Services: Green Square

The relisting of the shares follows Sorrell’s taking the helm at Derriston Capital back in May (shares were suspended immediately), its reverse merger into S4 and subsequent £288m acquisition of Dutch content and digital production firm MediaMonks. Sorrell has had a pretty eclectic time of it over the last six months. Less than a year ago he was revered as a kind of sage of the marcomms industry, whose opinions were sought on every subject from Brexit through to the economy and Big Data; and, while he was mocked in some quarters as a glorified bean counter, he was certainly advertising’s best-known figure. But in April this year he was ousted from WPP, the advertising group he founded more than 30 years ago, amid shareholder grumblings about his remuneration and a number of allegations about his conduct, which he strenuously denies. But only a fool would have bet on him taking things lying down. With typical energy and verve, he bounced back – and rather sooner than even his most ardent admirers would have predicted. The Media Monks deal in July was the first step. The appearance on the London Stock Exchange of S4 is the second. So what’s he up to? Leafing through the prospectus issued last month, it’s clear that Sorrell has spent some time thinking about the state of the marcomms market, and the disruption and structural changes it faces. In an age when many clients (and indeed industry figures) are questioning the value – or even point – of the large holding groups that started to coalesce in the late 1980s, it’s interesting that Sir Martin isn’t setting up WPP Mk II. The aforementioned prospectus says the new group’s ambition is: “To create a new era, new media solution, embracing data, content and technology, in an always-on environment for multi-national, regional, and local clients and for millennial-driven digital brands.” And Sorrell himself commented in an official statement: “S4 Capital intends to provide global, multi-national, regional, local clients and influencer-driven millennial brands with new age/new era digital marketing services concentrated in three key areas initially – further development of a global digital content platform; first-party data fuelling both digital media planning and creative ideas too; and, finally, digital media buying. “Listening to clients of all kinds, it seems apparent they want these services delivered faster, better and cheaper, by more agile and responsive organisations, either co-located with them or alone. To this end, S4Capital will be organised primarily on a unitary basis, with key people continuing to be incentivised through significant, equity ownership in the enterprise. S4 Capital believes that this strategy and structure will deliver significant long-term value for share owners, particularly through organic growth, supported by strategically-focussed acquisitions. “S4 Capital, through MediaMonks, already currently works with some of the world’s most prestigious brands, such as adidas, Corona, Google, Johnson & Johnson, Netflix and Shell through eleven offices in ten countries in the United States, Latin America, the Middle East and Asia Pacific. We are now looking to expand the digital content platform into new high potential growth territories, such as Germany, India and Japan and broaden and deepen the platform itself. We are also exploring new areas of operation in line with our strategic objectives, in data analytics and digital media planning and buying.” So, reading between the blurb lines, what does that all mean? Well, he’s certainly not starting another WPP – the idea of one P&L at S4 flies in the face of the internal competition between agencies that was fostered at WPP – but it appears that he does intend to park at least some of his tanks on his old firm’s lawn. That said, he won’t want to do too much damage, as he and his family trust still owns 1.8% of WPP shares worth around £260m. Recent statements from the marcomms maven indicate that he understands that the old centralised, top-down model that has predominated at big agencies for nigh-on three decades is not best suited to the digital era, in which responsiveness, speed and adaptability are valued qualities. Earlier this year, he attended, of all things, the famous Burning Man Festival, and talked enthusiastically about “the importance of creative destruction and renewal.” (It should also be noted at this point that S4 featured a picture of the famous Burning Man on the front cover of its prospectus – if that isn’t a message, I don’t know what is). He also understands the areas of the industry that are profitable and in growth – content, data/analytics, media planning. These are all areas that WPP either has a foothold in, or is seeking to grow in. Think of the likes of Kantar, GroupM and the big PR shops like Burson Cohn & Wolfe, Hill+Knowlton Strategies, Finsbury and Ogilvy (remember, PR is less about pushing out messages these days than seeking to create influence, particularly with content). And, lest we forget, WPP was itself interested in acquiring MediaMonks – it was just the kind of agency whose culture and practices that the big holding groups could do with an injection of. Everything sounds a bit vague at the moment, but one thing we can be sure of: S4 won’t be making “traditional” broadcast, print and outdoor ads. Sorrell