By Joyce Lee
Innocean Worldwide Inc, the in-house advertising agency for Hyundai Motor Group, chose bankers on Thursday to manage an initial public offering that it hopes enables it to emerge from the shadows of the conglomerate and better compete for global clients.
Set up nine years ago to handle global advertising for Hyundai Motor Co and its Kia Motors Corp unit, Innocean is South Korea's No.2 ad agency. An August stake sale to investors including the private equity arm of Morgan Stanley valued it at 1 trillion won ($956 million).
Like the country's biggest media agency, the Samsung Group's Cheil Worldwide Inc, Innocean has the ambition and necessity to expand beyond a home market that accounts for less than 2 percent of global ad spending, and could use the IPO to reposition itself as more than just another South Korean conglomerate ad agency, experts said.
"What Innocean has to do is to be seen having nothing to do with its history," said Richard Pinder, UK and international CEO of U.S.-based ad agency Crispin Porter + Bogusky, and former chief operating officer of French giant Publicis Groupe's Publicis Worldwide.
"The most important thing is to be seen to be free."
South Korea's roughly $9 billion advertising market is dominated by affiliates of family-controlled conglomerates, or chaebol, that handle in-house business, including Cheil, Innocean, the LG Group's HS Ad and the Lotte Group's Daehong Communications Inc.
Innocean chose Woori Investment & Securities, Deutsche Bank, Citigroup and Daewoo Securities to advise on the IPO, two sources with direct knowledge said. The sources declined to be identified because Innocean has not made an official announcement.
Innocean is eyeing a potential listing in 2015, a company spokeswoman said.
"The local market is saturated. Innocean plans to use the IPO to bolster transparency and credibility in order to become one of the top global agencies," she said.
Moderate success
As the respective in-house agencies for export powerhouses Samsung and Hyundai Motor, Cheil and Innocean built networks from which they have sought to develop non-group global business, with moderate success.
Domestically, Innocean lowered the portion of Hyundai Motor-related business to 43 percent as of 2013 from 100 percent in 2005, the spokeswoman said.
However, of Innocean's total global sales, some 70 percent is business from Hyundai Motor Group affiliates, analysts said. Its overseas clients include Turkish Airlines and U.S.-based NRG Energy.
"Ever since 2005, they have been aggressive. They set up a European hub in Frankfurt and hired pretty senior advertising people to run it. Some of their creative work is quite interesting, although ask around in Europe it is still going to be seen as a Korean chaebol agency," Pinder said.
Innocean's biggest shareholder is Chung Sung-yi, the eldest daughter of Hyundai Motor Group chairman Chung Mong-koo.
"It has a lot of outside business, unlike most other companies that are almost solely in-house agencies of conglomerates," said a person at one of Innocean's private equity investors, declining to be identified, citing company policy.
By comparison, Cheil Worldwide's revenue from Samsung affiliates is about 70 percent domestically. About 80 percent of Cheil's overseas sales come from Samsung Electronics Co Ltd, an exposure that has helped drag down its shares by more than 20 percent since the world's biggest smartphone maker said early this month it expected to post falling quarterly profits.
Cheil set up its first overseas branch in 1988 and currently has offices in 40 countries outside Korea compared with Innocean's 15.
"Cheil and Innocean need to build up clients and references. Right now, foreign clients are more likely to ask 'Who?' when they introduce themselves," Hyundai Securities analyst Han Ik-hee said.
