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Advertising guru Sir Martin Sorrell 'has put plans for takeovers on ice'

Sir Martin Sorrell’s S4 Capital brakes takeover wave after profit warning, according to city sources

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Warning: Sir Martin expects lower profit at S4

Warning: Sir Martin expects lower profit at S4

Sir Martin Sorrell’s S4 Capital has curbed its takeover wave after a profit warning last month, according to city sources.

His London-listed marketing services empire has acquired more than 30 companies in the past four years. But delays in results earlier this year and the red flag of last month’s gains have sent the stock plummeting.

City advisers say this means further deals will be shelved, possibly for the next 12 to 18 months, as it aims to integrate the acquisitions made so far.

Sir Martin, 77, founded the company as a challenger to his previous firm – the world’s largest advertising group, WPP – after he left in 2018. The acquisitions have helped S4 grow into a company with a turnover of almost £1 billion and 9,000 employees in 33 countries.

Many of the May acquisitions of S4, most recently tech company TheoremOne, have been made by offering an equal split in cash and stock. Other acquisitions include digital and media consultancy MightyHive and content producer MediaMonks. But senior City sources said S4’s weak share price made it less attractive to take stock of the company.

One said the fallout had “tarnished” S4’s reputation as Sorrell rushed to restore investor confidence. “But he is working hard and will try to solve the case,” he added.

In its May update, S4 said it would consider merger opportunities in high-growth areas such as content and data analytics. On the day the full-year results for 2021 were released, Sorrell warned the company should be “extremely cautious” with future acquisitions.

Another source said: ‘The market will kill them if they make another acquisition. All mergers and acquisitions are on hold.” He added that the company had to show that the many companies worked well together, which was not a “short term” solution.

Sorrell appointed Colin Day last week to keep the ship stable. Day joined the board of directors as a non-executive director with responsibility for the firm’s audit and risk committee. He is a seasoned City veteran with positions as financial head of Reckitt Benckiser and Aegis Group. He is also a former director of WPP, founded by Sorrell in the 1980s from a shell company.

Sir Martin has also hired Chris Martin – the co-founder of MightyHive’s early acquisition – as Chief Operating Officer.

Delays in S4 results were described by Sir Martin in May as ‘unacceptable and embarrassing’. He also admitted to mastering “weaknesses, inadequate documentation and lack of understanding of the application of accounting standards.”

This was followed by a profit warning in July after rising costs of hiring new staff forced the company to cut its full-year outlook for earnings before interest, taxes, depreciation and amortization from £160 million to £120 million.

Concerns have been raised that the rapid expansion of S4 and accounting software has left financial staff overwhelmed and payments to customers delayed. The stock has fallen more than 77 percent this year. The price means it could also attract the attention of private equity firms, one banker said.

A source said S4 needed to fix its software and figure out how to run its businesses from one central platform, adding that it could take at least 24 months to get up and running. “The business should be fine over time, but I don’t see it returning to a £5bn business,” he said.

S4 declined to comment.

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