S4 Capital’s share slump means Sir Martin Sorrell has a crisis on his hands

theguardian.com:

It was “unacceptable and embarrassing”, said Sir Martin Sorrell in May, when the advertising firm S4 Capital finally announced its full-year numbers for 2021, that publication had been delayed twice. He could hardly say anything else. S4 is his fast-and-furious post-WPP comeback vehicle and he had just given investors a mighty scare over its ability to manage rapid growth – 29 agencies bought since launch in 2018.

Still, on the bright side, the 2021 numbers contained no nasties. By generating £687m in revenue, the company had almost doubled in size in its third full year. The finance operation would be “upskilled”, said Sorrell. The long-term goal of assembling a large and global digital-only advertising agency was intact.

And now this: a thumping profits warning on Thursday that sent the share price crashing 46%. Growth still isn’t the problem – but controlling overheads is. The statement cited “significant investment in hiring and consequent expansion of the cost base” as the reason why top-line earnings for this year are now forecast to arrive at £120m, versus the £160m-ish expected by the market.

The difference may not sound huge but, after the debacle with the delay in last year’s numbers, S4 was low on credit with the outside world. At 121p, the share price is now virtually back to where S4 started out. As recently as September 2021, it was 800p and S4 was worth £4.5bn, prompting some observers to wonder if WPP (value: £9.3bn) could be overtaken eventually.

Forget comparisons with WPP. The question now is how the collapse in the share price damages the roll-up strategy. Since Sorrell has already ruled out issuing equity below 425p, deal-making is presumably off the table. What’s more, past equity-share arrangements