In a move that is likely to reshape the advertising and media business in Africa, Scangroup is set to buy Ogilvy East Africa.

This will see Scangroup buy out huge chunks of Ogilvy & Mather’s continental business, of which Kenya is the biggest market. Scangroup is an associate company of the global communication agency network WPP and one of sub-Sahara Africa’s largest communications groups.

According to insiders, this deal is valued at $6.1 million (Ksh460 million) and it will be partly in cash ($1 million) and the rest in Scangroup shares listed on the Nairobi Stock Exchange.

It will dilute existing shareholders by 5.95 per cent and increase WPP’s holding in Scangroup to 27.5 per cent.
It will also greatly simplify the complicated shareholding structure of WPP’s holdings on the continent, which is currently held in several companies registered in tax-friendly countries.

Though this deal is tiny compared with the global merger and acquisitions that Sir Martin Sorrell, the man who transformed WPP, has used to transform the advertising business around the world, it represents a significant vote of confidence in the prospects of marketing spending on the continent.

For the first time, it seems that both Madison Avenue — the Mecca of the advertising business in New York — and the City of London have started paying attention to the fact that marketing and communications is going to be a major growth area as multinationals target Africa’s fast emerging middle class.

As African economies start working as blocs, companies are increasingly starting to seek agencies that can operate across multiple markets.

This deal also creates a winner in Koome Mwambia, whose payout for swapping 22 per cent of his stake in Ogilvy East Africa is valued at $1.33 million (Ksh100 million) of which $1.14 million (Ksh86 million) will be paid in 3 million shares of Scangroup, which closed at Ksh28 ($0.37) last Friday, and the rest will be in cash.

Mr Mwambia will be paid 20 per cent of the deal in cash, while Ogilvy South Africa will get 10 per cent cash. He will rank as the third largest owner and executive at Scangroup, after WPP and founders Bharat Thakrar and Andrew White.

This deal represents the coming of age of a new generation of Kenyan stockmarket millionaires.
Mr Thakrar’s stake in Scangroup is worth Ksh1.3 billion or $17.3 million and Mr White’s stake is worth Ksh650 million or $8.65 million.

With this deal, Scangroup’s fortunes are expected to rise both from an owners’, management and strategy point of view.

With WPP’s 27.5 per cent stake just a whisker behind Mr Thakrar’s 28.53 per cent holding, it is expected that at some point, Sir Martin may become interested in increasing his company’s stake to turn Scangroup into a subsidiary (51 per cent) that can contribute meaningful earnings to its global pot.

From a management point of view, swapping Mr Mwambia’s stake solves a key problem that ruins many acquisition. This is how to hold on to talented employees and founders.As a major shareholder, Mr Mwambia’s interests are now tethered with the group, at least for a while.

He is credited with having helped turn around the fortunes of Ogilvy at the turn of the century after he joined from Kenya Airways to help set up Ogilvy PR, at a time when the Kenyan economy had hit an all-time low.

He was rewarded by swapping his 49 per cent holding in Ogilvy PR with a huge stake in Ogilvy East Africa. He was also installed the boss of the firm. In the past one year, Ogilvy has won major pitches including KPLC’s multimillion-shilling corporate transformation account and the media buying business of Zain, the pan-African mobile firm operator that was sold to India’s Bharti.

In various forms, the company has also acted for France Orange and Essar’s Yu.
Both Mr Thakrar and Mr Mwambia say that the logic of the deal has mainly been influenced by the shifting fortunes of the advertising and PR industry, which mirrors the manner in which multinational firms are conducting business in Africa.

The consolidated business to run under the Ogilvy Africa banner will help both firms to pursue continental expansion without duplicating costs and efforts in small media markets. Already, Scangroup and Ogilvy are operating in many overlapping markets where they serve the Coca Cola and Zain media and advertising accounts across Africa.

Many clients are also seeking integrated marketing solutions that are rolled out by one agency network globally or regionally in order to avoid dealing with multiple agencies.

At the conclusion of the deal, Scangroup will have in its portfolio some of the largest multinational consumers brands such as Coca Cola, Unilever, Reckitt Benckiser and GSK.

The banks under its umbrella include Barclays and Standard Chartered. It will also service Safaricom and Zain’s continental business.Young & Rubicam brands, an advertising agency with operations in Kenya is also owned by WPP.