Why Sorrell's S4 Capital fought off rivals to make MediaMonks its first acquisition
Sir Martin Sorrell has kicked off his new venture, S4 Capital, with the acquisition of Dutch digital production company called MediaMonks. It marked his first acquisition since taking the reins at S4 following his abrupt departure from WPP earlier this year.
Sorrell's former business WPP has also tabled an offer, with the rival bids coming just two months after Sorrell's dramatic departure after 33 years at the helm. His former employer has protested that his bid for the company is "unlawful" and in breach of his confidentiality agreement.
“This represents a significant step in building a new age, new era, digital agency platform for clients,” said now senior Monk Sorrell on the purchase. “MediaMonks’ roots are totally in new media, and data, content and technology. Our next moves will be to build this platform further and to add meaningful data analytics and digital media buying. The company will be a unitary one with MediaMonks as its core.”
MediaMonks leaders said they had “bought in” on Sorrell's reputation in the hope it can bring the company to the next level.
This week, Sorrell secured significant funding for his new M&A vehicle, which he hopes to turn into a serious marcomms player, when S4 Capital announced a fresh £100m investment on top of a £50m in debt funding.
This bold new venture will reportedly "be totally different to anything that we saw at WPP,” according to Sorrell, who describes it a "new era, new age" business.
What is MediaMonks?
The group is a digital production company based in Hilversum, North Holland. It was founded in 2001 by Wesley ter Haar and Victor Knaap and has additional offices in London, Los Angeles and São Paulo. It boasts around 600 staff, all working in small project teams assembled across offices when necessary. Its revenue stands as approximately €110m.
The firm is a prolific creator of digital work, including branded experiences across 360 video, VR and AR. For Audi, it let car enthusiasts develop a literal sandbox racetrack and drive around it. It also has a competency in creating websites, games, and films, more of the common fare demanded by brands.
Below is MediaMonk's Mixtape III. It outlines much of the work that likely caught Sorrell's eye.
What does the company bring to the table?
Keith Hunt, managing partner at M&A advisory Results International, stressed that Sorrell is not alone in looking to build a digitally-focused group, and that he will likely have a hitlist of 20-30 companies he is keen to bring aboard. As it stands, MediaMonks appears to be the closest deal to completion. "As a a first one it is pretty good," he says. "One issue is that there's very few targets or any scale out there. MediaMonks does have that."
Nonetheless, it is a significant move according to Hunt because "it puts a marker down for what the culture of the group will be." He went on: "The smart thing for him to do is to make the people he acquires build the culture; in hindsight, the culture of WPP worked for a while but maybe in recent years has not been fit fort purpose. Let the culture be driven by the acquisitions."
Dino Myers-Lamptey, UK managing director of MullenLowe Mediahub, said that it shows how Sorrell is positioning to tackle ad blocking and cord cutting. "Interestingly, his first acquisition is not a data-led one, but a new world creative one. In an age where intangible capital is making up a much higher proportion of the value of companies than ever before, it should come as no surprise that S4’s strategy is to acquire talent that has proven to produce quality, rather than building from the bottom up. With the creative production box well and truly ticked now, it would make sense for S4 to turn their eyes towards distribution and strategy.”
Fergus Hay, chief excutive of Leagas Delaney, believes the production end of the funnel is set for "radical disruption" of the kind Sorrell once brought to media buying.
"Martin has great pedigree in doing exactly this, and liberated from the shackles of WPP, it is indeed ‘back to the future’ for Sorrell. He sees the long-term value lying in premium service across strategy, ideas, production and media. The market is ripe for independently-minded agencies, like MediaMonks, with a focus on premium strategic direction and creativity. Martin Sorrell will no doubt take great learnings from WPP, and shape the direction of the next era of marketing."
Will Ingham, founder and creative director of Wing, said it is encouraging to see Sorrell "make a B-line for creative and digital production". He added: "It’s the right direction to disrupt the industry given that brands have increased their spend in online digital content by over 50% in the last two years."
Martyn Rattle, global CEO of Local Planet, said: "With a stated ambition to build S4 on the pillars of technology, data and content, MediaMonks looks to fit Sir Martin Sorrell’s goal to grow S4 into a “multinational communication services business.
"But what remains to be seen is whether S4 can retain the independent spirit of agencies such as MediaMonks as they become amalgamated into a global entity. There is growing evidence that clients today are increasingly looking for a truly independent, flexible – and fully transparent – approach from the agencies they work with and an alternative to the top-down, centralised bolted-together holding company conglomerate approach of old."
With more acquisitions plotted for the future, time will tell whether Sorrell is capable of avoiding the pitfall that saw WPP in need of addressing its silos, culture and creative cohesion.
Tony Walford, the founder of M&A advisory Green Square, cautioned that MediaMonks may not be the wisest buy for a network like WPP due to its already substantial scale and extensive client list, which may throw up conflicts.
He said: "Given MediaMonks is a digital production agency, a big chunk of its clients are other agencies. This makes it quite difficult for an agency holding company to buy it and I’m surprised WPP are being talked about as an acquirer (unless they are purely after the talent). If an agency network buys it, then MediaMonks clients within all the other agency groups are unlikely to want to continue working with them going forward – would Omnicom agencies want to? This was the issue with finding an agnostic buyer for Tag all those years ago."
Sorrell on the other hand can snap up the agency without any risk of client conflict due to his own network only being in its formative stages, said Walford. "Some of the big groups may get a bit antsy about lining Sorrell’s pockets, but it’s not like he’s still at WPP or can steer talent away from projects for them in favour of those being delivered by his own agencies. It also gives him a chance to get close to all the network groups as they will all be S4 clients. If his view is that the traditional model is failing, then building a group that can provide services direct to clients as well as all the agencies is smart."
Matt Lawford, broker at Chesterfield Insurance Brokers, said the next generation of viewing public are fast moving away from traditional means of taking in media. T
"They are multi-tasking while watching and their attention span is waning. They need a fast changing digital arena to fulfil their fast growing hunger for information and entertainment. Media Monks offers access to, among other areas, 360 video, VR, AR and the creation of apps. They are established and have a generous turnover therefore have a standing as experts in their industry but a company that has shown stability over the past 17 years. Sorrell, I believe, wants to get away from the old agency concept and has the foresight to buy the future as his first acquisition into S4 Capital."
He added that Media Monks is not just a one horse company, it has created different angles of the company to adjust to the fast changing media and digital world. He noted that their duration in the market shows that their approach is going to last in the long term.
He concluded: "Across the media network, clients are trying to find angles to save costs and as such there has been a move by some clients away from the old client, agency, production company routine. Media Monks are experts in their field and an agency would just be another mouth to feed and a step that could create time and money issues for the client. Direct access to client allows Media Monks to offer the client exactly what they want rather than what someone else thinks that they want."