has made it clear that he would be concentrating on digital, and specifically on the three strands we’ve already mentioned: content, data and analytics and media. But there’s something else. In the past few years the big management consultancies are starting to muscle in on the marcomms space. The likes of Accenture, Deloitte, EY and KPMG can’t make ads (but they can buy in that talent, if necessary, as Accenture did when it bought the last UK indie of scale, Karmarama in 2016), but what they do have is the ear of the so-called C-suite (senior execs such as CEOs, COOs, FDs and CMOs) at big brands, and are seeking to advise them over strategic brand direction. That’s a high-value, high-profit activity that planners and analysts at big ad firms have had pretty much to themselves until recently. Sorrell has called this practice of helping clients deal with digital disruption in a meaningful way “digital entry” and I think it’s clear that it’s a space he intends to move into and prevent the consultancies dominating. A man of Sorrell’s stature at the head of a “nimble startup” (which is what S4, with its modest cost base and slimmed-down bureaucracy is positioned as) would certainly be able to call on C-suiters of the bluest of blue chips. Once he’s got the CMOs’ ears, he’s then got an interesting story to tell them: a more slender type of agency which draws on the best talent (be they suits, creative, planners, analysts etc) best suited for a particular job. The money goes on the stuff you want, not the salaries of senior executives. Isn’t that better value than a big old agency with several layers of management? It’s known in some circles as the “Hollywood Model”. Since the demise of the old studio system in the 1960s, movie producers have always drawn on a pool of available people – directors, cinematographers, writers, costume designers, lighting and make up people, composers, etc – that they feel can best bring a project to the screen, on time and on budget. Why not do the same with your advertising needs? And finally, there’s a familiar ring to this story. Back in 1985 Sorrell, the former FD at Saatchi & Saatchi, bought a small UK business which made wire baskets for supermarkets. He used it as an acquisition vehicle to create the world’s largest advertising and marketing group. Although he acquired many big “legacy” agencies such as Y&R, JWT and O&M, most of WPP’s profits and growth came from what were then new disciplines – media planning and buying, PR, research, direct marketing and CRM. It seems that, just as he did in the ‘80s, he’s after usurping the established titans (Omnicom, IPG, Dentsu and Publicis as well as WPP) and taking on the consulting giants. Whether his new, nimble model will take off; and whether, assuming it grows to the extent Sorrell wants it to do, it resists the tendency towards bloating and bureaucracy that ultimately seems to affect most big companies, remains to be seen. But it’s going to be one hell of a journey and certainly not boring! Read More

Commenting on the news, Green Square’s partner Barry Dudley, said: “Sir Martin is a unique character who ran WPP in the way that suited him, the simplest description may be ‘autocrat’. But even autocrats need impressive people around them and for Mark and Andrew to have been at Sir Martin’s side for so long is proof alone of their pedigree. Can Mark step into the CEO role? Without doubt and given the complexity of the group, its networks, geographies and all the vagaries that go with a people business, having someone that already knows this inside out seems obvious. Having said that, I suspect that one of the big things that Robert Quarta is grappling with is the FAMGA (Facebook, Apple, Microsoft, Google, and Amazon) factor – is there a need for someone from that world to perhaps bring new thinking and perspectives…time will tell!Today, WPP confirmed the appointment after four months of searching, also adding him to the board of WPP as executive director.” Roberto Quarta, Chairman of WPP, said: “The Board carried out a rigorous selection process, assessing internal and external candidates. That process, alongside Mark’s wise and effective stewardship of the business in the last few months, left us with no doubt that he is the right leader for this company, and we are delighted to announce the Board’s unanimous decision to appoint him as chief executive officer of WPP.” “Recognised for his leadership throughout the industry, he has an intimate understanding of the business, he enjoys very strong internal support, and he has earned the respect and endorsement of our clients with his constant focus on their needs. He has played a central role in many of WPP’s most successful investments and initiatives, and he has deep experience at board and operational level. Most recently, Mark led the transformation of Wunderman into one of the world’s top digital agencies, and he understands the importance of culture in creating successful organisations. In short, he is in every way a 21st-century CEO,” he added. Quarta has has resumed his role as non-executive chairman as Read is appointed. Read, said: “Our industry is going through a period of structural change, not structural decline, and if we embrace that change we can look ahead to an exciting and successful future. Our mission now is to release the full