In a sector that’s largely unorganised and dominated by family-run set ups, private equity and outdoor media owners are becoming strange bedfellows. But there’s also a catch — currently, most of the funding is going into newer players with interests beyond conventional media.
Recently, Warburg Pincus invested about Rs 276 crore in the out-of-home (OOH) advertising company Laqshya Media.
UTI Venture Funds, which is largely credited with identifying the sector, also invested an additional Rs 25 crore in the company taking the total investment to Rs 301 crore. The company had picked up a 15% stake in Laqshya for Rs 45 crore in October 2006.
Earlier this year, another OOH media firm received funding to the tune of $50 million from Goldman Sachs and Lehman Brothers.
Media reports now suggest that ICICI Ventures, Lehman and Goldman Sachs have lined up plans to pick up around 15-20% stake in the Bangalore-based OOH advertising firm Serve & Volley for Rs 250 crore.
Industry observers say there are a couple of reasons why private equity firms are investing in Laqshya.
One reason being Laqshya is building and expanding a strong presence in India and also expanding its footprint in countries like Sri Lanka, UAE, Africa and South-East Asia.
“Long-term contracts are being put into place. Bangladesh could be next on our cards. Laqshya’s air-conditioned bus shelters, which it set up through its subsidiary Right Angle Media in Dubai, is a quantum leap in technological design by OOH companies. This is making Laqshya attractive to investors,” says an industry observer.
Digital media assets are also a key. A year back, Chinese OOH company Focus Media and private equity player 3i invested in Ishan Raina-led OOH Media, which specialises in digital out-of-home television screens. “Targeted at the SEC A audience located in technoparks and industrial estates, we’ve made OOH audio visual and have mapped the existence of our TG in a manner similar to his daily schedule,” says Raina. With 4,500 screens already in major cities, the company plans to invest in about 30,000 screens in the next 2 years.
Ismail Dabhoya, senior VP, finance and commercial, Adlabs Films Ltd, said capital investment is especially going into new age media, signages in malls and multiplexes.
Gaurav Deepak, MD, Avendus Capital, says, “Its an exciting business to be in. Private equity players can expect at least 25-30% returns on investments over a period of 3-4 years.”
The digital nature of most of these OOH media assets means effective inventory utilisation, which allows multiple advertisers. It’s made entrepreneurs like Gaurang Shah, CEO, Digital Signage Networks (DSN), also jump on the bandwagon.
The start-up is funded by Sequoia Capital and has a star-studded board of directors including the likes of Sam Balsara (chairman and MD, Madison Communications), R Ramaraj (ex-CEO and founder of Sify) and K P Balaraj (MD, Sequoia Capital).
“It’s a cash-rich business and private equity investors want you to generate cash quickly. Anything beyond conventional advertising on billboards is welcome for many of them. Focus areas such as street furniture are exciting for them, where there is less competition but more entry barriers,” Shah said.
The rub-off of these investments is being felt by unorganised players, most of whom are now entering the race for high-valuations.
Noomi Mehta, chairman and MD, Selvel Advertising, says the race for high valuations could result in overbidding. “In the race for higher valuations, bids for bus shelters, which was earlier in the range of Rs 7,000, have shot to Rs 4 lakh.”
Avendus Capital’s Deepak enlists government’s strict regulatory environment and non-creation of enough media assets among possible risk factors in this business.
Sam Balsara, chairman and MD, Madison Communications, further points out the need to realise that while one may be bullish about the sector, but “it still comprises only 7% of the whole advertising pie of Rs 20,000 crore.” “OOH companies will have to decide whether they chase revenues or valuations. Ultimately, a valuation that is not backed by numbers is not sustainable,” he said.
Source: DNA India