When should an ad agency consider going public?

In 1960, advertising agency director, Fred Papert, copywriter Julian Koenig, and art director George Lois joined hands to form advertising agency Papert Koenig Lois (PKL). Only two years into the game, the Manhattan-based agency ended up going public in 1962. By 1967, it was a major agency, with $40 million in billings and clients like Xerox, National Airlines and Procter & Gamble under its belt. 

The agency going public started a trend as Ogilvy & Mather launched its initial public offering (IPO) in 1966, eventually bought out by WPP in 1989. WPP went public in 1985 and has grown through several mergers and acquisitions over the years. The listing has enabled the company to expand its operations worldwide. UK-based Saatchi & Saatchi launched an IPO in 1975 and another IPO in 2004 as M&C Saatchi Group was formed after splitting up from Saatchi & Saatchi. 

Similarly, American global media, marketing, and corporate communications holding company Omnicom and French multinational advertising and public relations company Publicis Groupe went public in the 1980s, while Japanese international advertising and public relations company Dentsu went public in 2001. These agency networks have expanded and diversified their services since then. 

In India, independent full-service advertising agency Pressman Advertising reportedly listed itself on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in 2013. It, however, did not raise any public funds and followed the SEBI guidelines that allow SMEs and start-ups to list without going through an initial public offering. 

When asked why the agency chose this route, Navin Suchanti, Director and Promoter of Pressman Advertising stated, “We have not listed ourselves to raise funds, but to open ways for future growth and strategic alliances. Our intent is to be known for good corporate governance and transparency, which will pave the way for future opportunities.”

The agency’s revenue was  INR 4.49 crore in the quarter ending June 2023. The revenue grew by 21.02% on a year-on-year basis since last quarter.

In March 2023, 44-year-old Bright Outdoor Media, specializing in out-of-home (OOH) media launched an IPO, and has observed a net profit of INR 6.03 crore in the quarter ended December 2023 as against INR 2.60 crore during the previous quarter ended December 2022. 

With a substantial influx of capital from public investors, the company has swiftly expanded its operations, according to Dr. Yogesh Lakhani, Chairman & Managing Director, Bright Outdoor Media Limited. 

“From not having a single Digital LED Hoarding before the IPO, Bright now stands as one of India's foremost operators of large Digital LED Screens. Furthermore, the company is diversifying its advertising portfolio by targeting strategic railway stations, acquiring stations, kiosks, and entering toll plaza advertising,” Dr. Lakhani elaborates.

Similarly, Crayons Advertising filed for an IPO in May 2023 and received an overwhelming response from the bidders, clocking a 147.61 times subscription worth INR 4,104.67 crore.

Ashraye Lalani – Director Technology & Growth, Crayons Advertising states, “The infusion of capital resulting from our IPO has empowered us to execute our vision with precision, investing in cutting-edge technology like Crayons Studio to enhance content creation capabilities and diversify our offerings.”

Additionally, investments in internal software and talent development have enhanced operational efficiency and output quality. 

“Our IPO experience showcases the transformative potential for agencies considering going public. It offers opportunities to drive innovation, compete effectively, and sustain growth in a dynamic marketplace, positioning agencies for success in the industry,” Lalani believes.

The latest addition to ad agencies joining public offering listings is RK Swamy, an integrated marketing communications company, that got listed on the BSE and the NSE after launching its IPO on March 4 this year. Its IPO price band was between INR 270 and INR 288 a share and its shares made a debut listing at INR 251 on both BSE and NSE, as per reports.

Considering the Indian advertising economy stands at INR 1 trillion, as per MAGNA’s Global Ad Forecast and leads the ad spend growth globally, IPO offers a chance to further expand the industry. It's important to understand the implications of going public. 

Factors to consider when going public

Dr. Yogesh Lakhani of Bright Outdoor Media Limited comments, “A media agency should consider going public when it has reached a stage of maturity and growth where accessing capital from public markets becomes necessary to fuel further expansion and development.”

He states that this occurs when the agency has established a strong track record of financial performance, demonstrated consistent revenue growth, and possesses a clear strategic vision for future growth initiatives.

Crayons Advertising’s Ashraye Lalani mentions that agencies pursue IPOs driven by the need to stay competitive in a rapidly evolving landscape. 