potential that exists within the company for the benefit of our clients, to accelerate our transformation and simplify our offering, and to position WPP for stronger growth. “To achieve that we need to foster a culture that attracts the best and brightest: inclusive, respectful, collaborative, diverse. What makes our company special is its people, and I am very proud to have been given the chance to build a new WPP with them,” added Read. Details of his contract have also been revealed, including a tough non-compete clause. His annual salary will be £975,000 with a potential bonus of £250,000, up to 40% can be deferred into shares over a two year period and a benefits package of £35,000 within the contract, a substantially less lucrative deal than that of Sorrell in his final years. The next steps for Scott have also been revealed with him set to continue on the post of chief operating officer of WPP on a permanent basis and as a key member of the senior management team. Read more

The New York-based holding group announced its second quarter results on Tuesday (17 July). Revenue growth was 2% overall with North America (by far Omnicom’s biggest market with 57% of its business), dropping 1%; and Europe (27% of the total) up nearly 12%. Net income (profit) for the quarter actually rose to $364.2m from $328.6m. Despite this, Wall Street took fright and the share price tanked by almost 10%. While Omnicom is clearly not on the verge of going under, this shows just how edgy investors are right now. And anyone who holds stock in Publicis would be feeling extremely jittery also after seeing the Paris-based group’s Q2 numbers when they were unveiled yesterday. Organic revenue, the measure that strips out the effects of deals and currency swings, slipped 2.1% in the period for Publicis. A volatile US healthcare business (it’s rumoured that Publicis wants to get out of this particular sector) and the new GDPR privacy rules in Europe contributed to the sluggish results. Worse still, the markets had been expecting growth; and although Publicis’s operating margin rate rose to 14.3% from 13.7% a year ago, this wasn’t enough to soothe nerves rattled by the long-term structural issues the ad industry, and the big groups especially, face. The downturn must have created a headache for chief executive Arthur Sadoun, who took the helm from Maurice Levy just over a year ago, and who won plaudits for his restructuring efforts. But that seems a long time ago now, and stockholders took fright, with the shares falling 10% (WPP’s shares also fell yesterday, by 3.8% – another indication of the uncertainty surrounding the industry). Clearly the investor community is increasingly nervous about the prospects of the ‘big five’ holding groups (Omnicom, Publicis, WPP, IPG, Dentsu Aegis) and indeed the viability of the holding group model itself. Everyone knows and (to a degree, at least) understands that there are seismic shifts going on in the marcomms industry: clients clamping down on costs; scandals around programmatic ad placement; the rise of Facebook, Google and Amazon, and other big digital players, who can be accessed without the need for an ad agency; the growing threat from consultancies like Accenture and Deloitte… We’ve written about these many times over the past few years. What’s interesting now is not what’s happening to the marketing services industry, but what the established players are doing about it. Rivals like Sorrell and Levy/Sadoun may have grabbed the headlines over the years, but Omnicom chief John Wren is a canny operator. And he’s been quietly tidying up his sprawling empire, selling businesses deemed non-essential (such as Sellbytel, a business providing outsourced sales, service and support) and also, rather belatedly, entering the data wars with a new entity called Omni. Omni, which was rolled out last week, is Omnicom’s answer to big rival Interpublic’s recent $2bn purchase of a majority slice of data specialist Acxiom; and Dentsu Aegis’ buyout of Dutch firm Oxyma Group. It will use data to profile customers and predict what kind of information they want to see from a creative and messaging standpoint, and connect that to where they are in the media landscape. To achieve this, Omni will be using artificial intelligence and machine learning algorithms. Interestingly, it seems that Omni will not be generating or gathering its own data, but ‘renting’ it from others like Neustar, LiveRamp, Salesforce, Experian and other data vendors. This is a fairly smart move because, as Wren said last week, it ‘de-risks’ the business. It also allows the global group to act in a way that respects and complies with regional privacy and regulatory rules. The aim is not so much the gathering of big data, but changing the way ads get made and media is placed, so it impacts on all areas of Omnicom’s services – creative, strategy and media. Up until now, AI and data’s uses have mostly been limited to media buying with souped-up programmatic algorithms that are able to set pricing and determine the best time to run a campaign. Omni’s an interesting idea. In China, for example, certain colours are regarded as lucky. Ads featuring red, yellow and green are more likely to resonate with consumers. Words and messages can be crafted too – so, for instance, calls to action can be created to appeal to people