Exclusive | He Was the Ad Industry’s Hunter. Now, He’s the Prey.

Madison Avenue titan Martin Sorrell has rebuffed merger offers for S4 Capital, the firm he founded after exiting WPP

Martin Sorrell is currently running S4 Capital, an ad firm whose clients include some of the biggest names in business. Hollie Adams/Bloomberg News

By Suzanne Vranica and Patrick Coffee March 22, 2024 5:20 am ET

Martin Sorrell is the ultimate dealmaker. He went on a global acquisition spree over three decades to build the world’s largest advertising company, WPP WPP 1.87% 🔼 , scooping up iconic agencies like J. Walter Thompson and Ogilvy & Mather through hostile takeovers.

Now, Sorrell finds himself in an unfamiliar role: He is the one being hunted.

These days, the 79-year-old Madison Avenue veteran is running a different ad firm, S4 Capital SFOR 13.13% 🔼 , whose clients include many well-known companies, such as BMW, Amazon, Facebook and Google. With his business under stress and its stock price plunging, Sorrell has received several merger offers from Stagwell , an ad firm led by former Clinton adviser Mark Penn, according to people familiar with the matter.

Sorrell rebuffed the offers because they undervalued the company and he didn’t view Stagwell as a good strategic fit with his firm. One proposal, made last fall, was worth nearly $700 million, some of the people said. At least one private-equity firm also expressed some interest in acquiring S4.

Sorrell helped transform a little-known U.K. manufacturer of wire shopping carts called Wire & Plastic Products into WPP, a global advertising empire. Photo: toby melville/Reuters

Even though S4 is publicly traded, Sorrell has effective veto power over most deals because he has voting control. His reluctance to entertain offers has frustrated senior executives, some of whom are looking to facilitate a sale.

Sorrell founded S4 in 2018 following an acrimonious exit from WPP. Motivated partly by a desire for vindication, he set out to build a smaller, nimbler competitor to the ad giant, and one with a different profile.

He began acquiring companies with expertise in digital marketing and data and developing capabilities in artificial intelligence, rather than buying traditional creative ad agencies that often have lower profit margins. In one instance, S4 outbid WPP to buy one of them.

Sorrell said the ensuing rivalry with WPP is part of what fuels him. “I had a point to prove,” he told The Wall Street Journal in a 2021 interview.

The approach initially worked, particularly during the pandemic, as brands shifted more of their ad dollars online. More recently, the company suffered from a combination of industrywide challenges and self-inflicted problems.

‘No such thing as a hostile takeover’

S4’s stock price has dropped by about 75% in the past year, leaving it with a market value of less than $300 million. S4 is expected to report a decline in annual like-for-like net revenue next week, and Sorrell has cautioned that the 2024 outlook for ad spending remains subdued.

The stock decline has left Sorrell vulnerable, said Greg Paull, co-founder of R3, a consulting firm that helps match advertisers with agencies. “I wouldn’t be surprised if someone like private equity comes in and takes a shot at it,” he said.

A sale would mark an ironic twist for Sorrell because he “is usually the one leading the way in the acquisition space,” Paull said.

Asked about his M&A strategy during a 2011 interview, Sorrell said: “In my view, there is no such thing as a hostile takeover. Many takeovers are not hostile to the shareholders or employees—they may be hostile to the CEO.”

Mark Penn worked for Sorrell for years after WPP bought a research and polling consulting firm that Penn co-founded. Photo: Jeenah Moon/Bloomberg News

Sorrell has a strained relationship with Penn, the founder of Stagwell, that goes back to their previous work relationship. That tension is complicating any potential deal between S4 and Penn’s company, people familiar with the matter said. Penn worked for Sorrell for years after WPP bought a research and polling consulting firm that Penn co-founded. He left in 2012 to work for Microsoft.

