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For the second in our series of interviews with Unicorn leaders, produced in partnership with the European PR Agency, Tyto, and their own Without Borders Podcast, Russell Goldsmith and Tyto’s Founder, Brendon Craigie, visited the offices to S4 Capital to talk with their Executive Chairman Sir Martin Sorrell.
S4 Capital PLC is focused on building a modern digital advertising and marketing platform for global minded clients and in 2018 merged with MediaMonks, its content practice and MightyHive, its programmatic practice and went on to nine further content programmatic and data companies to the company.
We last spoke with Sir Marin on the csuite podcast in Cannes Lions in June with Marian Goodell, CEO of Burning Man Project, but since that time, in November 2019, he announced that his company had reached US Dollar unicorn status with a market cap of over $1.2 billion. In fact, Sir Martin confirmed on the day of recording that the valuation was now $1.3 billion and that they were also now a Sterling Unicorn too at over £1bn, which he said was a very verifiable fact because there’s a market that establishes a value.
This led to our first question as most descriptions of a Unicorn state that they are privately owned businesses rather than publicly, although some definitions do state that it’s simply a company worth $1 billion or pounds.
However, for Sir Martin, he said that it was a nice hook to hang on the progress that they made. He said that they came to the market when they injected S4 Capital into what was a shell company called Derriston Capital plc in September 2018 and they reached US Dollar unicorn status after 15 months, which he said was a nice thing to say as it has veracity, because there’s a market value, whereas a lot of the claimed unicorn valuations, which are private valuations, are, in his opinion, pretty meaningless and what he described as extrapolations of minority funding. He added that if you get somebody to invest at a fancy valuation and buy 2% of the company, you then extrapolate that by 50 times to get the market cap, which he thinks is sometimes a bit misleading. With S4 Capital, he said that they are running at the rate of about $400 million of revenue and about a $100 million EBITDAR before holding company costs and so he thinks it gives them a peg to hang on – it was a target. It was a validation of the first year that they have been going and he said that most of the people didn’t think that they would get to this sort of scale this quickly.
Sir Martin said that when he was at Saatchi or WPP, he would be asked what the growth ambition was. He said that it would be arrogant to say that you have an ambition, but that it’s not luck – he said that you make your own luck and that his dad used to say, “You make your own luck through what you do.”
But he added that they didn’t have a specific target at S4 Capital and didn’t say they want to get to X in terms of revenue or EBITDAR by the end of December 2019, or that they want to get to unicorn A status. But he thinks they are pleasantly surprised by the progress that they have made and so coming back to the suggestion of unicorn status, whether it’s meaningful or not, it means something to people’s minds.
He said that the US has the largest number of unicorns followed by the UK and then Israel, with Amsterdam at number four.
Amsterdam & Brexit
Sir Martin explained that the company is now in 30 countries and has 2,350 people. He said that Amsterdam was about 500 people, but it’s growing. The company’s organic growth rate is 45%, which he said was not about deals but like for like growth, and Amsterdam will be up to about 600 or 700 people soon. They have a new building that they moving into in Hilversum, a suburb of Amsterdam, and a new building that they have just moved into in Amsterdam. So, they have will have two buildings and consolidated four or five businesses in Amsterdam into those two buildings. He said that it’s quite exciting what’s happening there, plus the vibes and the mood music is very strong. He feels that they have a lot of opportunity there. Similarly, in Silicon Valley, they have a similar concentration of about 500 people.
Sir Martin thinks that Amsterdam is good for Brexit and is a good capital city. He thinks that it’s one of the capitals of Europe, probably the capital, that’s gaining most from Brexit. He added that it’s very cosmopolitan and well located geographically plus it has a good airport and so it’s a good hub. He thinks that a significant number of companies are now starting to locate their international or European operations there. However, he said that if Prime Minister Rutte, took off the cap on banking bonuses and was a bit more aggressive, they would grow even faster. He was quick to add that there’s a big question about the environmental impact of that and the ESG impact of it, because it’s a small country and that Amsterdam’s population is about 900,000, so it’s not a big city and so taking those caps off the banking industry could cause environmental decay. But there are some big companies in the region including Unilever, Booking.com, Heineken, so he thinks it is an interesting capital.
The S4 Capital website makes a clear point to describe the business as one unitary structure.
