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Corporate Aug 29, 2012

Dentsu buys into Taproot India - who's next?

By Anant Rangaswami

What drove Dentsu to buy 51 percent of Taproot India? A month ago, Firstpost had asked Taproot's Agnello Dias if Taproot was open to an investment by a network agency. "Never say never. If it works mutually for all parties Taproot and its clients, then it is not impossible. We have never made a single contact from our side looking for this kind of partnership. If anyone wants to have a chat, it is only civil to not say no. The important thing is that we do not 'need to' sell. We don't need rescuing, not personally or the agency.... But if there are options that make us deliver better, faster and more to our clients, which help our employees benefit and no one ends up feeling exploited, then it is fair to explore it."

Dentsu has obviously been an option that ticked the right boxes.

That's one marriage in the advertising world - and there are more in the offing.

Going beyond Taproot, who are the buyers and sellers in this race?

What makes an independent agency want to sell to a network agency? What makes them NOT want to sell? What makes a network agency want to buy or invest in an independent agency? What makes them not want to buy?

What drives entrepreneurs to either hold on to their independence or give up part or all of what they craved for?

Dentsu has obviously been an option that ticked the right boxes. Flickr

Why are these questions being asked now? It's because the market has been alive with chatter and gossip of quiet meetings between network agency heads and independent agencies; terms like 'due diligence', 'valuation', 'term sheets' and 'multiplier' are being spouted by people who you least expect to hear them from.

All the majors who are in India -- WPP, IPG, Omnicom, Publicis and Dentsu, who closed the first of the deals, are looking around for possible relationships.

And if they're the prospective husbands, it's an unusual situation - there's a shortage of brides. Add to the shortage is the fact that the brides are in the position to decide on who they want to marry - and can command a dowry.

Let's take a look at the demand -supply situation. WPP (owner of O&M, JWT, Grey, Contract, Group M, Bates, a share in Rediffusion Y&R, etc) and IPG (owner of Lowe, draftFCB, Lodestar, McCann, etc) are in no great hurry and would buy only an agency with an extraordinary track record and potential. Publicis (owner of Saatchi & Saatchi, Publicis India, Publicis Ambience, Leo Burnett, Starcom, Zenith Optimedia, a share in BBH), thanks to disappointing performances from Saatchi & Saatchi, Publicis India and Publicis Capital, is in the hunt. Omnicom, a late entrant into India, made up for the delay in their India entry with the 100% takeover of TBWA, their stake in DDB Mudra, their increased stake in RK Swamy BBDO and the launch of BBDO India. They're hungry; they want to increase market-share faster than organic growth will allow them. Dentsu, under Rohit Ohri, wants to grow in size and spread geographically.

WPP and IPG, thanks to their solidity in India, are the least in need - and, therefore, are not active suitors.

The rest are.

What's there to buy or invest in? Who are the agencies the prospective buyers are talking to - or should be talking to?

There was Taproot, launched by Agnello Dias and Santosh Padhi, who're out of the gossip now - they're news.

There's Metal communications, launched by Narayan Kumar and Probir Dutt, (Kurien Mathews joined shortly after launch as CEO), there's Creativeland Asia, launched by Sajan Raj Kurup, there's Happy, launched by Kartik Iyer and Praveen Das, there's Law & Kenneth, launched by Praveen Kenneth, Scarecrow, launched by Vivek Suchanti, Manish Bhatt and Raghu Bhat, there's Salt, launched by Mahesh Chauhan and Beehive, launched by Sanjit Shastri.

All these agencies have proven that they've got what it takes. Each has at least one major client relationship that demonstrates reliance and trust. Between them, they handle Reliance Capital, Platinum, Berkshire Insurance, Appy, Audi, Renault, Vivel, Malaysia Tourism, Kaya, FlipKart, Myntra, part of Airtel, part of Hero Honda, to name a few.

That's an amazing client roster - all won by proof of ability, and a lot of it retained year after year after year.

Why did they decide to turn independent - and what will make them sell all or part of their company to a network? There are myriad reasons - seemingly different - but some of them are not quite unique; there's a degree of overlap.

Taproot's Agnello Dias saw this phase of his life as an experiment. "To be honest, I was not thinking about this network versus independent business at all. I just wanted to try something new from what I had been doing (creative head of an established agency) which is what it would have continued to be even if I had moved from agency to agency. I just wanted to give this a shot and see where it goes and how it feels and was quite open - almost expecting, in fact - to having to return to a job in a conventional advertising agency if it didn't work out or once I'd had my fill of experimentation."

Kurien Mathews joined Metal as a journey in 'discovery'. "Having been a cofounder of Anthem at age 25, at 44 the entrepreneur in me pushed to continue to seek entrepreneurial opportunities and explore the world beyond narrow confines of a traditional advertising agency - the only system I had been part of for the entire length of my career The Omnicom/ TBWA system had nothing lacking really. It is the best you can get in every sense - respect, results, processes, recognition, brands, awards, etc. It was more about what was there to be discovered out there that drove me, especially in a dynamic fast changing environment we were in then and are now," he says.

