Falling share valuations could lead to takeover challenges for the ad holding companies

Martin Sorrell has done pretty well out of the City, London’s financial centre, persuading investors to back his S4 Capital venture when he was rudely defenestrated from his creation WPP.

Faith in Sorrell helped S4 rise to a dizzy valuation of £6.7bn not that long ago, more than half the giant WPP’s then valuation. But accounting problems, a profit warning and confessing that costs had risen too far in its breakneck expansion, have reduced S4’s valuation to “just” £1bn, painful for Sorrell who’s a big investor with a controlling share.

Now, according to the Telegraph, hedge fund GLG Partners, a subsidiary of FTSE100 Man Group, has disclosed a £5m/0.5% short position in S4, basically a bet that its shares have further to fall. This may not, of course, be a reflection of what it thinks about executive chairman Sorrell’s management but a dim view of the ad sector’s prospects in total.

Sorrell won’t be only ad holding group boss casting a wary eye over his share register. WPP shares have lost a third of their value in the past year or so even though its published figures have been healthy enough. WPP, whose shares rose in early trading today, is now valued at just over £8bn, about half its worth when Sorrell was ejected. As a pointer, Publicis paid $4.4bn for data business Epsilon a few years back.

Ad holding companies and S4 in particular are suffering from the fallout in tech stocks, chiefly Meta (Facebook) although they’re all suffering. If all-conquering digital advertising really is going into reverse they will suffer too as their businesses have been shaped by the perceived need to service the tech giants, WPP and Publicis especially alongside S4.

When stocks go into freefall, bargain hunters emerge alongside the short sellers. We could well see some serious takeover action as we move into 2023.