyone) in the market, and that’s precisely when we thought about finding the right partner- someone who can give us the experience, the exposure and the kind of prestige that can accentuate Kinnect’s growth from thereon,” Mehta said.

Having said that, the Kinnect founders wanted to be in a place where they could have a massive and sizable impact and where there was an instant strategic connection with the IPG Group, for they had only one digital agency- Interactive Avenues, at the time, as opposed to other networks which had multiple digital agencies under them and therefore the call, was easy for it was not one amongst many, but one amongst very few, coupled with the cultural synchronisation and focus on people and quality of work.

“The IPG Group is not a very acquisitive organisation as such, and they like walking slowly and getting into long-term partnerships, and that's what Chandni and I were looking for- a place that we could call home. With IPG and FCB, we have undoubtedly discovered that - an exceptional blend of cultural diversity, our profound capacity to make a meaningful difference, and, most importantly, a remarkable opportunity for our young talent base to learn and receive guidance from the esteemed FCB Group, which boasts an impressive 150-year global legacy,” Mehta opined.

He then went on to point out that post the acquisition of the independent agency and the formation of FCB Kinnect; there have been both- visible (in terms of the joint work being recognised at Cannes Lions) and invisible changes (in terms of the platform level long-term work which has come from the understanding of how mainline agencies operate and converting that kind of thinking to digital execution for the clients).

“FCB Kinnect's acquisition marks a significant milestone for FCB Group India, catapulting its digital expertise to unprecedented heights because, with the addition of FCB Kinnect and the recent launch of FCB/SIX (the creative data speciality of FCB), the group is positioned to lead the advertising industry and showcasing its creative abilities that are deeply rooted in digital-first strategies,” he said.

Sandeep Goyal

According to Sandeep Goyal, Chairman and MD, Rediffusion, each person’s motivation for buying or selling an agency can be different, however, 99% of the time, entrepreneurs who have set up a business eventually want to be bought out for an important handshake or lucrative denominations. That being said, it is important to understand why the potential buyer who is showing interest in the business is willing to buy it.

“After I sold Dentsu, they got into a mad acquisition spree and bought some 28 companies. But neither do I know ‘why’ nor do I know ‘what they gained out of it’,” he added.

Further, he also emphasised that when people are ready to sell, they can sell the agency at any point in time, but the only thing to be kept in mind is the terms at which one is willing to sell because once bought by a network, the independent agency owner will no more be the owner.

“When a new set of guys come in who have no clue as to what that agency is all about, which happens many times, these acquisitions really don't end up with anything much. In fact, the only time these things work is when you bought a mainline agency which deals in 100, 200, 250+ crore worth revenue, that it is up for keeps- like what happened in the case of Leo Burnett (erstwhile Chaitra) or Publicis (erstwhile Capital). The rest of the small agencies which involve Rs 5 crore, Rs 10 crore, Rs 20 crore, Rs 30 crore, etc. work only for a year or two, and then succumb over time,” he said.

He then went on to add that when he had sold Dentsu, it was fairly simple for him because he had owned 26% and the remaining 74% stayed with the Japanese who had a balance sheet of 28 billion dollars as opposed to him, who is a small ad professional turned entrepreneur, and hence when he had to choose between having to put 26% every time into each one of their adventures and cashing out, he decided to sell the agency as it was extremely profitable.

“By buying an independent agency, by hook or by crook, you cannot fill that portfolio because hiring and creating business is very different from just buying businesses,” he pointed out.

Rajiv Dingra

Rajiv Dingra, Founder and CEO, ReBid, also shared a similar viewpoint that there can be various reasons for an individual to sell an agency, which includes personal reasons for an entrepreneur- a loss of energy, steam, and burnout. And keeping those things aside, essentially, selling an agency, especially the digital ones, should happen when all the growth options seem exhausted, i.e- the agency is running at the optimum, in a sense that newer clients are not being able to be acquired as quickly as they were earlier owing to the increased competition from networks.

“Let's say you are an agency for performance for D2C brands and you already have the top 30 out of the top 100 D2C brands as your clients, so basically you are at a sort of a peak or a plateau, or are clocking in more than half a million dollars of profit, there are many ways to judge that, of course, agencies can pivot from that and expand as well. But in essence, the best time to sell is when you're at the top of your game and you know that you are a market leader,” Dingra said.

He then emphasised that when he had sold WatConsult to Dentsu in 2015, at that point in time, it was the highest peak of social media in the country as digital ads were happening incrementally in millions of dollars.

“We were at the top of our game and we wanted to expand beyond being a social media agency to a full-scale digital agency and to do that, being part of a network, gave us an added advantage,” he shared.

Moreover, he also opined that if one is a specialist and the leader in their space, it’s a no-brainer that one will get a premium on the valuation, but today, the market is sombre and all valuations and the startup ecosystem are down, in general.

Also, having recuperated from the pandemic, the networks also see that there are a bunch of independent agencies that have grown up and are ripe for acquisition and that coupled with the market being bad enough, it is easy to get good deals, Dingra added.

Manish Bhatt

Sharing his views on when is an agency open to acquisition, Manish Bhatt, Founder Director, Scarecrow M&C Saatchi, said that an agency’s openness for acquisition often depends on the entrepreneur’s vision because that at large is why people start on their own in the first place. The same can be triggered by a lack of creative liberty or the freedom to operate, function or charge and much more.

However, some individuals do start their own creative ventures owing to their ambition of becoming an entrepreneur and dealing with growth, profits, valuation and other things apart from doing great work as well, he added.

“In times like these, when everyone is enticed by India’s growing economy and building a market value or equity for themselves, some founders do decide to partner with networks or the kind of agencies which happen to match with the independent agency’s theories or philosophies and to ensure that even when they themselves are not there in the company, the people who had been associated with the independent agency can get better opportunities and be successful. This was the primary reason that Scarecrow entered into a 50:50 partnership with M&C Saatchi, which happens to be quite a renowned surname across the ad world and to enter a federation of like-minded entrepreneurs,” Bhatt said.

He then went on to emphasise that while it took M&C Saatchi three long years to convince them, it was mainly because of the human way in which they were approached by the partner agency that they decided to partner with them over other networks. “Also, M&C Saatchi wasn’t like the staunch foreign entity who wanted to run things at Scarecrow their way and rather have a steady relationship where there is mutual respect and trust which actually supersedes everything.”

Ashish Khazanchi

Ashish Khazanchi, Managing Partner, Enormous, said that there could be various states of readiness for different kinds of agencies when it comes to acquisitions, but from an independent agency standpoint, one should only look at it when one is at a stage where they could really harness a strategic partnership for it does give one a step up and gives a huge bip in terms of the big synergies or avenues for all, meaning, there is a growth story and complementary skills between the network or the acquiring agency and the independent.

Upon being questioned if it is true that Enormous has also had conversations pertaining to the networks showing interest in acquiring them, he replied that there have been some conversations, roughly from the third or fourth year of the agency being set up, and that when they’ll find something really exciting on the table, they’ll see.

“We hold no resistance to being added to a larger system, but it is just that it should make a lot of strategic and cultural sense to both parties. Otherwise, there is very little that will come out of it. Because we have a great culture, a fairly good growth trajectory and we’re proud of the work that we do, coupled with clients being happy with us, there is a culture which we want to continue building on. Therefore, when it feels right, almost like a relationship where both partners will go on a limb to make sure it happens, we will not hesitate,” he said.

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