Sir Martin said that the company doesn’t make acquisitions, they make mergers, which is important as they looking for people who want to buy into what they are doing, who are philosophically aligned that are not looking to sell out, but are looking to buy in. The first sentence of every conversation is “if you want to sell, don’t come to us. If you want to sell, go to Dentsu or WPP. If you want to buy into an approach where we’re trying to build, we may be successful and may not be successful, the new age, new era company, this is for you.” He said that really everything they have done has been premised on that basis with one exception, Caramel Pictures, which was an assets purchase. He described it as a robotic studio that takes wonderful film with food and drink, and works for all the big package goods companies and so that was the only company that could be described as an acquisition.
Sir Martin said that what they are trying to do is to build a unitary company. Everything they have done, with the exception of Caramel, has been on basis half shares, half cash. People, the entrepreneurs, are totally entitled to capitalise on their hard work and get a little bit more security. But the other half, the consideration, is stock where there are lockups and so he said that they are in it together. He said the problem when you do earn-outs is that people are just focused on their little piece of it, running it autonomously and to the detriment of the whole.
Sir Martin said that he doesn’t think that the power of one is a bad concept or that being one firm is the wrong concept, but the problem comes if the execution is too fast. He therefore said that [looking at other holding groups] when you have traditional assets and when you stick Wunderman in front of Thompson, you destroy Thompson, when you stick VML in front of Y&R, you destroy Y&R, and he added that arguably Thomson and Y&R, although they may have analog connotations, are the stronger brands. He said that these decisions are not easy. They’re very difficult and it’s very easy to sit on the side-lines and criticise. But he said that he saw somebody from an Omnicom agency just recently whose exact words were that “it’s a ticking time bomb, just waiting to explode”, because they’re not doing as much strategically as he thought and many people inside the company feel they need to do. Sir Martin said that the irony of that is that Omnicom does better, their execution is brilliant, and they have great agencies, maybe agencies that are more analog than digital, but they do have great agencies and they execute well. He added that IPG executes well as well and is the fastest growing in the last quarter of the holding companies, growing at 3%. He thinks that Omnicom and IPG’s advantage is they’re based in America and that their CEOs sit in America, in what is unarguably the most important market still in the world, with around $22 trillion out of $75 trillion. He said that the Chinese are coming up fast at about $14 trillion, which he thinks was the last IMF estimate of the Chinese GDP. But on a per capita basis, America soars ahead and so they sit in America, whilst the CEOs of WPP and Publicis sit in London and Paris and so he said that whilst one can argue that from a time zone point of view that may be a good place to run a global business, he doesn’t think it is from a client point of view.
He said that when he was trying to run WPP, if you spent a day or two days travelling from New York to Boston, to Detroit, to Chicago and Washington D.C. you could cover in theory about two thirds of WPP’s clientele. The heart of the business, whether those in Britain like it or not, is still America, with China coming up rapidly, Japan important, Germany important, all these other markets very important. He added that whatever people say about President Trump, he’s good for business – he reduces tax and regulation and spends money on infrastructure and so America is going to become disproportionately more important.
Sir Martin said that S4 Capital’s nearest direct competition is the French company, Fimalac, which acquired Jellyfish. Beyond that is the holding companies who he said claim they do what S4 Capital does, although he says they don’t! He then added the accounting/ ex-accounting companies, including Accenture and Deloitte. But he said that these are big companies and so are big beasts to feed and so have to win big projects – not the sort of projects S4 Capital is interested in. So they do compete against Accenture and Deloitte and he said that at the moment they are head to head with Accenture on a couple of things. But he thinks in terms of head to head it’s more around Fimalac and Jellyfish although he said that they are really on the media side of the business. They have a content operation, but S4 Captial is more content than programmatic. He said they are running at 70% content now and 30% programmatic – 70%, the Americas, North and South America, 20% Western Europe and 10% Asia. He wants to get that to 40:20:40 and the content side they will probably try and bring the media side out. He said that they are looking at something at the moment which will increase the media proportion to around 35/40% and that he wants to balance the group a little bit more to programmatic and data and analytics and to balance the group a little bit more to Asia Pacific. He said that he worries about Western Europe because Western Europe as a proportion of worldwide GDP has shrunk over the last few years, and he think will continue to do so.
Communications & PR
A lot of S4 Capital and Sir Martin’s communication sees repetition around very simple, clear descriptions such as ‘unitary structure’, ‘faster but cheaper’, ‘digital only’, however Sir Martin doesn’t know whether they put a lot of thought into it or not. He said that when they started, they put a lot of thought into what the strategy should be, i.e., purely digital, because that’s where the growth is, the Holy Trinity model of first party data driving content and a programmatic, faster, better, cheaper – what he said his colleagues Juan Zambrano and Lanya Zambrano at Firewood call speed, quality and value – “speed plus quality equals value”. And he said that you can have all three – and the fourth principle, unitary structure, not a fragmented structure. But he said they thought clearly about that.
