Digital media

S4 Capital’s lust for whopper growth wrenches its auditor’s nerves

S4 Capital has all the makings of a Harvard case study. It’s a tale of a mercurial advertising scion, spurned by a business he previously founded, who in 5 years turned a shell company into a global advertising giant. It’s a tale that is still in its early chapters.

S4 Capital was founded in 2018 after Sir Martin Sorrell stepped down from WPP, a company he created in 1985. The reasons for his departure from WPP are controversial. Sir Martin says he departed on amicable terms; WPP did not comment.

It seems hell hath no fury like a scorned advertising mogul.

S4 Capital was Sir Martin’s new love child; digital marketing was its prodigy.

Sir Martin Sorell

In just five years it has gone from nothing to annual revenues exceeding £686 million ($851 million) largely through rapid acquisitions. 

Media.Monks a digital production business was a key takeover made soon after S4 Capital’s inception, rapidly followed by over 25 other media groups. S4’s share price trajectory was strong, jumping from under £2 a share in January 2020 to over £8 in July 2021. The strong share price allowed S4 to finance M&A through stock instead of paying cash. 

S4 targeted ‘whopper’ clients. Internally these were high revenue accounts with billings exceeding £20 million a year. 

Buying businesses is one challenge, a greater one is integrating them, especially their reporting and management systems.

Behind the scenes, at least according this news report, accounting problems at S4 exploded; sales weren’t always recorded in the computer; suppliers faced payment delays; and on several occasions company credit cards to pay partners. 

As a consequence, auditor PWC refused to sign off the accounts. It cited various reasons including, “control weaknesses, staff turnover and lack of detailed documentation.”

When S4 delayed reporting results for a second time, the company’s stock price dropped dramatically.

S4 has since installed a new chief financial officer and Sir Martin has apologised for “unacceptable and embarrassing” delays.

After Wirecard, a fiasco which involved a series of accounting scandals causing the insolvency of a major German listed company, not to forget Enron, Bernie Madoff and others, auditors are pushing back harder.

Would you want to be known as a ‘Whopper’ client? And more seriously would you think carefully whether S4 could account clearly how they’d spent your advertising dollars?

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