The news that Spa Advertising — Thailand’s last locally-owned top-10 agency — wants to sell to a multinational network stands out at a time when the new Government is moving to protect its national interests. But being bought, observers point out, hasn’t harmed Thailand’s other recent sellers.
“Thailand is unique in that both independent shops and network agencies are strong and creative,” says Witawat Jayapani, CEO of Creative Juice\G1, which sold to Omnicom in 2002, and has since climbed steadily up the global creative rankings. “Thai agencies need to learn from the outside world, so (we) need foreign partners. Our network support has made us stronger, won more business and more awards.”
However Spa is not offering a complete sale. A maximum stake of 51 per cent has been tabled, and chairman and CEO Kitti Chambundabongse insists the company will remain locally-run, preserve its culture and keep its name.
But how attractive a target is Spa? A buyer will gain access to local accounts such as Singha beer and Siam Commercial Bank and a handful of international brands, such as Toyota and Toshiba. It will also win ties with Spa’s partners within its holding company, Future Communications Group, which comprises 20 advertising, media and research companies in Malaysia, Hong Kong, Indonesia Cambodia and Myanmar.
But Spa’s most prized assets are clients owned by the consumer goods maker Osotspa, Spa’s parent company (which is also set to sell to a foreign partner). Combined, brands such as M150 and Shark, popular energy drinks, make up US$14 million in billings — a third of the agency’s income.
“To be a viable acquisition, a holding company would have to do a deal with Osotspa to ensure its business would stay for three years, at least,” says a head of a networked agency who considered making an offer. “But Spa’s business is too narrowly-based. (We) looked at it on the strength of its local clients, but in the end there wasn’t enough to tempt us.”
The agency’s finances are relatively healthy, with profits up 10 per cent in 2005, when the agency last filed its accounts. But few see Spa’s creative product as a compelling reason to buy. “Spa is stuck in a place where it is neither big enough to compete with the networks, nor creative enough to outgun the boutiques,” says one rival.
Kitti admits that winning awards has not been a priority. “For the past five years my focus has been on restructuring the group after the [Asian financial] crisis and on creativity that sells.” He points out that Leo Beer and M150 dominate their markets while Toshiba and Toyota have been clients for over 15 years.
Kitti , who, as a well respected industry figure is himself a selling point, says he is in talks with interested parties from Japan (likely Dentsu or Hakuhodo) and the UK (read WPP). He expects to have struck a deal by April.
There are, however, other local shops left to buy. SC Matchbox is the most similar to Spa in terms of size and ownership (its parent is Shin Corp, owned by Singapore’s Temasek, but the agency is still considered local) while Jureeporn Thaidumrong’s JEH United, though tiny, could be worth buying for its creative firepower alone.
A bigger concern in Thailand is not foreign companies buying local shops, but the dearth of young talent emerging to run them.
“The economic meltdown of 1997 saw a lot of good people leave the industry, which is why there is so much inter-agency poaching,” says Mark Ingrouille, CEO of McCann Worldgroup Thailand. “The big challenge the industry faces is where to find the next generation of local management talent.”
