Sorrell defies WPP's legal threat to seal Media Monks deal

10 Jul 2018  |  David Pidgeon 
Sorrell defies WPP's legal threat to seal Media Monks deal

Sir Martin Sorrell's new business, S4 Capital, has beaten WPP to buy Media Monks for €300m (£266m).

The move, which will fuel growing hostilities between Sir Martin and the firm he founded before leaving under a cloud of rumour in April, was announced on Tuesday morning.

Last week, WPP warned Sir Martin he would be in breach of his contract by pursuing a target WPP had been in talks with since last November.

However, S4 defied any such warnings to secure the Dutch-based business, stating the objective behind the "merger" is to "provide clients with digital services, which are agile, efficient, and of premium creative quality."

Media Monks has revenues of around €110 million and operates through 11 offices in 10 countries across the US, Europe, Asia, Latin America and the Middle East. It made around €10m profit last year.

The combined group has over 750 people and clients including Adidas, Amazon, GE, Google, Hyundai, JAB, Johnson & Johnson, Netflix, 3G and Weber. Media Monks services include digital experiences, product, content and e-commerce.

Somewhat surprisingly, there is no earn-out provision for the founders of Media Monks, meaning they will not receive additional payments based on the future performance of the business.

Meanwhile, critics have suggested Sir Martin has paid too high a price for his first acquisition, which will set a precedent for future deals to be priced at a premium.

Commenting on the deal, Keith Hunt, managing partner at Results International, said: "Given the stiff competition for Media Monks, Sorrell probably needed to come up with something quite special to secure the prize. He’s cleverly positioned them as a partner, putting Media Monks at the core of S4 and building everything around them.

"If he’s giving significant amounts of equity to staff and management the need for an earn out disappears as there is sufficient incentive for them to grow the business and its profitability and value."

The transaction might, however, trigger debate over the future of the earn out and the deal model going forwards, Hunt said.

"Our view is that the earn out isn’t going to disappear any time soon. Earn outs have worked well for many years although there has always been room for deals like the one Sorrell is making here. Accenture might have entered the market with a no earn out approach, but that hasn’t fundamentally changed the market."

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