Sectors: Corporate

Will S4 Capital sell to a holding company competitor, go down the increasingly popular private equity route or just sit tight? Green Square’s Tony Walford looks at what the future may hold for the marcomms firm following its latest financials. This time last year, S4 Capital’s press release said that for 2024: “We are targeting like-for-like net revenue to be down on the prior year [2023] with a broadly similar overall level of operational Ebitda as 2023, as a result of cost reductions made in the previous year.” And broadly S4 achieved this. Its recently announced 2024 full year results showed net revenue down 11% on a like-for-like basis at £754.6m and operational Ebitda at £87.8m, down 0.6% on a like-for-like basis. So, there was no real surprise for the stock markets with the share price actually going up. Sir Martin Sorrell, executive chairman, said: “The macroeconomic environment in 2025 will remain challenging given significant volatility and uncertainty in global economic policy, particularly tariffs. In geopolitics, US/China relations, Russia/Ukraine and Iran remain volatile issues and therefore clients are likely to remain cautious. With that said, we expect to benefit from new business, especially in the second half and for the full year we expect net revenue and operational Ebitda to be broadly similar to 2024, with a further reduction in net debt.” This guidance for 2025 sounds familiar to a year ago. If this happens the net revenue in recent times will be: 2022 – £891.7m, 2023 – £873.2m, 2024 – £754.6m and 2025 around £750m. Let’s see. The investor presentation that accompanied the results announcement and webcast was as slick as ever and set out S4’s view of the way forward. And AI was very prominent in this as it has been for some time for the firm. The nature of its offer – content, data & digital media and tech services – naturally lends itself to the AI world. But this seems some way from translating into growth. Lots has been done on cost-cutting and operating efficiencies. Headcount is down 7% and net debt is steadily being reduced. But you can’t cut your way to growth and the question still looms in terms of motivating those key employees that sold their agencies to S4 in exchange for 50% cash, 50% shares – the share element being worth vastly less than what they exchanged ownership of their agencies for. Today, at 35p, it’s just above this month’s all-time low of 27p compared to its all-time high of 878p in September 2021. Clearly, as the last S4 acquisition was over two years ago, the impact of this has probably ‘washed through.’ In any event, these employee shareholders will want to see the share price improve and, perversely, may even be more motivated to help drive it up given what they have at stake. Will there be pressure from shareholders, not just the institutional players but particularly key employees, to realize higher value than currently dictated by the market? If a takeover offer emerges, that generally creates an uplift, particularly if more than one suitor enters the fray. So, if we now have a lean, future-facing business with its cost base under control, lower client-attrition and new business coming in (per Sir Martin’s comments), then it could be undervalued. Add to that S4’s investment in where the future is heading, this may well be a compelling addition to a bigger group. So let’s look at the suitors… WPP, oh the irony, but has the sour relationship between the leaders healed with time? Having reported the worst set of results for 2024 of its peers, WPP is putting “everything on red” in backing GroupM and the integration of WPP Open, its AI operating system across the group, to be the growth driver. Adding S4 to the mix could make sense, particularly given it was set up as a “new-age digital advertising, marketing and technology services company” from the start. But WPP may have already caught up. Dentsu could add substance outside of Japan and advance its AI journey forward but as per its results announcement, it seems to be retrenching and stabilizing, much like S4 has been. Havas is another option – perhaps a relatively big and bold move by the recently listed group which would certainly be headline-grabbing. And Stagwell? There were rumors in late 2023 that Mark Penn had tabled an offer which was rejected by S4. Given the fall in share price since then, I wouldn’t be surprised if they were circling again, but Stagwell has invested heavily in AI themselves and could have moved on. Or… Sir Martin takes it private. Despite the current global economic uncertainty, there’s still a lot of PE money looking to find a home and Sorrell has never been a seller – look at how WPP held on to its minority stake in Chime back in the day when it was taken private by Providence Equity. Thus, he may see PE as a good way of taking it out of the glaring spotlight of the markets while retaining control. Whatever route S4 ends up going, given its current share price I think we could see some interesting twists and turns in the next 12 months… Read more

