When Sir Martin Sorrell resigned from WPP plc amid allegations of misusing company funds, the advertising industry was left with mouths agape. After all, this was the company that Sorrell had transformed from a manufacturer of wire shopping baskets into the largest PR group in the world.
Many assumed that Sorrell, 73, would see this as an opportunity to retire. But within 48 hours of stepping down, he was already taking steps to build a new advertising empire through his latest venture: S4 Capital. Along with £40 million of his own cash, Sorrell established S4 with the help of investors who originally promised over £150 million. But that isn’t enough for everything that he has in mind for this new venture. He’s spent the past several months cultivating relationships with numerous investors in hopes of building a £1 billion war-chest. To add further to the intrigue, one of S4’s most recent financial backers is Crispin Odey, the founder of Odey Asset Management and a major shareholder in WPP. With £1 billion in play, Sorrell would have the flexibility to acquire all of the talent he needs to turn S4 into a major player in the advertising and PR scene – and it would put him head-to-head against his old employer, WPP.
Following the same playbook that he used in the mid-eighties, Sorrell began a reverse takeover of Derriston Capital (an investment company that originally focused on medical technologies) this past May. After renaming it S4 and taking the reigns as executive chairman, he called long-time friends Rupert Walker and Paul Roy as directors. Within days they were already looking to put the capital they had raised to good use.
S4’s first acquisition is MediaMonks, a digital production company based in the Netherlands. Founded in 2001, they’ve grown into one of the largest digital production companies in the world, employing hundreds of people in offices around the world and producing everything from websites to games to film. Some of their biggest clients have been advertising agencies looking to move into new media marketing.
Before S4 finalized their deal with MediaMonks, a number of other major advertising firms were considering bids – including WWP. But in the end, S4 was able to buy MediaMonks for €300 million. Current projections put MediaMonks’ EBITDA this year at around €20 million which means S4 paid a multiple of 15x EBITDA. And though this number is high, it isn’t off-the-charts-high for a high-growth specialty business like MediaMonks.
S4’s acquisition of MediaMonks signaled Sorrell’s desire to take his new business in a different direction from where WPP has been headed. Rather than slogging along in bureaucratic red-tape like most legacy advertising agencies, Sorrell hopes to keep S4 agile and responsive to the ever-changing business landscape. He’s described it as a “new era, new age.”
But where else could this new era lead? Some are speculating that S4’s next acquisition could be Be Heard Group plc, “a digital marketing group operating at the intersection of marketing, technology and e-commerce.” Like MediaMonks, Be Heard was established as a response to the traditional marketing paradigm. They’ve focused on solving problems with forward-looking, digital solutions.
Current estimates project that Be Heard will bring in between £3 and £3.3 million of EBITDA this year. If S4 were to pay the same multiple for Be Heard as they did for MediaMonks, the final price would fall around £49.5 million. But S4 had to fight off several competitors in order to get MediaMonks. That caused the selling price to rise higher than it otherwise would have been. If there’s less competition for Be Heard, as their likely will be, then it could end up going for a multiple of 10x EBITDA. This would leave the final sales price closer to £30 million. With Be Heard’s market cap sitting at £11.19 million, now would be the perfect time for S4 to pounce since a £30 million price would equate to a 2.88p per share cost.
To add one more factor into the mix, Sorrell already has ties to Be Heard. One of their major stockholders, Nigel Wray, was the friend who recommended Sorrell establish S4 by taking over Derriston Capital, a company in which Wray was also invested. He’s also involved in Dowgate Capital, S4’s brokerage firm. With all of these connections, it isn’t a stretch to assume that Wray may also be pointing Sorrell in the direction of Be Heard since its business model seems to align so well with S4’s.
Nothing has been announced yet concerning this potential acquisition. But all of the pieces seem to be in place for S4 to acquire Be Heard as Sorrell seeks to re-establish himself as the reigning king of the advertising and PR world.