What’s in Sorrell’s playbook with S4 Capital?

3rd October 2018

You can’t keep Sir Martin Sorrell down, or out of the news.

Shares in Sir Martin’s new venture, S4 Capital Group, were last week re-admitted to the London Stock Exchange’s Main Market.

The relisting of the shares follows Sorrell’s taking the helm at Derriston Capital back in May (shares were suspended immediately), its reverse merger into S4 and subsequent £288m acquisition of Dutch content and digital production firm MediaMonks.

Sorrell has had a pretty eclectic time of it over the last six months. Less than a year ago he was revered as a kind of sage of the marcomms industry, whose opinions were sought on every subject from Brexit through to the economy and Big Data; and, while he was mocked in some quarters as a glorified bean counter, he was certainly advertising’s best-known figure.

But in April this year he was ousted from WPP, the advertising group he founded more than 30 years ago, amid shareholder grumblings about his remuneration and a number of allegations about his conduct, which he strenuously denies.

But only a fool would have bet on him taking things lying down. With typical energy and verve, he bounced back – and rather sooner than even his most ardent admirers would have predicted.

The Media Monks deal in July was the first step. The appearance on the London Stock Exchange of S4 is the second.

So what’s he up to? Leafing through the prospectus issued last month, it’s clear that Sorrell has spent some time thinking about the state of the marcomms market, and the disruption and structural changes it faces.

In an age when many clients (and indeed industry figures) are questioning the value – or even point – of the large holding groups that started to coalesce in the late 1980s, it’s interesting that Sir Martin isn’t setting up WPP Mk II.

The aforementioned prospectus says the new group’s ambition 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.”

And Sorrell himself commented in an official statement: “S4 Capital intends to provide global, multi-national, regional, local clients and influencer-driven millennial brands with new age/new era digital marketing services concentrated in three key areas initially – further development of a global digital content platform; first-party data fuelling both digital media planning and creative ideas too; and, finally, digital media buying.

“Listening to clients of all kinds, it seems apparent they want these services delivered faster, better and cheaper, by more agile and responsive organisations, either co-located with them or alone. To this end, S4Capital will be organised primarily on a unitary basis, with key people continuing to be incentivised through significant, equity ownership in the enterprise. S4 Capital believes that this strategy and structure will deliver significant long-term value for share owners, particularly through organic growth, supported by strategically-focussed acquisitions.

“S4 Capital, through MediaMonks, already currently works with some of the world’s most prestigious brands, such as adidas, Corona, Google, Johnson & Johnson, Netflix and Shell through eleven offices in ten countries in the United States, Latin America, the Middle East and Asia Pacific. We are now looking to expand the digital content platform into new high potential growth territories, such as Germany, India and Japan and broaden and deepen the platform itself. We are also exploring new areas of operation in line with our strategic objectives, in data analytics and digital media planning and buying.”

So, reading between the blurb lines, what does that all mean? Well, he’s certainly not starting another WPP – the idea of one P&L at S4 flies in the face of the internal competition between agencies that was fostered at WPP – but it appears that he does intend to park at least some of his tanks on his old firm’s lawn. That said, he won’t want to do too much damage, as he and his family trust still owns 1.8% of WPP shares worth around £260m.

Recent statements from the marcomms maven indicate that he understands that the old centralised, top-down model that has predominated at big agencies for nigh-on three decades is not best suited to the digital era, in which responsiveness, speed and adaptability are valued qualities.

Earlier this year, he attended, of all things, the famous Burning Man Festival, and talked enthusiastically about “the importance of creative destruction and renewal.” (It should also be noted at this point that S4 featured a picture of the famous Burning Man on the front cover of its prospectus – if that isn’t a message, I don’t know what is).

He also understands the areas of the industry that are profitable and in growth – content, data/analytics, media planning. These are all areas that WPP either has a foothold in, or is seeking to grow in. Think of the likes of Kantar, GroupM and the big PR shops like Burson Cohn & Wolfe, Hill+Knowlton Strategies, Finsbury and Ogilvy (remember, PR is less about pushing out messages these days than seeking to create influence, particularly with content). And, lest we forget, WPP was itself interested in acquiring MediaMonks – it was just the kind of agency whose culture and practices that the big holding groups could do with an injection of.

Everything sounds a bit vague at the moment, but one thing we can be sure of: S4 won’t be making “traditional” broadcast, print and outdoor ads. Sorrell has made it clear that he would be concentrating on digital, and specifically on the three strands we’ve already mentioned: content, data and analytics and media.

But there’s something else. In the past few years the big management consultancies are starting to muscle in on the marcomms space. The likes of Accenture, Deloitte, EY and KPMG can’t make ads (but they can buy in that talent, if necessary, as Accenture did when it bought the last UK indie of scale, Karmarama in 2016), but what they do have is the ear of the so-called C-suite (senior execs such as CEOs, COOs, FDs and CMOs) at big brands, and are seeking to advise them over strategic brand direction. That’s a high-value, high-profit activity that planners and analysts at big ad firms have had pretty much to themselves until recently.

Sorrell has called this practice of helping clients deal with digital disruption in a meaningful way “digital entry” and I think it’s clear that it’s a space he intends to move into and prevent the consultancies dominating. A man of Sorrell’s stature at the head of a “nimble startup” (which is what S4, with its modest cost base and slimmed-down bureaucracy is positioned as) would certainly be able to call on C-suiters of the bluest of blue chips.

Once he’s got the CMOs’ ears, he’s then got an interesting story to tell them: a more slender type of agency which draws on the best talent (be they suits, creative, planners, analysts etc) best suited for a particular job. The money goes on the stuff you want, not the salaries of senior executives. Isn’t that better value than a big old agency with several layers of management?

It’s known in some circles as the “Hollywood Model”. Since the demise of the old studio system in the 1960s, movie producers have always drawn on a pool of available people – directors, cinematographers, writers, costume designers, lighting and make up people, composers, etc – that they feel can best bring a project to the screen, on time and on budget. Why not do the same with your advertising needs?

And finally, there’s a familiar ring to this story. Back in 1985 Sorrell, the former FD at Saatchi & Saatchi, bought a small UK business which made wire baskets for supermarkets. He used it as an acquisition vehicle to create the world’s largest advertising and marketing group. Although he acquired many big “legacy” agencies such as Y&R, JWT and O&M, most of WPP’s profits and growth came from what were then new disciplines – media planning and buying, PR, research, direct marketing and CRM.

It seems that, just as he did in the ‘80s, he’s after usurping the established titans (Omnicom, IPG, Dentsu and Publicis as well as WPP) and taking on the consulting giants. Whether his new, nimble model will take off; and whether, assuming it grows to the extent Sorrell wants it to do, it resists the tendency towards bloating and bureaucracy that ultimately seems to affect most big companies, remains to be seen.

But it’s going to be one hell of a journey and certainly not boring! Read More