What Sir Martin said is that they try and simplify it. He gave the example of the two second ads that MediaMonks created for L’Oréal in Italy on the back of the insight from Facebook that women spend 1.7 seconds on average looking at a post and so they created a two second ad around non-celebrity influencers with different skin tones and different hair colours.
He said that if you think about the Brexit campaign, it was about “take back control” and concentrating on Brexit and that these are the best examples of two second campaigns and so two second ads work. These are very simple messages that resonate in a world which is 24/7. So, he thinks that their model of Holy Trinity is an interesting model. He added that it is not that creative or big ideas are not important – they are essential, they are central. But it’s the way you execute. He said that some of the Super Bowl, Oscars, World Cup and Olympic ads all have of a lot of time and effort and energy and creative talent go into them and some of it may not be worth the effort that was put into it. It may be more about aggrandisement rather than it being effective, either in brand building or in activation and so he thinks that you have to think carefully about it.
Sir Martin said that he has three iterations: Saatchi, WPP and S4 Capital. Saatchi was about globalisation purely, WPP was about continuation of globalisation and the foothills of technological development and that S4 Capital is purely about technology and that may demand different styles of communication, but he is not conscious of any change of style in that time. All he is conscious of is trying to explain simply, which is what he said they tried to do at WPP.
Sir Martin said that there aren’t neat solutions in their business. It is inherently messy. He said that he used to get into trouble for saying that good people are difficult to manage and average people are easy to manage, average people become difficult in order to prove that they’re good or to try and prove that they are good, so it defeats the purpose. But he does believe that.
He talked about that fact that WPP sold its interest in Globant, which he thought is right in the ‘sweet spot’ of what WPP is trying to do. He said he is interested in this because he is still a shareholder in WPP. He said they then bought the Floridian e-commerce Amazon company agency, Wunderman Thompson, so they buy that and sell 20% of Globant – he said he was doing the calculation and the loss in value on that 20% stake in Globant, because they sold at 52 and Globant is now about 125, is $500 million, half a billion dollars of value has been lost and he said that was because somebody somewhere said, “Let’s just get rid of it,” without thinking through quite what they were getting rid of. He added that it may have been a good idea to sell 60% of Kantar, but to sell 20% of Globant, which is right in the sweet spot of what WPP is trying to do, was just a patent nonsense and he described it as criminally negligent.
We talked about the balance that Sir Martin himself being at events talking about S4 Capital regularly, but balancing that with ensuring that companies such as MediaMonks get their share of voice as well but he said they do a very good job. He said that MediaMonks have boosted significantly their communications staff across the globe, which he said was partly because MediaMonks has gone from around 625 people when they joined S4 Capital to about 1,850 today, so tripled in size by number of people in just over 18 months. He added that is one of the good things, when your top line is growing by 45% and the industry in which you’re operating is growing by 20%, you almost don’t have the time to spend the money to catch up.
As for being a spokesperson for the business, Sir Martin said that Pete Kim & Chris Martin at MightyHive, and Victor Knaap & Wesley ter Haar at MediaMonks are equally loquacious. But he said that whilst it is difficult, you have to balance the time between speaking events and running the company. He said that they have created a brand from nothing. They started in the office we were recording the podcast in, with one person in June/July 2018, and then MediaMonks became part of the business in July 2018 and then MightyHive on Christmas Eve of 2018. So, you have to balance it and it’s not easy. Sir Martin said that he spent about a third of his time at WPP with clients, one third internal and one third external doing interviews like this podcast and with shareholders etc. Now, he would say it’s probably a skewed a bit more to 50 or 60% with clients and client related work and maybe of the other 40%, 20% on internal and 20% external.
Sir Martin said that whilst MediaMonks and MightyHive had a following before they joined the business, he thinks that if you asked the leaders of those two pillars of the business, the content practice and the programmatic practice, they would say that they have far more brand recognition today than they had before. He said that they have had to launch a brand, which he thinks they have done successfully, but that they have had brand trial, and so the opportunity for them is to get to move from trial to what he would call conversion at scale.
Sir Martin said that when they talk about the Holy Trinity model and about first party data driving digital advertising content and programmatic, then that really is the activation end of, or activation part, or part of the activation of digital transformation. Increasingly that’s where he said that their business is going to be positioned. He explained that they compete directly with a business that is smaller than them, indirectly with holding companies that are bigger and indirectly we compete with consultancies, which are even bigger than the holding companies. Therefore, he said, they have to fashion what they do. They have to be the disruptor. the motor torpedo boat, the Israel or the Singapore or even the UK now post-Brexit rather than the US or China or Brazil or India. He said that obviously it’s very different to trying to run WPP.
