|WPP's Martin Sorrell, WPP India's
Ranjan Kapur and Grey's Nirvik Singh (L to R): Winds of
when you thought the $6.76-billion Sir Martin Sorrell-controlled
WPP couldn't get any bigger in India-or perhaps didn't need to-it
went ahead and acquired Grey Global. By outbidding Hellman &
Friedman, a US private equity firm, and French ad group Havas, WPP,
with its $1.52-billion acquisition, will have an even more dominating
footprint in the Rs 8,600-crore Indian industry.
Or will it? As Nirvik Singh, Grey Global Group's
Chairman for South Asia, sees it, his Indian operations won't quite
be an addition to WPP's marquee agencies in the country-JWT, O&M,
Group M, Rediffusion DY&R, Contract, Everest, Bates, Equus Red
Cell and RMG David, as yet. "Operationally there will be no
change at all and I will continue to report to Grey's Chairman and
CEO Edward Meyer as before," says Singh.
Yet, it's unlikely that it's going to be business
as usual for Grey India. For starters, Grey India has already switched
on to the no-poaching clause effective within WPP group agencies
in India. "That effectively rules out almost half the market
for hiring new talent for us," says Ashutosh Khanna, Chief
Operating Officer, Grey Worldwide India. What this means is that
competing agency networks in the stables of IPG (Lowe, McCann Erickson,
FCB Ulka and Enterprise Nexus), Omnicom (Mudra Communications, RK
Swamy BBDO and TBWA Anthem) and Publicis will become the only hunting
ground for the 300-employee strong Grey, which has been growing
very aggressively over the past five years, and is still hungry
for more people. And whilst reporting structures at Grey would remain
very much the same for the next two years-till the time Meyer remains
in the saddle at Grey Global-going forward the hitherto-stand alone
agency will have little choice but to exist as a part of the WPP
matrix in India.
"Well, that should not be a problem, given
Grey India's higher gross margins compared to JWT or Contract,"
says a senior Grey executive. "But yes, it is slightly lower
than Ogilvy & Mather India, which has a higher share of non-advertising
business in outdoors, public relations and the like." How Sorrell
chooses to benchmark Grey globally and in India, therefore, remains
an open issue for Grey.
| WPP, with its $1.52 billion acquisition,
will have a dominating footprint in the Indian industry
"WPP believes in the policy of compete
and cooperate. So while companies in its fold reap benefits from
synergies and economies of scale especially in areas like procurement,
individual autonomy is maintained," says Ranjan Kapur, Country
Head of WPP India. Whilst Grey officials point to Sorrell's intent
for keeping Mediacom's (Grey's media outfit) identity intact, it
is also a fact that WPP wants Mediacom to explore opportunities
to leverage Group M's media buying scale. How this balance is spelled
out by Sorrell will determine Mediacom's future, though not immediately,
but surely once the takeover formalities are consummated, most likely
in the first half next year.
The brightest jewel in the Grey crown, internationally,
is Procter & Gamble, a client of more than 40 years, and which
contributes over 10 per cent to Grey's topline. But in India, Grey
holds just around 5 per cent of P&G advertising business, with
just two brands in Pantene and Pringle, with other global roster
agencies such as Saatchi & Saatchi taking care of more bigger
brands (in India) in Tide, Ariel and Head & Shoulders. Why,
even the media business of P&G India is with Madison Communications,
and not Mediacom.
| Reporting structures at Grey would remain
the same for the next two years, but going forward the agency
will have little choice but to exist as a part of the WPP matrix
But with reports that Sorrell had taken the
blessings of P&G for going after Grey, he would surely like
the consolidation logic to stay, or play out in markets where it
hasn't. So as and when other bigger P&G brands internationally
aligned to Grey, such as Ivory and Hugo Boss, enter India, the Indian
agency is bound to net them. And buying synergies of Group M that
Mediacom is bound to leverage sooner or later, will make the case
for P&G to rethink on its media business.
The Grey Worldwide India of today is reckoned
by some to have clearly lost the creative edge of late-founder Ravi
Gupta's Trikaya of the 1970s and 1980s or Trikaya Grey of late 1990s.
"Grey is no longer the front-runner it once was and being part
of an international group known to be strict taskmasters may actually
be a blessing," says a marketing manager with a leading FMCG
company. Roughly 95 per cent of Grey's Indian business has been
won via hard-nosed pitching, and hasn't walked in through international
alignments. Consolidation into new parent WPP could provide Grey
India with the best of both worlds.
Billion Dollar Target?
GECIS is up for sale. But does the $400-million
entity deserve the valuation being bandied about?
|GECIS' Pramod Bhasin: Over-priced?
Indian businesses are worth a billion dollars. Even fewer of them
have been up for sale. And even fewer still have attracted so many
takers. The latest lot to throw their hat into the ring in the proposed
sale of GE Capital International Services (GECIS), GE's BPO arm
in India, is a consortium of prominent private equity investors.
