Fireside Chat – Highlights: 

Featuring Sir Martin Sorrell, S4 Capital: Founder and Executive Chairman, Formerly WPP: Founder and Executive Chairman 

April 15th 2020 1pm EDT  

EXECUTIVE SUMMARY 

Introduction  

Madison Alley Global Ventures virtually hosted exclusive one-on-one Fireside Chat with Sir Martin Sorrell, Founder & Executive Chairman, S4 Capital, and formerly, Founder & Chief Executive, WPP. 

S4 Capital: 

• 2,500 people in 30 countries  
• World-class creative production, data and programmatic on a global scale 
• 2019 £250M in revenue, 292% of growth (37% pro forma) and £33.4M adjusted EBITDA 

WPP (Formerly):

• As former CEO, Sorrell built WPP into the world’s largest advertising and marketing services company 
• Upon departure (Apr 2018):  WPP had a market cap of over £16B, revenue of over £15B, EBITDA of £2.5B  
• WPP’s agencies operate in 112 countries, working with clients including 348 of the Fortune Global 500, all 30 of the Dow Jones 30, 70 of the NASDAQ 100 and 69 of the FTSE 100. 
• £7.7B Market Capitalization 

• Fiscal Year 2019 Billings: £53.1B 
• Fiscal Year 2019 Revenue (excluding pass through costs): £10.8B 

Economic Outlook   

• Question raised by Michael Seidler (Madison Alley): “What is WPP’s view with respect to the outlook for the foreseeable future 2020 and beyond, in particular with regard to the crisis and pandemic, how do you see the pace of recovery and the distribution?” “The economic outlook the timing and the pace of recovery and also if you could give us a view for how do you think this will come back to our recovery and what is the new normal?”  
• Response: Sir Martin Sorrell (S4 Capital): “I guess I would be on the bullish side of the argument, I would be a bullish protagonist, in the V-shaped school or at the very least the reverse of the square root sign understands what that means which is yeah we’ve already experienced an unprecedented downturn and I see the agency hold co executives suddenly woken up to the fact that this is unprecedented many compared it historically with what’s happened at 2008 in the financial crisis, the 9/11 crisis or the 2001 dot come bubble and the 1970 oil crisis, it’s not like that, the nearest as one can get to it I think; it’s war time so this is a very different situation to any that we have faced in the past.” 

• Sir Martin Sorrell describes that the financial crisis coupled with the healthcare crisis affects everyone, however not equally, clearly if you look at the demographic statistics that’s not true whether you’re looking at America and various segments of the American population and for that matter various regions in the World.   
• According to Sir Martin Sorrell be believes the recovery will be V-shaped, based on analysis released from Goldman Sachs, which said that the market may not, it wasn’t unconditional, may not test its recent lows. Sir Martin Sorrell continues to describe a scenario of a sharp downturn in the markets in the short-term. There were about 28 trading days, depending on which index is referenced, which were unprecedented in terms of the steepness of the decline.  Sir Martin Sorrell describes the recovery as a flip back in Q2 2020 and then as he describes “will be a bloodbath”.  
• Sir Martin further explains that concurrently still in the beginning stages of the pandemic and Q2 2020 with company results will get progressively worse with company earnings releases, in Q3 2020 however, Sir Martin Sorrell describes a recovery, relatively, “coming from a low base, if GDP or agency revenues are down 25% or what the analysts will forecast, the publicist yesterday wasn’t prepared to give any guidance; I think the holding company at this moment is not prepared to provide any guidance and probably rightly so, this is genuine uncertainty to be fair.”  However, he further explains that there will be a recovery from low levels in Q3 2020 and then subsequently Q4 2020 it will improve and further into 2021 a bounce back perhaps, similar to that of 2010 from the 2009 lows where the market took a hit.  This is not only a financial crisis but also a health crisis so the dynamics of the recovery will be different.  Sir Martin Sorrell feels he is slightly more bullish compared to his peers regarding the economic outlook for 2020 and beyond. 
• Michel Seidler (Madison Alley) asked: “In terms of marketers and advertisers what steps will they take towards the recovery?   Sir Martin Sorrell discusses that “in the ad industry, clients should spend during recessions of this nature, however, you can’t when companies are faced with an existential crisis where they may not survive Q2 2020, as their trusted advisor you’ll soon become untrusted” Further Sir Martin Sorrell describes that “you can’t say you should flagrantly spend because you may spend yourself out of existence, companies will be quite rightly judged by what they do in this recession and the data that you see that some of the companies quoted about consumers – think that companies should be good in some position but they should invest in protective clothing programs and vaccine development.” 

• The company S4 Capital, is digital and given the nature of the company, Sir Martin Sorrell feels they can withstand the current economic storm, in addition to having a strong balance sheet position, with no debt and being cash flow positive. They have set-up a COVID-19 task force that meets every day to discuss their internal company affairs, clients and with a short-term focus on finance and liquidity.   

