MNCs look below the line for Indian investment

<P>If the 1990s saw many Indian-grown advertising agencies sell out to the MNC networks and holding companies, the last couple of years have seen the action shift below-the-line. The consensus view is that above-the-line targets are now thin on the ground; some estimate that as much as 96 per cent of this space is now MNC controlled. </P> <P>So recent acquisition activity should surprise few. Omnicom has moved to address a relatively weak Indian offering by buying a majority stake in marketing services player Gotocustomer. Meanwhile, last year, Publicis bought Solutions Integrated Marketing and Burson-Marsteller acquired the highly-valued Genesis PR. </P> <P>Industry sources, furthermore, expect more consolidation in this area. Already, the market buzz points to other attractive targets, including agencies such as DIREM and Madison Outdoor, and PR agencies like Hanmer & Partners, Corporate Voice and Blue Lotus.</P> <P>MNCs, of course, are keen to establish a solid foothold in India, under pressure from both clients and shareholders hungry for news of expansion. Agencies with a strong market position - such as Ogilvy, Lowe and Leo Burnett - have opted to roll out their own below-the-line divisions. But for a range of less established contenders, the temptation is to buy, despite a dissatisfaction with current valuations; an increasingly common gripe among regional chiefs being that Indian agencies have an inflated opinion of their own value.</P> <P>"Investors are asking themselves some tough questions as they look at India, but one question is clearly top of the list: how do you reconcile seller expectations against reasonable valuations?" asks Edelman regional president Alan VanderMolen, whose agency formed a joint venture with a local Indian public relations shop last year.</P> <P>Wunderman India CEO Rajat Sethi agrees, noting that a paucity of relevant data is undermining the entire process. "The kind of due diligence required is not done, as the industry is highly unaudited and there is no market share data available," says Sethi, who feels that pressure from clients is leading agencies to take the fastest route towards establishing a presence in India. "The short-term need is for a specific competency and going forward, they eventually look at competencies in other areas".</P> <P>Srikant Sastri, MD of Solutions Integrated, a ten-year old marketing services company now part of the Publicis Groupe, disagrees - believing that MNCs have a "systematic process" in place. </P> <P>"Valuation is usually done either looking at the profit after tax, profit before tax, and in some cases, Ebitda," he explains. "The only reason for a disconnect may be if the Indian company has its own notions of the company's valuation - they may quote a higher price because they are unaware of how valuation is done."</P> <P>Although the below-the-line industry in India is relatively small, it is growing at around 30 per cent per annum - twice the growth rate for traditional mass media advertising. But are MNCs best placed to harness this growth by buying? Opinions are mixed.</P> <P>Gotocustomer executive chairman Manpreet Singh, unsurprisingly, is a believer - noting that his own agency's deal with Omnicom will ensure "access to clients, technology, better infrastructure and management and thereby increase our customer base, while they can use our developed capabilities, services and platform".</P> <P>Lintas Integrated Marketing Action Group director Ashish Bhasin, however, notes: "MNCs should ideally look at growing the business here rather than buying an established business - the culture of each business is different." </P>