That's of course in addition to the curiosity the $400-million (Rs
1,840-crore) entity, valued at over $1 billion (Rs 4,600 crore),
has reportedly generated within other industry players like Convergys,
Hewlett Packard, Wipro, Infosys, TCS, and HCL Technologies, among
others. Advisor to the sell-off Citigroup won't be complaining.
Well placed sources say GE is trying to conclude
this deal before December 2004. If every company with an interest
in the BPO industry is vying for GECIS, there's good reason for
that: The biggest amongst those is the company's huge ground-level
infrastructure of over 13,000 people located in four Indian cities,
carrying out a range of 450 processes for 30 businesses in the US,
Europe, Japan and Australia. GECIS' other global facilities are
located in China, Mexico and Hungary, but India accounts for three-fourths
of GECIS' total revenues. "We are seeing a healthy interest
from both companies and private equity investors and I would say
we are in an enviable position with double-digit growth right now,"
says David Jensen, Spokesperson for GECIS.
| The rationale for strategic buyers is fairly
straightforward: The GECIS acquisition would provide a solid
ongoing client with established on ground infrastructure
If the valuation of the last big BPO deal-IBM's
acquisition of Daksh, which was valued at 2.5 times revenues-is
a benchmark, then GECIS should be valued in the $1.1 billion region.
There is however a major difference between the two deals. While
Daksh was a third-party BPO company with multiple clients and a
strong sales and marketing presence, GECIS as a captive BPO has
been focussed purely on GE businesses and is worth picking up purely
for its ground-level infrastructure. "The business is definitely
overvalued under the circumstances and the biggest issue is one
of continuity; the valuation is pegged on continuing GE business,"
says one investment banker. Jensen, however, clarifies that GE does
have external clients in diverse areas like banking, transportation,
oil and gas, and retail, but isn't willing to name them. But he
will tell you that a "majority of the revenues was generated
through GE business".
The rationale for strategic buyers (players
already in the business) is fairly straightforward: The GECIS acquisition
would provide a solid ongoing client with established on-ground
infrastructure. It's even more interesting from the private equity
investor viewpoint where GECIS could present itself as an opportunity
to buy a captive BPO and turn it into a full-fledged third-party
play with multiple clients-the model followed by Warburg after its
purchase of WNS, the British Airways subsidiary that is now a Warburg
Pincus-owned company with multiple clients and revenues of $97 million,
the highest in the third-party BPO business. GECIS clearly is an
attractive target, but the question most bidders are wrestling with
is: Is it worth a billion dollars?
Balls, Mr Ambassadors
Should telecom operators dump the flannelled
fools after the team's recent dismal showing?
star cricketers to sell your brand is not the freshest idea in the
advertising and marketing world-not particularly when your team's
become a favourite whipping boy and is unable to reach the last
four in tournament that boasts only six teams of some substance.
But as Atul Sobti, Executive Director, Hero Honda Motors says: "Cricketers
sell, so why tamper with the formula."
There has to be some truth in that inanity.
For, despite the underperformance (and non-appearance too) of these
icons, Indian telecom companies for their part have embraced these
losing cricketers with unabashed delight. How the ambassadors have
fared is easy to figure out (remember the third loss in a row to
Pakistan last fortnight in the ICC Champions Trophy-ouch), but what's
surprising is that there's actually a co-relation between the mascot's
high-jinks and brand performance. Consider:
Airtel-Sachin Tendulkar: No, Airtel doesn't
need shock therapy or more power to its elbow. Airtel renewed its
contract with Tendulkar in mid-2003, after he had enjoyed a successful
World Cup. However, Tendulkar's prominence in the team began to
wane around the same time, and not surprisingly Airtel also saw
its prominence fade as Reliance took over the mantle as the number
one cell operator in the country.
Hutch-Rahul Dravid: Hutch started using Dravid
around the 2003 Cricket World Cup to promote their value-added services.
Just as the Bangalorean batsman has managed to prop up the team
with his consistent performances, Hutch has consistently delivered
better value-added services to consumers.
Reliance India Mobile-Virendra Sehwag: Sehwag
ki Maa became a rallying cry across the country when rim launched
its services in 2003. Just like the batsman, the service had an
explosive start, and overhauled Airtel as the number one cellular
service in double quick time. However, it seems that rim dumped
Sehwag some time ago, just before he forgot how to bat. rim, on
the other hand, is still adding subscribers at frantic pace. Talk
about timing (rim's not Sehwag's).
Tata Indicom-Saurav Ganguly and Irfan Pathan:
Ganguly is more Tata (staid, hands-off involvement, past retirement
age, etc.), and Pathan is more Indicom (the new kid on the block).
A safe strategy, but the Tatas need to dump one of them soon. It
can't of course be Pathan.