S4 Capital reveals new merger amidst accounting problems

S4 Capital has reached a merger agreement aimed at expanding its technology services in the US.

Sir Martin Sorrell’s advertising group revealed that its digital production subsidiary MediaMonks, which it bought in July 2018 for $350million, would combine with Los Angeles-based TheoremOne for an undisclosed sum.

S4 Capital expects the deal to boost its underlying earnings by over 5 per cent this financial year and add one so-called ‘whopper’ account - a major client generating over $20million in annual revenues - to its roster.

TheoremOne’s clients comprise some of the largest corporations in the US, including entertainment giants Disney and 20th Century Fox, technology behemoths Google and Microsoft, and mining equipment maker Caterpillar.

Founded in 2007 by Will Jessup, the company has offices across multiple major cities, such as London, Shanghai and Singapore.

Its chief executive Brady Brim-DeForest said the merger ‘means we’ll be taking the field with some of the best talent in the world. The entrepreneurial, growth-focused culture at S4Capital is one where I’m confident our team will feel right at home.’

The deal is S4 Capital’s 13th acquisition or merger since being founded by Sorrell four years ago, soon after he left his chief executive post at WPP, the world’s largest advertising business.

But the latest deal comes against a background of controversy concerning the group’s accounting practices, which saw the publication of its full-year results delayed twice.

When they were finally released on 6 May, Sorrell described the delay as ‘unacceptable and embarrassing’ but said the firm was undertaking reforms to rectify the situation, including hiring more auditors.

An investigation by the Sunday Times published last weekend revealed that the company’s rapid expansion had led to finance staff being overwhelmed and invoices being improperly recorded.

MediaMonks was reported to have not paid social media influencers and creditors on time, and occasionally used a corporate credit card to pay suppliers.

The Netherlands-based group also relied on software meant for small and medium-sized businesses even after S4 Capital had rapidly expanded, something many insiders argued had made the system unfit for purpose.

Problems were amplified by staff not making invoice edits on the company software but instead using the invoice PDF, which meant billing changes were not being accurately tracked.

Former MediaMonks employees made further allegations of some staff acting like ‘Mad Men,’ a reference to the television drama about an advertising agency set in 1960s New York, as well as a prominent drinking and ‘frat house’ culture.

Sorrell denied such claims, telling the Sunday Times: ‘We do not accept, in any way, that there is either a drinking culture or frat house culture within MediaMonks, or that the culture is any different to the industry norms that you would find elsewhere.’

Following the report, S4 Capital shares plummeted by 9.7 per cent. Even after they rebounded 3 per cent to £2.94 by the late afternoon on Tuesday, they have declined by nearly 45 per cent in the past three months.