Leadership 

• Michael Seidler from (Madison Alley) asked: Could you provide context in your perspective of leadership, in terms of what you would suggest to agency leaders and marketing tech companies and other executives in terms of effective approaches to leadership in a time of crisis like this? 
• Response: Sir Martin Sorrell (S4 Capital): “We all make terrible mistakes but the trick is to make fewer mistakes than the good decision, so make fewer bad decisions than good decisions and you win through the end” As far as leadership decisions within S4 Capital, subsequently, leadership decided to do the following: 

• Firstly, form the Coronavirus Crisis Group (CCG), consisting of eight senior members of the firm 

• Secondly, cutting leadership compensation by 50% and some by more as of April 1st 2020, for six months and revisit at the end of six months, this was a decision to demonstrate to the company of key leadership decisions in a time of crisis in addition, some of the holding companies have made nominal changes i.e., 20% for three months 
• John Wren, Executive Chairman at S4 Capital, cut his salary to zero until September 2020, Sir Martin Sorrell states “this sends the signal to the organization that senior management are taking this very seriously”  

• With regards to employees acclimating to the work from home environment, Sir Martin Sorrell states: “Immediately when the lockdown started and by the way our people are digital natives, these are people who come from Google, Yahoo and Salesforce they’re not agency people they come from production companies and are used to working at home because our mantra is faster, better, and cheaper and faster means agility which is a key attribute in our view and needed in our industry and our clients and that agility means you’re 24/7 and it means you’re always on and you’re working from home” 
• At S4 Capital they will continue to be aggressive without impairing their balance sheet  

Operations, Organization and Clients 

• Regarding managing costs and imperative organizational decisions, question from Michael Seidler  (Madison Alley): “So many of the agency leaders and the audience here are looking to make similar decisions as you’ve been making, a lot of these are very difficult decisions and particularly difficult in this time because there’s the uncertainty, it’s unclear to what extent in the pace at which the rebound will happen, therefore, what advice if any, might you have for how they decide to what extent for cutting and retaining and what costs to keep?”  
• Response: Sir Martin Sorrell (S4 Capital): “Regarding salary cuts, I think a 10% cut across the board, if it’s the right thing to do as opposed to cutting 10% of your workforce, I can think of in our own organization, in Asia-Pacific, we’ve seen obviously in parts of Asia Pacific – pretty much all lockdowns and people who are in very short supply who are not doing anything and they may not be doing anything because they can’t visit clients, and can’t be on site, and are in scarce supply.   We take the position that we should hold on to those people and redeploy them.  We‘re not a big Network but we are in 30 countries that redeploy them elsewhere we’ve managed to do that very successfully in a very short period of time” 
• Sir Martin Sorrell (S4 Capital) believes there will eventually be a rebound and agencies and other companies should be prepared to have the resources set-up and available and monitor the pace for the snap back.   
• With respect to clients: Question from Michael Siedler (Madison Alley): “What advice might you provide in terms of how to protect your accounts and also be strategically positioned or be positioned to grow – what should agencies and others be doing at this time? “Also, what should they do to come out of this in a better position or at least protect them now and be in a better position within their clients as the recovery is underway? 
• Response from Sir Martin Sorrell (S4 Capital): “It’s difficult to assess although, I think you’ve got to observe two things: 1. Which sectors are going to be impaired for a significant period of time?  2. Which sectors and/or verticals have been less affected?  Amazon hits an all-time high, Netflix is close to an all-time high, therefore it is obvious, I think what encompasses all of this is: faster, better, cheaper or speed, quality, value; I believe those are the three attributes that post COVID-19 are going to become even more essential, so speed and agility, and better meaning understanding the ecosystem.”  

Industries Disrupted & Offerings 

• Michael Seidler (Madison Alley) comments: “You mentioned some interesting points particularly about the industry; we have created slides that look at the industry, for the sake of perspective (a relative perspective) of this is a 2019 look of how digital ad spend in the U.S. is proportioned and as you can observe retail is comprised of 22% of that automotive and services are second at about 12%, followed by telecom and then importantly, travel only comprises 8% so under 10% of the U.S digital ad spend, because that looks like the sector that’s been hit the most, what is your perspective?”  Response from Sir Martin Sorrell: “First off, at 22% retail is pretty big, there are differences there as retail can cover digital or line retail as well, automotive has also been hit.  Financial services are big opportunities on the SMB loan provision side but for transmission payments/electronic payments big opportunities as well.  Telecoms very interestingly they were becoming utilities they’ve got a big surge.  As far as CPG and consumer products, Unilever stated they were not going to spend money on ice cream or food service but spend money on cleaning in and in other areas of their business.   The travel sector was obviously hit, computing because of electronics has big opportunities media and entertainment hit and recovery will be slow, healthcare obviously poses big opportunities as well due to the current pandemic.” 

Global Competitive Landscape and M&A 

• Regarding M&A: Michael Seidler at Madison Alley asks: “On the topic of M&A and transactions how do you think that strategic transactions will be affected in terms of the pace?  What are the next steps for M&A buyers, and how are they going to approach M&A strategic opportunities throughout the course of this year?  How will evaluations and structures be impacted and how do you think that’ll take shape?” 
• Response from Sir Martin Sorrell (S4 Capital): “As a buyer looking for merger partners, we look for people who are going to buy into our concept of building a new age, a new era, new media model and we’re not interested in people who want to sell out, we are interested in people who will buy into our concept.   I hope that prices will fall, however, I don’t think they will.  Then following what I said about the reverse of the square root sign or V; I haven’t detected that valuations have come down.  I looked at Silver Lake participating in the $1 billion Airbnb opportunity in a combination of debt and equity securities.  In addition, Bain Capital announced recently that it is planning to raise about $9 billion for its next flagship global buyout fund; I think it was dry power and free unlevered equity, the credit markets may be shot, you may not be able to gear it 5 or 6x.  In our own industry, Accenture continues to grow at a rapid rate and Deloitte digital, that would be another hundred-billion-dollar Goliath, therefore any valuation drop will be pretty short-lived because I think there’s a lot of liquidity”. 

Summary  

• In summary, Sir Martin Sorrell highlights that, in his view “Your biggest asset if you’re in the agency business or consulting business is the people, and it’s maintaining that fabric, the reason why clients come to you is the people and nothing else.” He also specifies that one of the things that he’s found remarkable about S4 in this very difficult period is the energy and commitment of his employees and the shared goal of growth and continued success.