Sir Martin is not worried about being outspoken about WPP and he said as a shareholder he is entitled to be. He thinks he is perfectly entitled to express a view, which he said he did on succession there and he doesn’t think the structure there now, with Mark Reed, Andrew Scott and John Rogers, who’s he said has just moved there from being in the race to be CEO of Sainsbury’s, means you have three people whose lines of activities overlap, so he doesn’t know quite how they’re going to divide it up. He said that Andrew is very talented and seems to be doing more on the M&A front, Mark seems to be more involved with clients and John, who was going to become a CEO and who now has gone “back” to being a CFO, so there’s going to be a lot of overlapping areas in the executives in the C-Suite and it’s not clearly demarcated. He thinks there are probably two jobs there and three people, and so it’s an interesting situation, but he said time will tell.
Sir Martin was at Davos in January and said that the issues of climate change really took the public agenda but he thought the private agenda was more around what’s the relationship between America and China and that that’s a deteriorating relationship, which he thinks is as critical as climate change. He was quick to add that climate change is critical, but the two are interlinked because he said that China, given its size, is bound to be the biggest polluter / emitter of carbon, so in a sense they’re linked. But with companies saying they are going to go for zero emissions, but negative to make up for what they did in the past sets a very high bar.
He added that Google have made it clear that they’re going to eliminate third party cookies over the next two years. He doesn’t quite know how that’s going to play out, but that has a lot of serious implications for the industry. Why did they do that? He thinks part of it was to deal with the privacy issues but it’s going to eliminate a number of publishers, so there will be a further debate about whether there are too few publishers and if journalism being crushed, so that will be another part of it. He said a number of the people who relied on third party cookies are going to go to the wall and that there’s been a very significant impact, for example, on the market capitalisation of Criteo as result, which he said always seems to take the brunt of any changes of that nature. So, there’s a lot of things, he thinks, but what you’re seeing is the tech companies embrace this, which might be because they’re worried about the privacy debate, it may be that they’re worried about brand safety, or about interference in the elections. Sir Martin thinks it’s probably to do with the fact that they’re worried about regulation. He explained that now in America, the regulator will review even small tech transactions, not even ones that technically it should. He said that all the regulators in Europe and in America on a state by state basis and on a federal basis, are gunning for the tech companies because, with size comes responsibility. And Amazon, Microsoft, Google, Apple, are all trillion-dollar companies. He added that there is a bigger company – Aramco but these are very big companies and he said that with power comes responsibility. He thinks they’re starting to see they have to exercise responsibility and he feels Google and Facebook don’t get much credit for this, which he thinks is wrong. He thinks that Google has hired 10,000 people, Facebook 30,000+, which impacts on their margins and then their costs have gone up as a result, and they’re trying to monitor much more the editorial content. Sir Martin asked the question if they are media or tech companies? He thinks they’re media companies, although they always protested that they’re tech companies. But he thinks they’re beginning to act like media companies and make the balanced decision and he thinks the reason they’re doing that is because they’ve been phenomenally successful – he doesn’t see them being eclipsed. The only company he’s seen in the last year or so that really has got momentum is ByteDance (with TikTok), which he said he is told has $20 billion of ad revenues and TikTok within it is $7bn and so is the only one that’s moved the needle. He also added that when GDPR was introduced in the UK, the intention was to put a limit on the big companies but what it’s done has given them a stronger position and so he thinks Google’s decision on third party cookies will make Google stronger, not weaker.
Final words of advice
Sir Martin doesn’t think surrounding yourself with advisers is necessarily the best thing. He thinks that when you take advice, the advice tends to be around the side of caution. But he said it’s very simple – if someone’s going to write something negative and it’s going to be a minus 10, if you speak to the person before they write it, you probably can make it a minus nine or a minus eight or minus seven. You might not be able to make it a zero or a plus 10. So, when reporters used to ring up and the PA would say, he’s in a meeting or he’s travelling, whereas he’s hiding under the desk, that wont work. He said you just have to be responsive and authentic and say what you feel. He added that it doesn’t mean advisers are not valuable, they are, but it tends to hem you in and make you overcautious.
Sir Martin said that if you have listened to the podcast and want to email him, you can do so on Martin@s4capital.com – please let him know that you are responding to the csuite podcast interview!