Sir Martin Sorrell’s S4 Capital slows takeover frenzy after profit warning, City sources say
Warning: Sir Martin Sorrell expects lower profits at S4
Sir Martin Sorrell’s S4 Capital has slowed its takeover frenzy following a profit warning last month, City sources say.
His London-listed marketing services empire has acquired more than 30 companies in the last four years. But delays in earnings earlier this year and last month’s red flag in earnings have sent the stock price plummeting.
City advisors say this means further deals may be on hold for the next 12 to 18 months as it focuses on integrating the acquisitions made to date.
Sir Martin, 77, built the company as a challenger to his previous firm – the world’s largest advertising group WPP – after exiting in 2018. The acquisitions have helped grow S4 into a company with sales of almost £1 billion and 9,000 employees in 33 countries.
Many of S4’s acquisitions, most recently technology services company TheoremOne in May, have been made by offering an equal split of cash and stock. Other acquisitions include digital and media consultancy MightyHive and content producer MediaMonks. But senior City sources said S4’s weak share price made stocking the company less attractive.
One said the fallout “stained” S4’s reputation as Sorrell struggled to restore investor confidence. “But he is busy and will try to fix the business,” he added.
In its May update, S4 announced it was considering merger opportunities in high-growth areas such as content and data analytics. On the day the full-year 2021 results were released, Sorrell warned that the company must be “extremely cautious” about future acquisitions.
Another source said: “The market will kill them if they make another acquisition. All M&A are on hold.’ He added that the company needs to show that its multitude of companies work well together, which is not a “short-term” solution.
Sorrell appointed Colin Day last week to help stabilize the ship. Day joined the board as a non-executive director with responsibility for the firm’s audit and risk committees. He is a seasoned City veteran with stints as Chief Financial Officer of Reckitt Benckiser and the Aegis Group. He is also a former director at WPP, which Sorrell started out of a shell company in the 1980s.
Sir Martin has also drafted in Chris Martin – the co-founder of the early acquisition MightyHive – as chief operating officer.
Delays in the results of S4 were described as “unacceptable and embarrassing” by Sir Martin in May. He also acknowledged “weak controls, inadequate documentation and a lack of understanding in the application of accounting standards.”
This was followed in July by a profit warning after rising costs of hiring new staff forced the company to cut full-year guidance for earnings before interest, tax, depreciation and amortization from £160m to £120m.
Concerns were raised that the rapid expansion of S4 and its accounting software was causing finance staff to be overwhelmed and payments to customers being delayed. Its shares are down more than 77 percent this year. The price means it could also attract the attention of private equity firms, a banker said.
A source said S4 needs to fix its software and figure out how to run its deals from a centralized platform, adding it could take at least 24 months to get through. “The business should do well over time but I can’t see it becoming a £5billion company again,” he said.
S4 declined to comment.
Advertising guru Sir Martin Sorrell has put takeover plans on hold
Source link Advertising guru Sir Martin Sorrell has put takeover plans on hold