* Ogilvy merger drives revenues
* Telecoms ads dwindling due to sector's price wars
* Advertisers to diversify from "expensive" newspaper ads
By Beatrice Gachenge
NAIROBI April 20 (Reuters) - Kenya's top marketing firm Scangoup is poised to make four acquisitions in the next three years across Africa and set up a new operation to diversify its revenue base, mainly via its advertising unit.
Scangroup, part-owned by WPP, the world's largest advertising group, saw exponential growth in 2010 after acquiring a majority stake in Ogilvy Africa BV and Ogilvy East Africa last year, which gave it access to eight countries.
The firm, which is betting on Ogilvy to land multinational contracts, attributed part of its overall 2010 growth to Ogilvy which accounted for 17 percent of the group's total revenue.
"They (multinationals) are all investing and have African strategies. They have nowhere else to grow so they are now looking at the frontier markets very seriously," Bharat Thakrar, chief executive officer of Scangroup told Reuters on Wednesday.
Thakrar said Scangroup -- the biggest firm in its sector in east and central Africa -- will venture into Nigeria, Ghana, Mozambique and an unnamed francophone country through acquisitions, with the first two buys expected this year.
Angola will be a new operation, said Thakrar, head of the only listed advertising firm in Kenya.
Thakrar did not say how much would be channeled towards the expansion but said the firm had a healthy cashflow.
Scangroup, which runs a communications unit, on Tuesday reported a 54 percent jump in pretax profits to 838.4 million shillings ($10 million) last year. The company's share price jumped 2.7 percent to 56 shillings at 1014 GMT on Wednesday.
Thakrar expressed concern at dwindling advertising by big spending telecoms firms. The sector's spending dropped by 3 percent in 2010 compared with 2009, and this was expected to fall a further 4 percent this year.
"The reason is simple; obviously they are under margin pressure so they have to be more efficient by driving down costs," Thakrar said.
"So they are going to spend less in advertising."
Kenya's mobile operators have been waging price wars that have gradually eroded their revenues.
The financial and fast moving consumer goods companies were seen edging up to become the top advertisers and replace telecoms firms due to rising local consumer demand.
The Kenya consumer has metamorphosed over the years with the emerging middle class being more oriented to a lifestyle that embraces fashion and technology -- a good blend for multinationals such as Nestle, Coca Cola and Procter & Gamble.
Thakrar said inflation, currently at 9.9 percent and expected to hit double digits in coming months, was a big worry because it may slash marketing and communications budgets.
The cost of advertising in media rose 3 percent in 2010 compared with 2009 with the highest levels seen in the print medium after newsprint costs soared, forcing advertisers to seek out more affordable options.
"Clients are now saying print is getting too expensive. We want to get out of print. We want to find other ways of communication that are cost-effective such as digital (social media)," said Thakrar. ($1=83.85 Kenyan Shilling) (Editing by James Macharia and Jon Loades-Carter)