ANALYSIS - Is Martin Sorrell preparing S4 Capital for a big 'unconventional' play?

Chris Pash
By Chris Pash | 29 March 2021
 
Getty

Sir Martin Sorrell is looking at backing his pure-play digital advertising group S4 Capital into a bigger technology group.

It is one possibility to further fast track growth in a company already moving at a machine-gun-like pace with acquisitions.

S4 Capital is also being fueled by an acceleration to digital advertising during the pandemic.

“I think we're fortunate to be in the sweet spot,” Sir Martin told investment bank analysts during a briefing.

The company has a market capitalisation of about $US3.7 billion (£2.726 billion) and 4,400 people in 31 countries after two years of operation.

Like-for-like profit for the year to December was up 19%, eclipsing the results of the big global advertising companies. Gross profit was £295.2 million up 72%. 

American business tycoon Warren Buffet used to argue that ad agency Ogilvy was a royalty on the growth of globalisation.

“I think you have to look at us as being a royalty on the growth of digital transformation and disruption, certainly on the marketing side of the equation,” says Sir Martin.

“And so we have a secular tailwind and I think cyclically it's stimulated by strong GDP growth. There's a strong correlation between digital spending and GDP too.”

Releasing full-year results, the company told investors it had a "healthy merger" pipeline in data and analytics, content and digital media.

However, Sorrel later said: “Don't think ... that we necessarily would then end up doing exactly in the future what we'd done before.”

By that he means there is more than one way to rapid growth.

“One of the things you could do is you could look at a bigger company,” he says.

He named New York stock exchange listed Globant, a digital transformation group, as an example.

S4 Capital had grown via sales and marketing. Globant would add a technical focus as a way to growth.

“We would roll our equity, just like we've done it with other people, into a bigger operation,” says Sorrell.

“It would all depend on the social issues as well .. who does what to whom.

"I just urge you not to think that we are continually looking at adding companies … to our content practice. We may be unconventional.”

Scott Spirit, S4 Capital’s chief growth officer, told the analysts there's plenty of mergers and acquisition activity in the market.

“I think we saw an uptick of activity in Q4 and that's continued into Q1 of this year,” he says.

“There's plenty of deals in our pipeline. Lots of companies we're talking to. And some very interesting ones.”

But the big advertising holding companies are absent.

“What we're actually seeing is significant interest from private equity,” he says.

“That's direct private equity looking to invest into some of these agencies or it's private equity funded agencies who are looking to execute roll-up strategies.

“So that's probably our primary competition.”

 

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