07 Oct Sir Martin Sorrell’s S4 Capital to raise £100m for next wav…
The marketing services mogul Sir Martin Sorrell will this week unveil a £100m share sale to fund another wave of takeover deals as his new venture edges closer to a £1bn valuation.
Sky News has learnt that S4 Capital, which Sir Martin launched last year following his departure from WPP Group, will announce to the London Stock Exchange on Tuesday morning the launch of a placing and open offer.
City sources said part of the proceeds of the fundraising will be used to finance the takeover of Firewood, the largest marketing agency in Silicon Valley.
Founded in 2010 and employing more than 300 employees in the UK, Ireland, Mexico and the US, Firewood specialises in digital creative campaigns for clients including Facebook, VMWare, cloud software provider Salesforce, LinkedIn and the navigation app Waze.
Its largest client is Google.
People close to the deal said that Firewood would be integrated into S4’s MediaMonks division to broaden its offering in areas such as paid search, display and video campaigns – increasingly important activities in an ad industry seeing rapid growth across digital platforms.
Data from the media buying group ZenithOptimedia shows that global digital marketing spending represented 42% of the total last year – up from just 12% in 2008.
The majority of Firewood’s revenues are derived from Google, underpinning the agency’s rapid revenue and profit growth since it was established nearly a decade ago.
In line with S4’s year-long track record, half the $150m (£122m) purchase price for Firewood is being paid in cash, with the remainder in the acquirer’s shares.
Senior Firewood executives, including the husband-and-wife leadership team of Juan and Lanya Zambrano, will enter into long-term S4 employment contracts.
One source said that $112.5m (£91.5m) of the acquisition price would be payable when the deal closed, with the remainder subject to the Silicon Valley agency’s financial performance this year.
The Firewood deal is understood to be the first of two deals for which the £100m proceeds of S4’s placing and open offer would be used.
Future acquisitions will focus on areas such as programmatic media, social marketing and digital transformation consulting, including in key countries where S4 has yet to establish a presence.
Banking sources said that unusually, the fundraising would take place at a slight premium to S4’s closing share price on Monday of 140p.
The company, described by Sir Martin as “a peanut” and then “a coconut” as it expanded through acquisitions last year, now has a market value – prior to the new shares being issued – of just over £500m.
Announcing half-year results last month, which showed a big rise in pro forma billings and revenues, Sir Martin said he expected S4 to double in size organically by 2021.
The tycoon is expected to subscribe to £13m-worth of new shares in Tuesday’s equity-raise – in line with his 13% stake in the company.
Other existing shareholders, including the private investment office Stanhope Capital, are said to be prepared to invest in excess of their pro rata allocation.
A number of new institutional investors are also expected to join S4’s share register as part of the deal, according to City sources.
Since leaving WPP, which he effectively founded during the 1980s, Sir Martin has been a staunch critic of the company, wasting few opportunities to take public potshots at his successor, Mark Read.
His departure came in controversial circumstances, and sparked a barrage of legal salvos between the two parties.
One of their fractious exchanges centred on S4’s purchase of MediaMonks, which Sir Martin outbid WPP to buy.
A threat by WPP to withhold part of Sir Martin’s long-term compensation on the grounds that he had breached confidentiality obligations has since dissipated, however.
While Sir Martin’s pipeline of takeover candidates looks very different to those he pursued during much of his WPP reign, the playbook of bolt-on acquisitions and targeting of faster-growing geographies is similar.
Over more than three decades, he built WPP into a global force, presiding over hundreds of acquisitions in disciplines such as advertising, media buying, public relations and sports marketing.
Sir Martin remains a significant shareholder in WPP, with much of his wealth tied up in the stock of the company he took from a manufacturer of shopping baskets in 1985 to bestriding the global advertising industry.
By the time he stepped down in April 2018, WPP was valued by the stock market at more than £16bn, although a series of client losses and accelerating shifts in spending among global advertisers away from traditional media have hurt its shares.
Mr Read has embarked upon a drive to streamline WPP by merging some of its agency subsidiaries and selling stakes in businesses such as Kantar, its market research division, to Bain Capital.
S4 declined to comment on Monday.