S4Capital has to chart its course in a market changed by a perfect storm of global bad news

All of a sudden the world’s looking more troubled for adland, despite its better than expected bounceback form the recession.

A perfect storm of war in the Ukraine and its effect on energy and commodity prices, a grinding halt in China as it battles (clumsily even brutally) with Covid-19 and supply chain problems across the board have driven inflation to heights not seen since the oil price shock of the 1970s.

Tech stocks in particular have been ravaged meaning a substantial loss of wealth for many companies and consumers and cash, that commodity we thought the world had outgrown, is king once more.

The collapse in the fortunes of Sir Martin Sorrell’s S4Capital is not directly related to these events but they make the hitherto go-go company’s recovery from its accounting misfortunes – it has just released its 2021 numbers after three delays, showing continued sales growth but an increase in losses to £56m – rather more difficult.

Sorrell has been saying for a year now that its shares are undervalued as the London market rates them as an ad holding company, not a tech stock (S4 is all-digital.) He might be glad he stayed put as the shares – now trading at around half their peak – might be even lower if they were part of a tech crash.

And the shares are what has powered the company’s near 30 acquisitions in its short life, the many companies which have merged with its MediaMonks content business being paid half in cash, half shares. The entrepreneurs who have “merged” with MediaMonks won’t be feeling quite so rich now.

Mary Basterfield, who joined S4 as chief financial officer in January, said that understanding of international accounting standards had been “lacking” at MediaMonks, explaining that issues centred on how to account for longer contracts containing multiple projects. Which is rather like the tangle M&C Saatchi got into last year over controls in its disparate empire.

That’s all we know for now and, on the face of it, S4 is still growing. M&C Saatchi too seems to have recovered although it’s still fending off a takeover bid from deputy chairman Vin Murria.

But S4 in particular needs to show it can still grow in a changed market where concrete performance is more valued than the ability to do deals.

One Comment

  1. Stephen. As you point out, when it comes to acquisitions, Sorrell can’t stop himself. Remember, when he was running WPP, in 30 years he bought almost 600 companies, the vast majority of which disappeared after the principals had cashed out. And don’t get me started on Enfatico!!!

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