A trend that began in 2005 with Genesis PR’s acquisition by Burson-Marsteller and continued with Hanmer and Partners selling to Publicis Groupe in 2007. This was followed by Ketchum PR in 2011. More recently, in 2016 Perfect Relations finally sold to the Dentsu Group, after attempting a sale to Publicis. The big merger announcement this year was that of GBM and Cohn & Wolfe Six Degrees, following the global merger of the two WPP firms. And earlier this month, WE Communications took a stake in Avian Media, India’s second largest independent PR firm.
All this leads to the question. What's next for the Indian PR market, that is now crowned by India’s largest and only independent PR firm in the top 3, Adfactors PR.
Have existing mergers worked?
Before we discuss what lies ahead for further consolidation of the market for PR in India, the question is have existing acquisitions worked from the sell side perspective of their Indian owners?
According to Jaideep Shergill, co-founder, Pitchfork Partners, who was also a founding member of Hanmer and Partners, “Promoters have recovered 70 to 80 % of their earn-out, which is in line with global standards for such deals.”
Shergill further explains that about a decade back, the earn-out period was an average of 7 years, it has now shortened to 3 to 5 years, with most deals settling at the 3-year mark. This has happened, among other reasons, because long earn-out periods are not seen as being very fair to the buyer.
Shergill adds that promoters tend to crack down hard on expenses in this period, as the earn-out is linked to profits. They, therefore, do not typically invest in their business or pay staff well during this time. Shergill says wryly that during an earn-out the employees often do not know this.
India vs. China acquisitions in PR
How does the rate of acquisition compare to China. Shergill says bluntly, “Frankly, if you look at the global PR market , India is not a priority market. The number of acquisitions is a drop in the ocean. It started in 2005, today sitting in 2018, 13 years on there are not even 13 agencies that have been acquired. Look at China, it has been four times the number as compared to India. India is a very small market, it is a small contributor. International agencies have hardly invested in India . They do it if an important client wants an India presence.”
Keeping that in mind, where will the next phase of market consolidation take place?
Next phase of PR firm acquisition and mergers
Shergill points out that while the larger firms may now have been acquired, the initial phase of acquisition starting 2005 was with firms at the 20 crore level, with firms like Perfect Relations being the exception. He says that the next level of acquisition is likely to start with firms who are currently at the 20 crore level, this includes firms in the club such as Value 360.
He also reckons that it is a matter of time when PR firms such as Omnicom’s Fleishman Hillard and Ketchum, which have already started merging in other markets could see the same trend in India as well.
Shergill believes that the recent WPP PR firm mergers and those of Omnicom in other markets show that the holding company model is not working.
WPP has also done this with advertising. Last year it merged 5 of its’ design shops and brand consultancies, across 20 countries. So, this a trend not confined to PR alone,
Nitin Mantri, managing director of the recently formed Avian WE believes that, “India will continue to give rise to some great independent firms, which will attract big groups and increase their appetite for consolidation. Future consolidation will take place in different spaces. Firms will look to acquire capabilities in new areas like digital, analytics, public affairs, media planning and research to improve scale and ensure synergistic integration of services.”
Elaborating on the issue, Subhash Pais, founder and business head, i9 Communications, “ I would like to see some specialist agencies becoming M&A targets rather than just 'go anywhere, do anything' agencies as has been the case until now.”
Pais adds that, “I feel that the market will pause for a breather and we will see a lull on this front for a while as I don't see proper targets for acquisition at the moment. Maybe in the next couple of years about a dozen small agencies might scale up and become targets for acquisition. But the current spate of M&A has definitely excited the market and agency owners will definitely work harder to scale up in the next 24 months or so. We might maybe, just maybe, see an Indian agency attempt to go public in the next 2 years and that could be a very exciting event too!”
Pais says that existing PR firms also need to get their growth plans right. He says, “I am sure there will be a decent amount of investment made in new age tools like data-analytics, experiential marketing along with rural marketing, i just feel that there are maybe less than 7-8 agencies who will make big ticket investments and it might take long before we see proper ROI on these investments. I don't think its everyone's cup of tea and i think majority of the industry does not know which way to go and how much to invest at the moment.”
Nikhil Dey, president, Genesis Burson-Marsteller, which will eventually be merged with Cohn & Wolfe Six Degrees in India says, “The PR industry in India is growing and there will be a new crop of firms that will emerge. As they mature there will be another round of consolidation, so this is simply a manifestation of an industry evolving and it should be welcomed. It creates opportunities for talent to emerge and also gives clients stronger firms, better placed to serve their needs.”
Aniruddha Bhagwat, co-founder and director of Ideosphere Consulting agrees, saying that, "The demands of the industry essentially stem from clients. Many large traditional companies have trouble aligning and molding their approaches to the new age, and many emerging companies have no trouble aligning, yet struggle on building the investments needed. The challenges and opportunities of each of these entities provide further evidence to indigenous consolidation in the Indian market, as it seems like the perfect marriage."
Adds Bhagwat, "If this happens, the larger established players can put their cash and experience on the table, while the smaller players can put bring their new age approaches and nimble, agile cultures to the party. This will set the stage for India to be ready to make significant, innovate strides in investing for the future. Similar to the IT industry, investments in platforms for collaboration, rapid deployment of communication strategies and campaigns, and integration of advance technologies such as data science, AI, and other existing technologies such as VR/AR will be the possible next steps in delivering insights-led, output-based, impact-focused customer journeys for PR & communication clientele in India."
Do merged firms help the client?
The issue of whether merged PR firms help the client has been widely discussed.
Last month, when WE Communications investment of a strategic stake in Avian was announced, Melissa Waggener Zorkin, CEO of WE Communications told PRmoment India the coming together of two independent firms is what WE prefers as a consolidation approach. Commenting on the recent trend of mergers of group PR firms, Zorkin said, "I am confused about where the client is with that approach. That is not the way we will go. Clients love independent firms, they love their bold approach."
Girish Balachandran, founder 'On Purpose', says, “Consolidation is good. It takes out weaker players and offers clients a more selective set of options. It also improves consultancies’ ability to negotiate fair pay without having multiple competitors luring away business with that little bit less. On the other hand, integration is important. Clients want to work with people who have relationships that go beyond dots on a map and merged P&L’s to actually having the ease of being able to pick up the phone on one another, understand the complexity of what’s involved and work together to give the client the best possible solution – based on trust and mutual respect.”
Dey agrees saying that the priority remains the client, “This business has and will continue to be about the caliber of people agencies are able to get to serve clients’ needs. If the talent pool increases, the options to serve new and emerging needs is better. In fact, the entire WPP mindset is about leveraging the power of collaboration and the wonderful talent within the network to serve clients’ needs most effectively.”
Pais sounds a note of caution outlining the heart of the problem with the PR consultancy business model He says, “Servicing has become so commoditized at the moment. I do not think anyone has an edge over anyone in the industry. I also think mergers are being handled with more care than ever and firms are making sure none of the stakeholders suffer in the process.”
Adfactors PR and its’ unique position
Adfactors PR today is in the unique position of being the only independent PR firm in the top 3 PR firms in India and is of course also India’s largest PR firm overall.
Says Pais, “I admire Adfactors for being able to weather through the rough that has hit the firm over the last decade or so and emerge stronger from it. I feel Adfactors could now look at acquiring smaller firms both in India and abroad. The Tata mandate and the windfall from it makes Adfactors the master of its own destiny.”