Lalani highlights that going public provides access to fresh capital, allowing for investments in cutting-edge technology to enhance service offerings across diverse verticals. 

“Additionally, an IPO serves as a strategic move towards long-term growth, offering immediate access to expansion capital and providing a platform to navigate regulatory requirements.”

Raghav Bagai, Co-founder, Sociowash says that when it comes to filing for an IPO, there's no magic formula and it will significantly vary from company to company, agency to agency. 

“It is predominantly based on the business plan, current growth trajectory, and predefined expansion plans. Raising any kind of capital, be it from VCs, PEs, or IPOs is to fuel growth plans.”

In a previous interaction with Social Samosa, co-founders Pranav Agarwal and Raghav Bagai revealed the agency’s five-year plan for the future includes working on launching a tech vertical to reach 2.5x growth in terms of finances, going for an IPO, and expanding globally.  

There are several other factors that come into play. Bagai mentions that a strong track record of consistent revenue growth and robust financial and operational processes in place are required to handle the complexities of being a public company. 

Challenges

While filing for an IPO holds several advantages for ad agencies, there are a few challenges that need to be noted. 

Bright Outdoor Media Limited’s Dr. Yogesh Lakhani divulges that they (agencies) must contend with market volatility, where fluctuations driven by economic conditions and investor sentiment can impact their stock performance and strategic decision-making. 

“Additionally, publicly listed media agencies face intensified competitive pressures, requiring continuous innovation and strategic differentiation to maintain their market position and deliver sustainable long-term value.”

Raghav Bagai of Sociowash mentions that public companies face constant scrutiny from investors and the public. Revenue generated quarter-on-quarter (QoQ) is a metric that retail investors follow, which has significant repercussions on the stock value. Every financial decision and strategic move will be under a microscope. 

As Sociowash is preparing for an IPO, the agency has been taking a two-pronged approach. 

“First, we're solidifying our foundation. This means ensuring financial transparency and having strong governance and standardized practices in place. Second, we're focused on achieving sustainable growth.”

Investors love stability, and the agency wants to showcase a well-run stable organisation. Moreover, it is focused on reaching a specific size in the market and demonstrating a consistent upward trajectory in terms of revenue by diversifying the client base and developing new service offerings to ensure long-term stability.

Ashraye Lalani of Crayons Advertising indicates that while meeting market expectations, navigating regulatory requirements, and engaging with shareholders can be demanding, it also signifies an exciting phase of growth and visibility for any agency.

“A stable and varied portfolio of clients and diverse revenue streams are crucial considerations founders need to make. Being publicly traded enhances an organization's credibility, making it a more attractive partner for high-profile clients,” Bagai reveals.

How is the ad landscape changing?

In a landscape largely dominated by global networks, the emergence of more Indian agencies onto the public stage signifies a collective assertion of the Indian ad world’s capabilities and a potent challenge to established norms. 

Lalani suggests that it signifies a pivotal moment where Indian agencies are poised to compete head-on with global counterparts, leveraging the power of public markets to fuel our ascent.

“Moreover, we envision this movement as a catalyst for the evolution of content creation, wherein the fusion of creativity and capital promises to unlock boundless possibilities,” Lalani continues. 

Dr. Yogesh Lakhani of Bright Outdoor Media Limited points out a few opportunities and disruptions for Indian advertising.

• More Money for Growth: Public agencies can raise more money from investors, helping them grow faster, invest in new tech, and explore new opportunities.

• Tougher Competition: With agencies fighting for investors' attention, agencies will need to offer unique services and partnerships to stand out.

• Mergers and Takeovers: Expect to see more mergers and acquisitions as agencies try to become bigger and more powerful.

• Transparency Matters: Public agencies will need to be open about their finances and business practices to earn the trust of investors.

• Market Ups and Downs: Public agencies will face ups and downs in the stock market, which can affect their strategies and decisions. They'll need to keep investors happy by meeting their expectations.

• Focus on Tech and Innovation: Agencies will invest more in technology and innovation to stay ahead. This could lead to new advertising methods and better ways to understand customers.

Going public offers ad agencies opportunities for accelerated growth, increased visibility and capital while also presenting challenges such as market volatility and scrutiny and competition.