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In-depth: Why suddenly Indian ad agencies are queuing to file IPO

Earlier, it was only the global advertising networks and their holding companies that were actually public. But today, the landscape is changing rapidly with more and more Indian ad agencies bracing themselves for an IPO, here’s why

Filing for an IPO and going public is a concept that has forever been echoed and doubled down upon by commodity businesses but also services ones. But even when it came to services, it was not the independent ad agencies that were exploring this route for fundraising but only the global networks’ holding company.

But today, with the rise of digital, market dynamics have changed, quite drastically. Today, not only are mainline independent ad agencies that look at raising funds via IPO, but also integrated and digital agencies.

While it is only us, the industry players who look at these companies through a bifurcated window of brands and agencies, for the investors, the thought and consideration are all about numbers and therefore, an ad agency filing for an IPO is no different than a brand coming up with it.

In recent times, some of the ad agencies that not only envisioned going public, but also made a move or two towards making it a reality include Maagh Advertising, Crayons Advertising, RK Swamy, etc.

In an interaction with BestMediaInfo.com, LS Digital also confirmed its plans for filing an IPO.

Taking into consideration all of these factors, BestMediaInfo.com reached out to various industry players to find out more about what’s fuelling Indian ad agencies’ IPO plans in the current times, what’s in store for them as a listed company and more.

Vishesh Sharma

Upon being questioned as to why companies file for an IPO, Vishesh Sharma, Chief Marketing Officer, Bajaj Financial Securities, highlighted that one of the key reasons a company looks at filing for an IPO is to raise money.

However, the same can also be achieved either through diluting its existing equity or PE funds, but most well-to-do companies and new-age companies are opting for the IPO route, he stated.

With this, he also pointed out that in the current Indian investment landscape, institutions and corporates also have the option to raise money from banks, with that, tags along a cost and risk, as well.

“While looking back in the past, the ad space in a digital scale ecosystem was limited. Fast forward to where we are today, the scenario has drastically changed. The digital economy is thriving, and organisations, including digital agencies and corporates in the digital ecosystem, exhibit significant skills. As a result, many ad agencies can justify the valuation they demand based on year-over-year growth, especially considering India's demographic advantage. The current times make it slightly easier for companies to go through an IPO route compared to the previous decade or so,” he added.

Karan Taurani

As per Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital, while agencies haven't gone for IPOs for a really long time now, it's still very rare that ad agencies take this route even though the media industry constituting of content companies, platforms, broadcasters and radio companies have been listed for quite some time, ad agencies largely operate in commoditised business wherein there is very little or no differentiation.

But today, in the booming world of digital, what one does have is multiple things that can set one apart from a differentiation pov when it comes to advertising- primarily due to the kind of database and intelligence one would offer on digital, unlike TV and traditional mediums, he stated.

Aamar Deo Singh

As per Aamar Deo Singh, Head Advisory, Angel One, an IPO is a significant milestone for any business since it signals the company's maturity, and also builds a nationwide impact and tremendous recall, nevertheless, launching an IPO is a highly serious endeavour and the Indian advertising industry is now experiencing an IPO season.

According to a CRISIL report, the market for marketing services in India grew at a CAGR of 5.6% from 2019 to 2023, reaching Rs. 1,936 billion in FY23. Additionally, it is anticipated that investments in customer data analytics and marketing technology as well as digital advertising expenditures will fuel industry expansion, which is anticipated to expand to between Rs. 3,500 and Rs. 3,700 billion by FY2028.

“Indian advertising firms have the chance to develop their presence and get a larger share of the industry, thanks to the fantastic growth prospect. With the right structures, systems, and processes in place, companies that successfully transition into IPOs have a great possibility of significantly influencing the consumer's overall mindshare,” he said.

He then went on to add that while the specifics would differ as to how these businesses operate differently from mainline brands, but in general, the businesses will need to plan and carry out their vision and goal in light of the constantly shifting business environment.

Gautam Reghunath

Presenting the agency-side views on the topic at hand, Gautam Reghunath, Co-founder and CEO, Talented.Agency, stated that the fuelling factor for Indian ad agencies filing for IPOs in recent times is the same as most IPOs, everywhere- primarily to give the early backers liquidity and help them see a nice payday.

The access to the additional capital helps facilitate acquisitions, fund new projects, pay off debts, or even undertake new endeavours, he opined.

“It’s no secret that ‘tech’ and ‘digital’ companies have been much sought after in the public markets. To that extent, it certainly makes companies whose scope extends to these areas significantly more attractive according to current public market demand,” the Talented CEO added.