R/GA has become an independent agency again after 23 years under IPG management. With backing from private equity firm Truelink, it plans to create a new model. Green Square’s Barry Dudley looks at the deal. I met Bob Greenberg around 20 years ago during my time at Naked Communications when we discussed how we may work with R/GA. I’ll never forget the unique nature of their New York offices, rabbit warren like, then opening out into big open-plan spaces with a very clear vibrancy and energy. And Bob struck me as someone who was always looking to the next thing, a mix of genius professor, visionary and quiet taskmaster. Almost certainly a rose-tinted perspective. He is said to have commented, “I believe in reinvention. Every nine years, we reimagine the company.” Whether we are at one of these nine-year points, I’m not sure, but the next reinvention is clearly kicking off. But before looking at this it is worth quickly considering a bit more history. It was founded in 1977 by brothers Robert and Richard, hence the original name R / Greenberg Associates, as a production company specializing in motion graphics and visual effects for film and television. Their work included creating visual effects for movies like Superman, and Alien; designing the iconic title sequence for Ridley Scott’s Blade Runner and developing digital effects for Predator. Through the 1990s and early 2000s, its first reinvention took it into becoming a digital agency focusing on interactive and web-based experiences. It then expanded into interactive advertising and became a leader in integrating technology, data and digital experiences. Then came the natural move into consulting and business transformation. Which brings us to current times and today’s announcement that management and private equity have bought the business out of IPG. So, the next chapter and reinvention begins. R/GA’s press release announcing the deal said: “Creative innovation agency R/GA is proud to announce its return to independence as a privately owned company after 23 years as part of IPG, following a new partnership between R/GA’s global management and private equity firm Truelink Capital.” IPG have been looking to sell Huge and R/GA for some time, with Huge subsequently being acquired by AEA Investors, a ‘global private investment firm’. Whilst there are undoubtedly big differences between Truelink Capital and AEA Investors, they are both private capital businesses. I expect to see plenty more of these sorts of transactions as the big holding company shakeout continues. The release went on to say: “R/GA’s global CEO Robin Forbes and chair and global chief creative officer Tiffany Rolfe are two of the global leaders, together with others, who are investing in the company as part of the deal. R/GA’s next chapter will be fueled out of the gate by a $50M Innovation Fund, enabling the company to invest in new skillsets and talent, and acquire new capabilities, emerging tools and platforms. Additionally, R/GA has established a Strategic Advisory Council of senior marketing and technology executives to support emerging AI client transformation opportunities across multiple sectors.” So, it’s going to have a $50m ‘Innovation Fund’. I really like the sound of these two words, not least because it fits with the R/GA legacy for reinvention. More than ever, businesses have to continually challenge themselves, question whether their offer is still relevant, experiment with new services, and innovate. When did you last work through such things? And who would you do this with – R/GA have a ‘Strategic Advisory Council’. If you don’t have one of those, I’m always around for the price of a coffee… The next paragraph of the press release also throws up some interesting questions: “As an independent company, R/GA is activating an AI-enabled model to better serve clients [Are you genuinely AI-enabled?], unburdened by the restrictions and overheads of traditional corporate structures. New remuneration models based on outcomes [When did you last review your pricing?], agile new team structures, and scaling up its flexible talent model ‘R/GA Associates’, are among the initial changes being implemented [Is your organisational structure fit for the future?].” As you would expect AI is marked out to be key. Luke Myers, co-founder and managing partner at Truelink Capital, said: “We see the growth of AI-enabled experiences playing an increasingly important role in unlocking value in marketing services…” And Tiffany Rolfe said: “At R/GA change is a feature, not a bug, and we believe in the power of brands to transform – which is what we do for clients, and now we’re doing it for ourselves…” I am looking forward to seeing this unfold and to seeing other businesses take similar steps. Read more