Why bigger agencies net smaller fish?

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By Meghna Sharma Posted on : 18 Mar 2014 06:52 pm

MUMBAI: Passion drives creative minds to set up independent agencies. In a majority of cases however, after the initial burst, resources become a constraint and growth avenues out of reach.
 
While being able to do what you want, pitch to the client of your choice or leverage the tools of your choice continue to be the perks of going solo, at some point, the smaller independent agency is forced to reflect on how long it can continue to stand alone successfully.
 
This is probably when selling out to a larger entity seems like the best option. In the past couple of years, there have been several instances of big networks snapping up smaller, independent agencies; the most recent being DDB Mudra’s acquisition of Bangalore-based 22feet. Indiantelevision.com spoke to a cross-section of the advertising industry in a bid to understand what really drives network agencies to invest in independents or conversely, independents to sell out or as in some cases, hold on to their freedom.
 
Vineet Gupta of 22feet, who will soon take charge as MD of the new entity, 22feet Tribal Worldwide, says mergers and acquisitions (M&A) aren’t necessarily about losing independence. “We have always wanted to outperform and be ahead in the market. And in Tribal, we found a partner which had the same vision like us and hence, we went ahead by joining hands,” he explains.
 
Praveen Kenneth of Law & Kenneth - at the time Law & Kenneth was integrated with Saatchi & Saatchi - had famously said that Law & Kenneth was born out of passion and had always focussed on adding value to client brands and to the lives of the people it touched every day. The story of Law & Kenneth was an example of the Saatchi & Saatchi spirit of ‘Nothing is Impossible’, and the combination of Law & Kenneth’s stability, proven success and experience in India’s dynamic market place and Saatchi & Saatchi’s iconic status and mystique had resulted in a creative powerhouse called L&K Saatchi & Saatchi.
 
WebChutney, a digital agency founded in 1999, became part of Dentsu India Group when the network agency acquired 80 per cent stake in it in 2013. How has it benefitted the independent agency? Says, the agency’s co-founder Sidharth Rao, “Our unique chutney culture is the same but yes, being part of a global network has helped in terms of new alliances & smarter processes. One of the best parts is that we have access to global learnings which we think will be a big advantage going forward in our journey.”
 
For Naresh Gupta, CSO and managing partner of Bang in the Middle, the iYogi in-house creative agency that went independent in 2012, the best marriage is when creative and cultural freedom isn’t taken away and bigger agencies only provide support through finance and sources to scale up. “There has to be a cultural match before any formal arrangement is made because a group which has invested too much money in acquiring one doesn’t want it to fall. It will only want it to grow as it wants back the money it had invested in it,” says he.
 
Publicis’ South Asia CEO Nakul Chopra believes that while cultural and operational differences between the two agencies would never cease to exist, it depends on how well they make the marriage work. “If the home-work has been done well before the acquisition is made and the two are culturally close at the core, there are not many difficulties between them. We at Publicis have a well-oiled and tested process that allows us to achieve that goal,” he says, adding that the acquisition is also about ‘strategic fit’. “Ideally and normally, we would want to acquire an agency when it fulfils multiples of strategic goals. In parallel, we also look closely at the culture of that agency and how well it fits into the culture of our network. Only after this, do we decide on acquiring any agency.” Chopra insists that acquisitions are not like buying a shirt and either the agency is in talks with someone or someone approaches the agency. What matters is how transparent and deeply connected the two agencies feel before shaking hands.
 
Dentsu India group executive chairman Rohit Ohri echoes similar sentiments. “Network agencies are always on the lookout for a holistic view. There are some or the other gaps which need to be filled-up so network agencies look for agencies which can do so. The fundamental law of any acquisition is that the two parties work closely in the pre-acquisition period to get to know each other’s culture and get a sense of partnership. There has to be a chemistry match otherwise it can lead to a fallout past acquisition or the smaller agency can collapse. There has to be a meeting of minds,” he explains.
 
On the bigger agency trying to impose its culture on the smaller one, he gives the example of Dentsu’s Taproot acquisition close to two years ago. “The merger has worked well for both of us. Dentsu has been able to work on major accounts (Congress being the latest client) that were won after the merger. Taproot has been a leading light in the creative field and has a strong reputation. So we follow what they set out to achieve. It is the other way round for us. We at Dentsu are trying to assimilate that,” he says.
 
And not all mergers end on a good note. Remember what happened to Enterprise Nexus? The agency was created in 1996 when Enterprise (born out of the partnership between Mohammad Khan and Rajiv Agarwal in 1983) and Nexus (founded two years later when Agarwal left the agency to launch his own along with Arun Kale) joined hands.
 
However, what started off great, fizzed out soon when Agarwal and Kale, gave up their shares to Khan, making him the majority shareholder in Enterprise Nexus. The agency was later acquired by WPP and merged with Bates India.
With a few mergers ending on a bitter note, it hasn’t stopped the majority of firms from acquiring others or launching new ones. So does the buck stop at M&A?
 
According to Anil Kakar, founder of Gasoline, a lean agency structure based on a collaborative model where both like-minded creative talent and projects have been cherry-picked to ensure faster and more cost-effective solutions, “A lean agency structure ensures a greater investment of time and thought into a campaign, a greater control over the creative output, customised solutions, faster turnaround times and access to some of the best brains in the business.”
 
“Obviously it helps in terms of getting access to a larger client base as well as in leveraging the media strengths of the network. The network consists of a unique bunch of agencies each with their own particular strength which is very useful when pitching to global brands,” adds Rao.
 
Gupta offers a different perspective altogether. “Acquisitions work both way; most independent agencies don’t want to remain small and want to add muscle and that can be only added either by becoming a network agency or becoming a part of a network agency. Also, it is very difficult for an independent Indian guy to go international and become a network,” he says. 
 
However, agencies that are “okay with what they have” may choose to remain independent. Otherwise, the question “Can I make the business grow?” is bound to crop up from time to time. “Our country is a very competitive one and it is a price-sensitive market. Clients don’t pay agencies for the amount of work they do for them,” he adds.
 
In sum, you need to tread on M&A with caution: while it is necessary for further consolidation and growth, it can’t be achieved at the altar of the agencies’ DNA.

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