He also went on to point out that the simple truth is that most well-run agencies are cash flow positive and don’t need an IPO just to continue on their current tangent, and if it’s just for expansion plans, all money, wherever it comes from, is the same money.

“But it’s clear that the financial upside of getting a public listing right is significantly higher than raising through any other means,” he opined.

In the lens of Elara Capital’s Taurani, when an ad agency files for an IPO, it not only gives them visibility but also helps them in their expansion plans into the global market which aids in fostering a better footprint and revenue scaling

“In terms of the IPO landscape, the case is such that a lot of digital ad tech companies can come in because, apparently we have got just one programmatic consumer advertising platform in India, Affle, along with Inmobi which is distributed in some of the other global markets, therefore, there is an opportunity in this era of digital, which is somewhere close to 45% of advertising spent and that is dominated more by the tech giants like Google, Facebook, Amazon which are listed in the US markets, but this is also giving an opportunity for many agencies to scale up because digital is one domain which is growing very fast,” he pointed out.

He further highlighted that the one good thing is that if the digital-focused ad agencies get listed and offer superior growth rates accompanied by a good track record of healthy profitability and margin, there is a very big potential for them to command a premium valuation in the market because of the scarcity play.

Similarly, Angel One’s Singh also shared the viewpoint that when compared to its competitors who do not fall into the category, an IPO helps a business gain visibility as well as a larger market share of the advertising revenue pie, as marketing expenditures for Indian businesses have stayed between 3.1% and 3.6% of revenue over the past five fiscal years.

The same strong growth is anticipated moving forward as well, as Indian corporate revenue has increased at a CAGR of 9.5% during the last five fiscal years, and as a result, marketing expenditures have also increased dramatically in absolute terms, he presented.

“While the management often remains with the promoter(s), IPOs have historically been perceived to bring in new talent to the organisation. On the other side, venture capital is also a successful method of acquiring money, but in that case, the road to an IPO is at least a few years delayed,” he pointed out.

Touching upon the after-effects of an ad agency getting listed in India, BFSL’s Sharma highlighted that when an investor considers investing in any company, what remains the key focus areas are the company's business and its sustainability and scalability from a long-term perspective of five to ten years, rather than whether it is a brand or agency raising funds through an IPO.

“After going public, discussions shift from long-term to a quarter-to-quarter basis. Therefore, one should enter the market only when they have all the answers to investors' concerns. There have been instances where tech companies have performed well after filing their IPOs, but there are also cases where results haven't been promising, affecting investors' confidence in the Indian startup space,” he stated.

He further went on to add that even if an agency successfully raises funds, but fails to deploy them as expected, investors may become wary of investing in another agency which is why it is crucial to play intelligently and ensure that both, the companies as well as investors benefit from this collaboration.

Similarly, Angel One’s Singh also highlighted that retaining customers who generate a major chunk of the company’s sales, which is crucial from an operations’ pov, industries such as  BFSI, FMCG, Retail, E-commerce, and Automotive sectors amongst others have an impact on the success of advertising companies. Therefore, the less reliant on particular customers and industries, the greater the diversity.

“Cost-cutting measures are frequently implemented by businesses during times of economic uncertainty or downturn, which has a negative influence on these advertising organisations. The regulatory disclosure standards, compliance criteria, and processes will need to be strengthened further after the IPO because the level of data reporting and openness would be entirely different,” he said.

Additionally, he also pointed out that it will be necessary to effectively accommodate the interests of all parties involved, including shareholders.

“The leadership team, which is responsible for paving the way forward, will have a major impact on the growth trajectory of each organisation. However, it has been noted that after an IPO, businesses tend to expand if they are headed in the correct direction,” he said.

Sharing his views on the same, Talented’s Reghunath recalled reading one of the more popular David Ogilvy memos to his exec team, titled “Exculpate My Sin!”, which he believes read- “Going public was the worst mistake I ever made. Can we go private?”

Contemplating whether the Father of Advertising was right in thinking so, he stated that on the face of it, agencies are pretty solid businesses for the public market since people are usually their biggest asset and they generally operate with low levels of leverage and don’t carry much debt on their books, typically, which makes it really attractive.

However, what is also true is that as service businesses, agencies run on the constant expectation of retainer fees coming in, an operating model that’s been proven uninteresting for public investors, he opined.

He said, “Besides the significant expenses an IPO brings, the hard parts remain similar to any other business - an increased number of stakeholders, sometimes with competing agendas, higher possibility of unfavourable press, a potential lack of liquidity once listed, tighter disclosures and much, much greater accountability. Possibly why Don Draper was against Sterling Cooper Draper Pryce’s IPO too?”


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