Sorrell’s S4 Capital reveals prospectus to stock market: what you need to know
Sir Martin Sorell’s S4 Capital has issued its prospectus, setting out its strategy for growth ahead of a shareholder vote on 27 September, when it will begin trading on the London stock market.
MediaMonks
The 191-page prospectus has offered the first in-depth overview of the company’s plans, the opportunities is sees and the potential pitfalls identified since it was launched just six weeks after Sorrell’s departure from WPP.
The front cover (shown above) declares that S4’s goal is “to create a new era, new media solution, embracing data, content and technology, in an always-on environment for multi-national, regional and local clients and for millennial-driven digital brands."
Here’s what you need to know.
Sorrell
Sorrell will own 18.16% of the group’s shares, but will have controlling power through a voting share. He will receive a salary of £100,000 per annum, along with an annual bonus of up to 100% of his fixed annual salary (a stark contrast to the £70m he earned at his peak at WPP).
Sorrell, along with other senior management, will be entitled to 15% of the growth in S4 Capital’s value if it hits an annual compound growth rate of 6% over five years by 2023.
He will be bound by an initial three-year contract after which he’ll be required to give 12 months' notice to resign.
It will compete with consultancies and ad agencies
S4 Capital said the Group – which will have a single P&L, rather than multiple ones – will look to provide clients “with digital marketing services, which are agile, efficient, and of premium creative quality, in other words faster, better and cheaper.”
It will compete with management consultancies like Accenture, Deloitte and IBM – of which Sorrell was dismissive during his WPP tenure – saying that they are “moving more directly to compete with combined operators such as MediaMonks”.
It will also take on ad agencies, stating that clients are turning away from them to “increasingly engage directly with digital media companies such as MediaMonks.”
Acquisition plan
S4 is aiming to make further acquisitions as well as expand the MediaMonks Group, which it acquired in July for £288m. Future acquisition targets will be in the content, data analytics, media planning and digital media buying space, it said.
Health of MediaMonks
The prospectus also shed light on the health of its first acquisition. MediaMonks doubled its revenues €36m in 2015 to €76m in 2017 as it courted clients including Adidas, Amazon, GE, Google, Hyundai, IBM, JAB, Johnson & Johnson, 3G and Weber.
North America is its fastest growing market, with revenues up from €14m in 2015 to €24m in 2016 and €31m in 2017. The EU, including the Netherlands, generated revenues of €34m in 2017, relatively flat from 2016.
The other agencies in its arsenal
The document detailed the other businesses it now owns thanks to the MediaMonks deal. Prior to its acquisition by S4 Capital, MediaMonks held 51% stake digital agency Superhero Cheesecake, Made.For.Digital (and its subsidiary Bike Film) and eBuilders. In July 2018, it bought out these businesses for €20.8m.
It described Made.For.Digital as a “director-driven linear and long-form film company” that has recently worked on films for Uber, Snapchat and Volkswagen.
Superhero Cheesecake “specialises in crafting best-in-class interactive experiences” with Adidas and McDonalds among its clients.
MediaMonks' challenges: diversifying clients and retaining talent
S4 said that among its biggest priorities will be diversifying MediaMonks' clients.
A relatively small number of clients contribute a significant percentage of its revenues, with its largest client – unnamed for confidentiality reasons – accounting for 10% of revenues in 2017.
“MediaMonks clients are generally able to reduce advertising and marketing spend or cancel projects on short notice,” it warned.
Its second biggest client in 2017 was Google, followed by Adidas and Slimming World.
But, it said, “the top five companies by global advertising spend do not feature in MediaMonks' top 20 clients. The Directors and the Proposed Directors believe that this provides MediaMonks with substantial opportunities to grow in the future by winning business from such companies.”
The need for MediaMonks to secure a firmer footing with a greater number of big budget advertisers is compounded by the warning from S4 that though it will initially have its own cash resources, the group may become dependent on the income generated by MediaMonks and other acquired businesses to meet its expenses, operating cash requirements and any finance costs
The Group also said that another challenge lies in retaining the talent acquired in MediaMonks. Operations are currently managed by a number of people that S4’s executives “consider key”.
However, as a result of the acquisition, certain people sold their shares in the company and “consequently such executives and people may prove more difficult to incentivise and retain,” it said.
“The Directors and the Proposed Directors believe that the loss of any key people could significantly impede the Group's financial plans, product development, project completion, marketing and other plans, which could affect its ability to comply with its financing arrangements and other commitments.
“In addition, competition for qualified executives in the digital media and marketing industry is intense. The Group's growth and success in implementing its business plans largely depends on its continued ability to attract and retain experienced senior executives as well as highly skilled people and it may not be successful in doing so.”