A New York-based hedge fund has doubled down on Sir Martin Sorrell’s advertising group S4 Capital, which lost nearly a third of its market value this week following a delay to the publication of its financial results.
Permian Investment Partners raised its stake in S4 to 4.1 per cent this week, betting that concerns over the postponement would prove to be misplaced.
Alex Duran, Permian’s co-founder and portfolio manager, said that his firm has “immense confidence” in Sir Martin and S4’s chief growth officer Scott Spirit’s “operational and financial management and control of the business”.
He added that Permian had “closely studied” Sir Martin’s track-record at WPP, the world’s largest advertising group that he founded and led for over three decades.
Analysts have raised concerns about the lack of any clarification from S4 as to what has caused the delay to its results, with one saying the company had been “eerily and worryingly silent”.
Duran downplayed these worries. “I don’t think they can say much, so they haven’t,” he said. He added this was not Permian’s first investment in the advertising group, although its previous holding had fallen below the 3 per cent threshold that prompts disclosure.
The transaction helped lift S4’s share price just over 11 per cent to 321p at the close on Friday, a slight recovery from a tumble that has wiped roughly £1bn from the London-listed company’s market value.
S4’s woes began on Wednesday when it announced that PwC, its auditor, had not been able to complete “the work necessary” for the company to go ahead with a planned release of its preliminary full-year results the following morning. It added that 2021 results were still expected to “remain within the range of market expectations”.
S4 declined to comment. The company, which appointed a new chief financial officer in January, had blamed the first delay to its results in March on the pandemic affecting “travel and resource allocation”.
Permian was founded in 2008 by alumni of Brahman Capital, a New York-based investment manager. Duran said Permian’s mission was to invest in “the best CEOs in the world, predominantly in Europe”.
Sir Martin launched S4 in 2018 after an abrupt departure from WPP. Through four years of dealmaking, the group has rapidly acquired 29 companies, building a workforce of 7,500 people in 33 countries.
Alive to criticism that he ran WPP from a lean corporate hub and paid insufficient attention to integrating its sprawling assets, Sir Martin promised a different, unitary approach at his “new age” S4 venture.
The digital-only business was built around Media Monks, a digital production arm, and Mighty Hive, which made its name as a reseller of Google’s automated ad platforms.
However the hit to S4 over its delayed audit potentially raises longer term challenges for Sir Martin. As most of S4’s deals have been funded by the company issuing shares, rather than paying in cash, a sustained fall in its stock price risks complicating further acquisitions.
Additional reporting by Adrienne Klasa