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Structuring Acquisitions

Founder of WPP and Founder, Executive Chairman S4 Capital

IP Interview
Published on December 27, 2020

Why is this interview interesting?

  • Why rolling the equity into the parent company aligns incentives versus traditional earn-out agreements
Executive Bio

Sir Martin Sorrell

Founder of WPP and Founder, Executive Chairman S4 Capital

Sir Martin Sorrell is Founder and Executive Chairman of S4 Capital plc, which is building a purely digital advertising and marketing services business for global, multinational, regional, local clients and millennial-driven influencer brands. Sir Martin was CEO of WPP for 33 years, building it from a £1 million “shell” company in 1985 into the world’s largest advertising and marketing services company. When Sir Martin left in April 2018, WPP had a market capitalisation of over £16 billion, revenues of over £15 billion, profits of approximately £2 billion and over 200,000 people in 113 countries. Prior to that, Sir Martin was Group Financial Director of Saatchi & Saatchi plc for 9 years and worked for James Gulliver, Mark McCormack and Glendinning Associates before that. S4 Capital plc merged with MediaMonks, its content practice, in July 2018 and MightyHive, its programmatic practice, in December 2018 and has added eight further content programmatic and data companies to both practices in 2019 and six in 2020. It is listed on the London Stock Exchange under SFOR.L and after a little over two years, S4 Capital plc has over 2870 people in 30 countries, with a market capitalization of over $2.7 billion. Sir Martin supports a number of leading business schools and universities, including his alma maters, Harvard Business School and Cambridge University and a number of charities, including his family foundation.

Interview Transcript

Going back to the point you made on rolling the equity and structuring these deals, why don’t you use debt instead of partly cash? Isn’t it more efficient?

Risk. Why did we raise 130 million in July? We didn’t need the money immediately, but I just felt that it was too risky to take on debt. There was another reason as well; we wanted a bit more flexibility. In merger negotiations, it’s good to have the money in the bank, so that you don’t have to go to shareholders, and you can do deals quickly and effectively. If you look at our competition, the holding companies are not in the market at all. They’re talking, like WPP and others, about getting into the market, but we’ll see what they actually end up doing. In terms of selling companies, you don’t want people who want to sell companies and do earn outs. You want people who are going to commit to the mission.

There is a missionary zeal here. We want to build that new model and we want to aggressively take down the existing models.

To tap into the emotional side of people you hire?

There’s a passion for this that is extremely important.

It’s important to have a villain?

It’s important to have a target, that’s for sure.

My question is also around how much leverage these businesses could take because they are so cash generative with low operating leverage.

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