S4 Capital at a crossroads: stability, struggles and strategic speculation

And broadly S4 achieved this. Its recently announced 2024 full year results showed net revenue down 11% on a like-for-like basis at £754.6m and operational Ebitda at £87.8m, down 0.6% on a like-for-like basis. So, there was no real surprise for the stock markets with the share price actually going up.

Sir Martin Sorrell, executive chairman, said: “The macroeconomic environment in 2025 will remain challenging given significant volatility and uncertainty in global economic policy, particularly tariffs. In geopolitics, US/China relations, Russia/Ukraine and Iran remain volatile issues and therefore clients are likely to remain cautious. With that said, we expect to benefit from new business, especially in the second half and for the full year we expect net revenue and operational Ebitda to be broadly similar to 2024, with a further reduction in net debt.”

This guidance for 2025 sounds familiar to a year ago. If this happens the net revenue in recent times will be: 2022 - £891.7m, 2023 - £873.2m, 2024 - £754.6m and 2025 around £750m. Let’s see.

The investor presentation that accompanied the results announcement and webcast was as slick as ever and set out S4’s view of the way forward. And AI was very prominent in this as it has been for some time for the firm. The nature of its offer – content, data & digital media and tech services – naturally lends itself to the AI world. But this seems some way from translating into growth.

Lots has been done on cost-cutting and operating efficiencies. Headcount is down 7% and net debt is steadily being reduced. But you can’t cut your way to growth and the question still looms in terms of motivating those key employees that sold their agencies to S4 in exchange for 50% cash, 50% shares – the share element being worth vastly less than what they exchanged ownership of their agencies for. Today, at 35p, it’s just above this month’s all-time low of 27p compared to its all-time high of 878p in September 2021.

Clearly, as the last S4 acquisition was over two years ago, the impact of this has probably ‘washed through.’ In any event, these employee shareholders will want to see the share price improve and, perversely, may even be more motivated to help drive it up given what they have at stake.

Will there be pressure from shareholders, not just the institutional players but particularly key employees, to realize higher value than currently dictated by the market? If a takeover offer emerges, that generally creates an uplift, particularly if more than one suitor enters the fray.

So, if we now have a lean, future-facing business with its cost base under control, lower client-attrition and new business coming in (per Sir Martin’s comments), then it could be undervalued. Add to that S4’s investment in where the future is heading, this may well be a compelling addition to a bigger group. So let’s look at the suitors…

WPP, oh the irony, but has the sour relationship between the leaders healed with time? Having reported the worst set of results for 2024 of its peers, WPP is putting “everything on red” in backing GroupM and the integration of WPP Open, its AI operating system across the group, to be the growth driver. Adding S4 to the mix could make sense, particularly given it was set up as a “new-age digital advertising, marketing and technology services company” from the start. But WPP may have already caught up.

Dentsu could add substance outside of Japan and advance its AI journey forward but as per its results announcement, it seems to be retrenching and stabilizing, much like S4 has been. Havas is another option – perhaps a relatively big and bold move by the recently listed group which would certainly be headline-grabbing. And Stagwell? There were rumors in late 2023 that Mark Penn had tabled an offer which was rejected by S4. Given the fall in share price since then, I wouldn’t be surprised if they were circling again, but Stagwell has invested heavily in AI themselves and could have moved on.

Or… Sir Martin takes it private. Despite the current global economic uncertainty, there’s still a lot of PE money looking to find a home and Sorrell has never been a seller – look at how WPP held on to its minority stake in Chime back in the day when it was taken private by Providence Equity. Thus, he may see PE as a good way of taking it out of the glaring spotlight of the markets while retaining control.

Whatever route S4 ends up going, given its current share price I think we could see some interesting twists and turns in the next 12 months…