"I always wanted to run my own business. So the intent was always there. The rigidity and the inertia of network-run agencies to evolve, to be relevant and to stay contemporary drove me to start on my own. My belief that advertising the way we knew it is dead certainly made me get out of my comfortable job. And, the fear that soon I may become obsolete still drives me to keep creativeland in a constant state of beta," says Sajan Raj Kurup of Creativeland Asia of his decision to launch his own firm.

To Mahesh Chauhan, there was too much to lose by not going independent. "We live in the age of enterprise in India. It bothered me to think about what my kids would ask me once they grew up. The question, "Dad, were you happy being just a CEO when you were at your prime in the golden era of Indian economy?", kept nagging me. I am fundamentally a very independent person with strong POVs. In sum, a good cocktail to turn entrepreneur," he says.

What drove Kartik Iyer and Praveen Das to start their own agency, Happy? "It was the lack of clarity in an immediate growth plan (in their jobs at network agencies), the need to create a platform to flex all of one's capabilities, the desire to create a model agency built on the magical values of certain globally acclaimed independent agencies that went on to change advertising forever and the confidence of knowing that everything we would gain or lose would lie in our own hands," they say.

To Manish Bhatt, Raghu Bhatt and Vivek Suchanti, freedom was the driver. "We have a workplace wish list. Freedom to creatively experiment. A non-political atmosphere. Performance based compensation. A desire to surround ourselves with people we like and trust. All this looked more feasible in our own agency," were their reasons.

If these agencies began with dreams, they've been realized. So what would make these entrepreneurs go back to a life they walked out of? "The biggest upside of being part of a large network is the financial security a large organization provides - which is a safety net when times are bad. That cushion is not available to an independent. Being independent gives you greater freedom, but in my experience so does a good network like TBWA also give you immense freedom," says Metal's Mathews. "One simple downside is that you will not having any readymade globally-aligned business falling into your lap. One of the upsides is that if there is call to be taken on working on a particular business versus creative integrity, that call can be far more honest," Agnello Dias had said to Firstpost a month ago, of the pluses and minuses of being independent.

"The reasons to consider network alliance partners are many. For one, it provides a wider canvas. You get greater access to tools, clients, processes, ideas and people. It is an opportunity to preserve the legacy built since starting up. And most importantly it is a very good way of protecting the long term interest of the people who put their faith in you when you started out, when the future was still fuzzy and uncertain," says Mathews, in favour of the networks.

Kartik Iyer of Happy equivocally states they will not sell to a network agency. "We don't see ourselves selling to a network agency. Creating an independent that can challenge the norms of a network agency and selling it back to a network agency kind of defeats the purpose. We would like Happy to stay nimble, fun and unexpected."

Raj Kurup is open to realtionships - but not with advertising agencies. "Creativeland is too large an idea to sell out as an advertising agency. And I am not here to make a quick buck. I am here because I believe in the business of creativity. So, obviously my ambition is not to sell in the first place. Even if I had to consider, I don't see it making any business sense since most networks are doing nothing but aggregating resources in the market to consolidate their overall offering. So, obviously their priority won't be to grow brand Creativeland. It would be to strategically place us as a second or third agency in the market. Besides, when you have clients investing and believing in you, you don't really need to complicate your life with a network. We have crossed-over from being an advertising agency to an integrated creative solutions/content creator. Obviously we will be bringing in strategic investments to grow us globally, but not through an advertising network. I don't think they can afford our ambition," he says.

Sanjit Shastri, who was unreachable, has had any number of conversations over the past couple of years with the writer on the desire to bring in a network partner to catalyze Beehive's geographic ambitions, but, he has underlined, the cultural fit and the protection of his team, will be paramount considerations in any sale.

Mahesh Chauhan loves the freedom, but acknowledges the times we live in. "We will always be open to partnerships, collaborations. That is the mantra in today's times. Also this (business) is for the long run. So, my approach is go slow and build brick-by-brick." "The upside is the freedom, the joy of seeing an enterprise grow from ground up. Of building a culture, of winning against bigger players, of really testing your mettle without the halo of a network. Of being invited for pitches, of forcing your way into some and winning them," he says, of the experience of being independent.

Kartik Iyer speaks of the two important downsides Indys face. "Dealing with the Indian (non) work ethic and fighting the perception of being small or available for cheap are battles," he says. "Longer hours, the fight to attract top talent, losing out on some big clients, inability to invest significantly- all are real issues," says Scarecrow's Bhatt.

Except for Happy and Creativeland Asia, all the independents seem clearly open to selling all or part of their company to network agencies. What will worry the networks is that even those who are open to deals with network agencies have no real need for them - which will make these indys expensive buys.

Watch this space. We'll hear more conversations about term-sheets and earn-out and due diligence.

We'll hear them sooner than you think. We've now heard about the first of these agencies selling a stake to one of the network agencies mentioned above - and we'll hear of another few before the end of this year.

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by Anant Rangaswami

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