looking to buy a hybrid car or swapping their telecoms provider. This can either act as a trigger to the creative teams, or more impactful messages can be more accurately selected from a pre-made portfolio of messages. In an age where short-form video content is becoming increasingly important, especially on mobile devices, this allows Omnicom’s agencies to push messages to those consumers for whom it would have the most impact, in a timely fashion. It ticks the right boxes – speed, relevance and highly targeted (thus eliminating waste, which provides clients with the transparency they’ve been asking for). For brands that spend hefty amounts of cash on TV ads, Omni could potentially open up troves of insights about the impact of TV ads on digital media. TV-to-digital tracking is limited to inventory purchased via advanced TV like over-the-top platforms and addressable TV tactics that serve targeted ads from set-top boxes, but digital TV ads are likely to become much more mainstream over the next few years as streaming and catch-up services start to replace linear and ‘over the air’ broadcasts. So Wren and his team seem to have done a good job here. The challenge is to make this intriguing service work (integrating scale and personalisation), and to trim down what is perhaps a now untenable agency model. Like its rivals, Omnicom has to focus, divest itself of non-core businesses, become leaner, nimbler and faster, and to demonstrate to clients that they are offering value – and better value than can be offered by Facebook, Google, the consulting firms and the hungry start-ups unburdened by high centralised infrastructure and support costs. There’s also the danger of putting too many of one’s eggs in the data basket. The gathering and use of data is now a hot topic for both consumers and regulators, and laws everywhere are likely to be tightened up. The EU’s GDPR regulations, launched just two months ago, are known to have caused many DM and CRM operators all kinds of problems already; and there is an acute danger of a consumer backlash, with those served ads becoming increasing resistant to, and resentful of, messages served them without permission or consent – even if they are relevant or timely. Fascinating times ahead. Read More

In reaction to the news, Tony Walford, a partner at Green Square, told The Drum that he saw Sorrell as the industry’s “most famous ‘buy and build’ guru” with acquisition very much expected to drive the new venture from the start. “The announcement that he’s back is no surprise, but the speed in which he has sourced a vehicle and backing is astonishing,” said Walford. “What will be very interesting is seeing what his new group will consist – he’s no longer bogged down by legacy agencies, infrastructure or indeed legacy thinking. He has the ability to simply choose what works and dismiss what’s no longer relevant as we potentially enter a new paradigm in how marketing services are delivered to clients.” Walford identified staffing of both the M&A and strategy teams as one of Sorrell’s first priorities. “It’s market knowledge he doesn’t have non-compete covenants, but whether or not he has non-solicit restrictions is a different matter. Exciting times and very much looking forward to his first move,” he said. MSQ Partners chief executive, Peter Reid, questioned how Sorrell would be able to scale the ‘next generation marketing group’ without further damaging WPP where he still holds significant shares. “To start with, he will need a clear ‘platform’ acquisition, either in the UK or US, that provides access to a range of capabilities, growth and a level of cash flow,” Reid said. ” As well as the access to data and analytics and content that has been referenced, channel planning and performance marketing capabilities will also be key – as will an ability to deliver agile, multi-disciplinary solutions for clients. “Given the (relatively) limited amounts of money available, potential acquisition targets which meet the criteria will be fewer and further between than might initially be expected – and it will be critical, for him personally as much as anything, to the first one right.” Also offering his view was Keith Hunt, managing partner at Results International, who expressed his excitement at the speed of Sorrell’s return. “Sorrell’s name still clearly carries weight, as evidenced by the $150m already promised by investors for the M&A pot,” offered Hunt. “With 75% control of Derriston [the current name of the organization which will rebrand following a reverse takeover] he has the capacity to mold the business as he sees fit – and the new name suggests this is a highly personal venture. At WPP, Sorrell was weighed down by the heritage of a highly traditional marcoms business, with S4 Capital he has a clean sheet and an opportunity to create something truly different. “The arrival of S4 Capital brings yet another new player to a marketing services M&A landscape that is becoming increasingly competitive. Sir Martin’s stated intention to acquire businesses in technology, data and content can only be good news for independent vendors in these sectors.” At the time of writing, Sorrell has only provided a brief statement about the formation of S4 Capital, but his track record suggests he’ll be very vocal along the way as he aims to build his new advertising empire.