Thabang Skwambane. Picture: Supplied
In a restructuring move other internationally affiliated advertising agency groups in South Africa will watch closely, the Nahana Communications Group, 39% owned by US-based Interpublic Group (IPG), has executed what it calls a deconsolidation deal.
Locally the Nahana stable includes FCB Africa, McCann Joburg and The MediaShop. IPG consists of five major networks: FCB, IPG Mediabrands, McCann Worldgroup, MullenLowe Group and Marketing Specialists. IPG reported a 2.3% decline in net revenue in its first-quarter results in April, but says this is consistent with internal forecasts.
Locally the group has blue-chip status in the commercial communications space and is associated with brands such as Coca-Cola, Absa and Shoprite.
Nahana CEO Thabang Skwambane tells the FM that IPG, despite being content with its position, chose to step down and the agreement was achieved through what he calls an arduous accounting process. This means IPG has eliminated control without affecting its ownership stake. The company remains a South African-owned and operated entity with 55% black ownership.
Skwambane says the driving force behind this move was the changing business landscape in South Africa.
“It has become increasingly demanding and with more black executives emerging in the marketing and media space, it is imperative for us to manage our own narrative, especially in relation to the international brands we carry. This contrasts with our global competitors, which remain under the control of global holding companies.”
While he will not be drawn on whether other local agencies that are part of global conglomerates such as WPP and Publicis Groupe might also look for their eventual independence, there is no question the development will spark huge debate.
Several senior agency insiders have told the FM in recent months that they constantly question the value of such relationships, including onerous financial reporting mechanisms, difficult processes in making appointments and, in some cases, unfair profit repatriation.
Skwambane says while the exchange of money is not an issue in the Nahana deal, the deconsolidation has removed burdensome financial reporting requirements and IT specifications dictated by IPG.
“Though IPG remains a significant shareholder, it has never pressured us to pay substantial dividends. Our South African shareholders, on the other hand, demand returns, and we intend to deliver through a dividend deal. We now have the freedom to manage our own business. For instance, we no longer must go through IPG’s M&A department when considering new purchases.”
IPG’s reduced control has not resulted in a decrease in representation or any change to ownership percentages. It continues to hold 39% of the group’s shares; however, its effective control is diminished.
“The decision was mutually agreed upon, and we have maintained our valuable partnership. We are still committed to maintaining the brands we have, and our operations have not been negatively impacted,” says Skwambane.
He says the deconsolidation has significantly affected Nahana’s strategic outlook. “We can now explore local and continental acquisitions without having to seek approval from IPG. The biggest change, however, lies in the effective control that IPG once held. Its influence has been curtailed, leading to increased accountability on our part.”
Skwambane says the change has had a positive effect on staff, relieving the pressure of reporting. “We now control our reporting process, making it more seamless. The freedom to control our narrative has allowed us to expand significantly in performance media [buying and planning]. We have also seen an opportunity to have a more South African approach to our work.”
Skwambane says Nahana is evaluating potential changes at board level as it considers expanding and regionalising operations. “With many emerging-market contractions globally, this seems like the right time to explore what’s available and how we can grow.”
There are of course downsides to the new arrangement. “Though we have lost some benefits from being part of the IPG network, we still get to be involved in global projects and have access to the latest tech tools. However, we now have to pay for these ourselves. On the upside, we can be selective about what we bring in and what we do not, picking only what is relevant for our South African operations.”
This will need careful adjudication. Responding to the explosion of generative artificial intelligence (AI) solutions, Huge, part of the IPG group, has launched a concept called Huge Live that analyses billions of diverse data points from numerous sources and discovers hidden trends and insights in real-time.
IPG says it will outmanoeuvre competitors and remain relevant in culture. It has already been deployed for client use in various industries, from the automotive sector to toys, entertainment and technology, to uncover industry white space, surface audience insights, profile priority segments and define new paths towards growth. Given that South Africa is only at the beginning of its AI journey, access to a tool such as this is gold and Nahana will be aware of it.
Skwambane says his clients are being informed of the change, which will have no effect on day-to-day operations. “This deconsolidation sets us on a path towards more autonomy, allowing us to shape our destiny as a South African company. As a big operator in Africa, we see this as a significant step towards becoming an African company with a truly African view.”
This article originally appeared in the Financial Mail.
