There was an interesting article on Afaqs analyzing some of the mergers, acquisitions and talks of take overs that have gone around the digital agency niche in the past couple of years. It gave a comprehensive picture with views from both sides and a report on all the hand shakes that happened and didn’t happen.
Some of the mentioned deals are:
- WPP’s acquisition of Mumbai-based Quasar Media in 2007
- Dentsu Communications formed an Internet advertising JV with Ignitee
- Aegis Media acquiring stake in Communicate2
- Ybrant Digital — DreamAd acqusition
The report however focusses on what is pushing these deals through. It talks about why global players are taking the acquistion mode, and why independent agencies are willing to sell stake. Like their point which says:
The reason for acquisitions is not difficult to fathom. Digital advertising is a Rs 700-crore industry. It grew 40 per cent in FY08 and analysts project the growth at 25 per cent in FY10, while traditional advertising is projected to be flat this year.
However, my mind goes to two points that they have mentioned which paint a different picture. Aegis Media and Lodestar Universal’s failed attempts at completely acquiring Communicate 2 and Interactive Avenues respectively. Both companies already have a stake in these agencies respectively but couldn’t quite convince them to sell out completely.
I have a feeling we will not see a complete sell out by any of the independent agencies for another 2-3 years, while a lot more mergers or stake sale to consolidate might happen. The reason is the confusion that exists in the scope of digital media advertising industry. We all see the benefits, we all see the scope, but we don’t see results. Of course, a lot of agencies are making good money, but the scale when compared to traditional agencies in India is abysmal. There is still a lot of skepticism in the client’s mind about digital media.
This to my mind, creates a certain fallacy in the digital entrepreneur’s rationale. On one hand it might seem just a matter of being patient while on the other there is a simmering frustration about growth charts being slow still. This puts agencies in a catch 22, where they don’t know whether to sell out cheap after years of hard work or strive a while longer. The result, they sell out in part and not wholly. The loss if at all any in future of having sold a little now is basically like premium against insurance, while the payout will be better later. On the other hand if this happens to be another bubble unfortunately then at least they have something to take home.
This is what I gathered thinking about the various deals that have taken place and from what I see in industry talks and conferences that happens from time to time. Everyone is believing for the sake of believing and that is the same thing that shakes their confidence at some level.
