The rumors, of course, were true.
Today the board of Derriston Capital, a publicly traded but heretofore obscure London firm that specializes in acquiring the makers of medical technologies, confirmed a pending “reverse takeover” whereby it will be folded into S4 Capital, the newly incorporated company launched by former WPP CEO Martin Sorrell. (The entity was reportedly named after the four generations of the Sorrell family.)
This morning’s announcement included several key details including the appointment of Sorrell as executive chairman, his three-quarters ownership, a $68 million capital equity fundraising round and “substantial non-binding letters of support” from other unnamed institutional investors amounting to $200 million.
“We all suspected Sir Martin Sorrell would be back sooner rather than later,” said managing partner Keith Hunt of London-based M&A advisory firm Results International regarding the news. “However, it’s still exciting to see his return within a matter of weeks.”
Six weeks, to be precise. The announcement was also quite clear about Sorrell’s plans to “build a multinational communication services business” via acquisitions, just as he did over the past 33 years at WPP.
Major questions remain, however. First, can Sorrell and his partners truly make a running start in re-entering the ad world? Perhaps more pressing is the matter of which companies S4 will look to acquire first.
The chairman himself gave the world a hint in his sole statement to date: “S4 Capital is a company that aims to build a multinational communication services business focused on growth. There are significant opportunities for development in technology, data and content. I look forward to making this happen.”
Principal Forrester analyst and agency M&A specialist Jay Pattisall called the above quote “very telling,” speculating that S4’s approach will be the very opposite of Sorrell’s early WPP strategy: negotiating hostile takeovers of well-established creative ad agencies.
“Step back and look at the architecture of what a large multinational agency is,” he said. “Of course you have the marquee name that runs across the top of the pyramid, but it’s all the underpinnings that are really crucial to execution: the tech stack; the data platform; enterprise services production; and even media.”
Once these elements are established, Pattisall said, the new entity can “piecemeal the creative capabilities together,” eventually growing large enough to compete with the very sorts of companies that Sorrell once ran while foregoing the need to buy a large global agency.
“There are so many options as opposed to an Ogilvy or a JWT,” he said, pointing to the recent sales of midsized independents like Wongdoody, David&Goliath and Heat, which was acquired by consultancy Deloitte. “At WPP, Sorrell was weighed down by the heritage of a highly traditional marcoms business, with S4 Capital he has a clean sheet and an opportunity to create something truly different,” said Hunt in echoing that sentiment.
Still, media remains the most valuable part of any ad network. Pattisall said that if Sorrell’s new company were to acquire a multinational media agency, “it would have to come out of one of the large holding companies, most likely WPP.”
Greg Paull, principal at international consultancy R3, agreed that “the first port of call might well be distressed WPP assets,” adding, “It would be reassuring to his new investors if he can leverage an existing business that he knows so well.” Paull was one of several industry observers who have speculated about the sale of WPP’s research and data wing, Kantar.
Last month, the Times of London reported that Kantar chief Eric Salama had been talking to financial institutions about a potential $4.8 billion management takeover.
Another intriguing possibility, according to Pattisall, would be the acquisition of The Oliver Group, a London-based company that helps clients create their own in-house agencies. Such a purchase would bring major operational advantages in addition to “a laundry list of multinational [clients].” And again, it would allow Sorrell to avoid the exorbitant costs and complexities of buying a large creative network.
A spokesperson for Derriston declined to comment directly on what sorts of companies S4 will scoop up first, stating, “We’re not ready to disclose. But it’s quite clear what areas [Sorrell] is involved in and what he knows.”
Pattisall also hesitated to hypothesize about the time it might take S4 to establish an M&A beachhead and compete directly with companies like WPP. “People were joking about it weeks ago, but now it’s not a joke,” he said.