Bargain hunters are sniffing around Martin Sorrell's S4 Capital, the pure-play digital advertising group now feeling the pinch from a downturn in the technology sector.
Multiple reports say S4 has received an offer from Stagwell, a global marketing and communications group founded in 2015 by Mark Penn, a former chief strategy officer of Microsoft.
Sir Martin, who founded WPP, the world’s largest advertising group, before starting S4 in 2018, reportedly rejected the bid.
"We received nothing credible," Sorrell said in an interview.
“One proposal, made last fall, was worth nearly $700 million, some of the people said," said the Wall Street Journal. "At least one private-equity firm also expressed some interest in acquiring S4.”
The problem is that S4 Capital is under stress from a decline in ad spend by technology companies, sending the company's share price, and market capitalisation, down.
Buying the shares at the bottom of the market, if you believe that S4 will recover, would be an opportunity for those with cash.
At last report the market valued the company at GBP 306 million. In September 2021, the company hit a market capitalisation of more than GBP 5 billion.
The shares are currently trading at 52.55 pence, up from a low of 36.94 but down from a 12 month high of 173.50.
A year ago, S4Capital posted revenue of £1.07 billion, a rise of 24% on a like-for-like basis, for the year to December.
Last week the company reported net revenue was down 4.5% like-for-like to £873.2 million in the year to December, reflecting challenging macroeconomic conditions and cautious spending from clients.
This compares to four strong years: like-for-like net revenue growth of 44% in 2019, 19.4% in 2020, 43.7% in 2021 and 25.9% in 2022.
The company cut headcount 13% to 7,707 and says it continues to manage costs tightly, given the “uncertain” market outlook.
Most global advertising groups have reported a difficult year with clients in the technology sector. Dentsu posted 2023 growth at -4.9%, WPP a "resilient" 0.9%, IPG 1.7%, Omnicom 4.4% and Publicis Groupe 6.3%.
But S4’s exposure to tech is greater.
“We had a difficult 2023 reflecting challenging global macroeconomic conditions, fears of recession and high interest rates,” said Sir Martin when releasing full year results.
“This resulted in client caution to commit and extended sales cycles, particularly for larger projects, a difficult year for new business, as well as spend reductions from some regional and smaller client relationships.”
He said 2024 is likely to be weighted to the second half, aided by lower interest rates and the impact of artificial intelligence initiatives.
“We remain confident that our talent, business model, strategy and scaled client relationships position us well for above average growth in the longer term, with an emphasis on deploying free cash flow to boost shareowner returns,” he said.
Growth rates in digital media and transformation markets remain above those of traditional, analogue markets, the company said.
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