Sorrell reveals 'very different approach' with €300m MediaMonks deal

"It’s a very different approach and a very different structure – one that is built for the future, not for the present and certainly not for the past," Sorrell told Campaign in an interview, noting MediaMonks will not have an earn-out.

He signalled that he has aggressive expansion plans for the Dutch content production business, which is already present in 11 cities in 10 countries, including the UK, US, Asia and Latin America, saying he is looking at Germany and India and perhaps Japan. 

"The deal is the beginning," he added. "Now all the hard work starts."

Sorrell, who is poised to list S4 Capital on the London stock market in a reverse takeover of Derriston Capital, announced the acquisition as a "merger" with MediaMonks.

The price, which is believed to be close to €300m (£265m), was not disclosed but Sorrell said it would be revealed when S4 Capital’s listing completes.

MediaMonks has annual revenues of €110m, which would value the company at nearly three times annual earnings – a high multiple for an acquisition in marketing services.

"It depends on what you compare it [to]," Sorrell said, pointing out an earn-out "would probably end up being more expensive" if MediaMonks beat targets.

The planned acquisition marks a spectacular return for Sorrell – just 87 days after he abruptly exited WPP on 14 April after 33 years at the helm.

S4 Capital said: "The merger represents the first move by S4 Capital to create a new era, new media solution embracing data, content and technology, which meets client needs in an always-on environment."

Sorrell launched S4 Capital on 30 May with £51m in funding and a further £150m commitment from investors and can issue shares worth up to £1bn.

S4 Capital is structuring S4 Capital’s first deal in a way that contrasts with how he used to do acquisitions at WPP:

• S4 Capital is giving MediaMonks staff a mix of cash and shares and the deal "will not include an earn-out" – a delayed, variable payment based on financial performance;
• S4 Capital will be "run on a single P&L basis, as clients are increasingly demanding" – again a contrast with WPP, which came under criticism during Sorrell’s tenure because it had silos.

S4 Capital said the MediaMonks transaction "seeks to create the digital platform of the future", noting the agency already "provides a global and locally relevant approach" and "co-locates resources at both agency and client".

S4 Capital out-bid rivals, including WPP, to buy the Dutch outfit from its founders, Victor Knaap and Wesley ter Haar, and private equity investor Bencis.

"We're not selling out, we're buying in," MediaMonks said in a statement about the deal, describing Sorrell as "Senior Monk".

Welcome, Sir Martin! pic.twitter.com/KN1fW2vTXZ

— MediaMonks (@MediaMonks) July 10, 2018

Sorrell's change in approach follows his time at WPP when the group faced claims during his final years in charge that its agencies were too siloed and lacked flexibility when it came to putting staff in clients’ offices.

"WPP is not a monolith," Sorrell said. "There is a number of different models inside WPP so I think it’s a bit unfair to say there was nothing like that in WPP. But, having said, this [S4 Capital] is very different and built for a different age."

The MediaMonks acquisition will give S4 Capital global scale and clients such as Amazon, Google, Johnson & Johnson and Netflix.

S4 Capital said: "The objective behind the [MediaMonks] merger is to provide clients with digital services, which are agile, efficient, and of premium creative quality."

The Dutch firm, which was set up in 2001, provides services such as digital experiences, product, content and ecommerce.

S4 Capital said it would put "subsequent emphasis" on expanding the business in areas such as data analytics and digital media-buying.

MediaMonks is thought to have begun sounding out buyers last year. The firm, which won 18 Lions, including a Grand Prix for Entertainment, at Cannes Lions, the ad industry’s global festival, in June, became the subject of a fierce bidding war.

WPP, Accenture Interactive and private equity firm Inflexion are all said to have been interested in MediaMonks.

WPP has expressed anger at Sorrell’s decision to pursue MediaMonks because he previously looked at the Dutch firm when he was chief executive of WPP – before he abruptly exited in April after an investigation into his personal conduct.

His old employer believes he has broken a confidentiality clause in his WPP employment contract and has warned Sorrell is likely to have put his potential £20m bonus at risk by allegedly using information from his time running the group.

A source close to WPP said the plan to withdraw any bonus payments due to Sorrell was "not an idle threat" – regardless of whether he was successful in acquiring MediaMonks.

Sorrell has denied breaking any confidential agreement and said threats to withhold bonuses were a "weak and feeble attempt to destabilise the bid".

MediaMonks was advised by JEGI Clarity, a boutique investment bank which previously advised creative agency Adam & Eve/DDB on its estimated £110m sale to Omnicom.