Stagwell, whose clients include Bud Light and the National Football League, owns agencies such as Code and Theory, 72andSunny and Anomaly, as well as public-relations agency SKDK and research firm The Harris Poll. Penn has long had a keen interest in acquiring S4 because of its expertise in areas such as app development, data marketing and helping companies with their digital transformations.

However, Stagwell’s interest in S4 is waning given Sorrell’s reluctance to negotiate, some of the people said.

New York private-equity firm New Mountain Capital held exploratory talks with S4 last year about a possible acquisition, according to people familiar with the discussions. New Mountain has a majority stake in digital marketing outfit Tinuiti and owns Bounteous, a consulting company focused on building digital customer experiences for brands. New Mountain remains interested in buying some parts of S4.

New Mountain Capital declined to comment.

Wall Street’s de facto voice on the ad economy

Some interest in S4 has been driven partly by senior executives who are disgruntled and have reached out to bankers to drum up interest, some of the people said. Many of the top executives are shareholders in the company, because most of the deals S4 has struck to buy agencies included 50% cash and 50% stock, leaving those executives holding shares that have significantly dropped in value since they were issued.

Over the course of three decades, Sorrell, pictured in 1993, built WPP into an ad behemoth by scooping up iconic agencies through hostile takeovers. Photo: Peter Jordan/Popperfoto/Getty Images

Sorrell has also upset some executives by exploring a restructuring of S4’s board of directors that would remove some of the executive directors, according to some of the people.

Sorrell’s career in the ad business began in the 1970s when he joined Saatchi & Saatchi’s finance department. Though he never penned a jingle or crafted a TV commercial, he used his micromanagement skills and an accountant’s attention to detail to rise to the top of Madison Avenue, transforming a little-known U.K. manufacturer of wire shopping carts called Wire & Plastic Products into WPP, a global advertising empire.

Sorrell took any means necessary to win. Some of his most notable acquisitions were hostile takeovers.

In the following decades, the ad industry turned into a competition for mergers and acquisitions, with the largest holding companies often entering bidding wars for the hottest properties. Sorrell’s acquisitions ranged from agencies that specialized in ads on Amazon to communications firms representing some of the biggest names in American politics.

As WPP grew, so did Sorrell’s profile. He emerged as the de facto voice on the ad economy for Wall Street, and one of the best-known and wealthiest business tycoons in the U.K.

Sorrell, center, has long been a fixture at high-profile events such as Allen & Co.’s annual meeting of tech and media titans in Sun Valley, Idaho, which is often called ‘summer camp for billionaires.’ Photo: Drew Angerer/Getty Images

Sorrell has tried to climb back to the top echelons of the sector after a bitter and public breakup with WPP. He resigned from the company in 2018 after the company completed a probe into what it described as “an allegation of personal misconduct.” The probe looked into whether Sorrell used company money to pay for a sex worker, The Wall Street Journal previously reported. Neither side disclosed the investigation’s findings. Sorrell rejected the allegation of misconduct “unreservedly.”

Sorrell, who didn’t have a noncompete clause in his contract with WPP, announced plans to create S4 Capital weeks after leaving.

No clear successor

S4 has grappled with several challenges over the past two years, including a pullback in ad spending that has been especially tough for agencies with clients in the tech industry. The tech ad pullback has hurt other larger ad companies, such as Interpublic Group, WPP and Penn’s Stagwell.

S4 suffered delays in reporting its earnings in 2022, partly because of inadequate financial controls. Sorrell called the reporting delays “unacceptable,” and the company has worked to strengthen its financial controls and governance structure.

The firm also has struggled to integrate the many companies it has bought, which has caused a lack of coordination and fiefdoms to emerge internally, according to some of the people familiar with the matter. S4 in its latest annual report—for 2022—said there were some improvements made during the year on integration, but its nomination and remuneration committee and its wider board felt “there was insufficient overall progress in this area.”

Some S4 executives are concerned there is no clear successor to Sorrell, the people added.

“The Group is working on a succession plan for Sir Martin Sorrell,” S4 said in its 2022 annual report.

Laura Cooper contributed to this article.