You need to know this:

• S4 Capital, Sir Martin Sorrell’s fast growing digital pureplay, is powering out of Covid, its share price soaring as firms scramble for digital transformation
• It is building end to end programmatic, data and platform capability via more than a dozen mergers since launch, with more in the pipeline
• Former Xaxis Apac boss and global chief growth officer for WPP’s Performance Media Group, Michel de Rijk, is S4 CEO for Asia Pacific
• De Rijk says holding companies are floundering under their own legacies and suggests consultancy firms are “too far from reality” in quickly delivering what brands need to transform
• By shunning pitches and focusing on brands ready to change at speed, de Rijk claims its new business strike rate is “significantly higher than 50 per cent”
• S4’s single P&L, unity and incentive structure means that business units are not fighting each other
• Which means growth will continue to outstrip the market

• On further M&A: Australia has “quite a lot of interesting and good shops … so don’t be surprised if there is something in the press in the near future”.

The fast and the furious

Sir Martin Sorrell is a man in a hurry, building S4 Capital as if he has a point to prove. In 2018 his former holding company peers may have seen him as a speck in the rear view mirror. Two years later, S4 has its pedal to the metal - and is gaining ground. Its share price, a metric Sir Martin has used regularly to beat WPP since his ousting, is rocketing post-Covid while the others struggle to shake off the impact of the virus. S4’s current market cap (£1.83bn) makes it almost a quarter of the size of WPP (£7.6bn). Not bad for two years work.

While holding companies struggle to shake off legacy business models, S4 is purely digital. Michel de Rijk, hand picked by Sorrell to head up Asia Pacific as CEO, says there is no other future, even though clients have asked the group to pick up offline work. “Why would you move into a business that doesn't grow?”

Instead, S4 is aiming at the “sweet spot” between holding companies and consultancies by delivering the best of both worlds, “faster, better and cheaper”, with a single P&L and management incentives pegged squarely to company-wide growth.

So far, it appears to be working.

Appetite for disruption, less for pitches

Locally, S4 is working with the likes of NAB and ANZ through its Adobe platforms business, what was BizTech. On the MightyHive programmatic side of things, de Rijk says it is working with clients including Country Road Group and Myer and Vodafone New Zealand.

“There’s space for a disrupter. If you look at the holding companies, they have been struggling for the last year and a half, two years,” he suggests. “The consultancy businesses are, I think, slightly too far from reality in [delivering on] client needs right now and being able to operate and act quickly. And I think there's a sweet spot somewhere there in the middle [for] our strategy.”

That is: “Bringing a single identity into the market, with a unitary structure, being able to act quickly … across the full spectrum of programmatic media execution, data insights, analytics, content creation and production into the full end-to-end consumer journey, the digital transformation piece,” says de Rijk.

“So far the clients that we have spoken to globally and in Australia are very interested in that.”

However, the firm is cool on pitching. De Rijk thinks there are more intelligent ways to win business.

“It’s not often that we find ourselves in the big pitches against the holding companies or consultancies. It is not that we are saying no [to that approach], but we are trying to avoid them as much as possible,” he says.

“We choose not to take our key people out of the day-to-day business for three to six months, in order to work on pitches – and eventually win or lose a piece of business based on whether we're able to fill in the Excel sheet in the same way as the others,” he says.

“That approach doesn’t give a lot of room for partners that are forward thinking.”

However, he claims that by identifying the “drivers of change” within a business, and gauging their ability to genuinely effect change, S4 can pick partners that are more likely to understand the need to move the needle.

He thinks those agents of change are increasingly at c-level or on the board, as companies realise that if they do not change quickly, “the future of their business could be at risk”.

“Maybe a few years ago, I'm not sure that realisation was there and the driver of change was probably not high enough in the organisation to actually push that through.”

Today, however, particularly post-Covid, the shift is happening and de Rijk claims taking that approach means that S4 is winning more than half of the new business it targets.

“The moment that we've identified that there are people that want to make the change and the brand is ready for it, our strike rate is significantly higher than 50 per cent.”

Aligning incentives, stopping fights

De Rijk says S4’s single P&L structure is pivotal to success, preventing constant fighting among fiefdoms because management incentives are pegged squarely to group growth. In effect, there are no fiefdoms. “We don’t have all that internal bullshit,” as de Rijk puts it, which he says frees up about 25 per cent of his time.

“One of my biggest frustrations [working within holding groups] was that you bought in this amazing talent, this amazing asset that I would love to present to clients, because I know it is going to help them. But the moment that the holding company does that acquisition, it puts them on earn outs - and that means for the next three to five years, that executive team is only interested in maximising the value of their own P&L.”

That means the ability to use that “shiny new capability” throughout the group is “is almost zero for the first three to five years. Which is ridiculous.”

Hence S4 taking a unitary structure - and stressing that its deals are mergers, not acquisitions.

”When we merge with companies, we do the purchase for a full 100 per cent,” explains de Rijk. “So from day one, they're only they're only vested in one thing and it is bringing greater success to the total S4 organisation.

”What it does for brands is that from the first day that business is in [the group], you have 100 per cent access across your full client portfolio. And I think that is the key differentiator with the holding companies or the consultancies like Accenture.”

At the top echelon of management, “a lot of them were founders of the businesses that we brought in,” says de Rijk. “So they are 100 per cent KPI'd on S4’s performance, because when they when they merged their business into S4, they got 50 per cent cash and 50 per cent S4 stock.”

Further down the organisation, individuals have personal and “soft” KPIs, says de Rijk. “The rest is on the overall S4 performance.” That makes it unimportant where a deal is signed or invoiced. “That’s no problem at all. There is never a discussion where that sits in the P&L. And I can tell you from nearly 10 years at WPP, that probably frees up 25 per cent of my time on a weekly basis.”

What took Sir Martin so long?

If S4’s unified structure and single P&L is such a game-changer, why did it take Sir Martin 33 years and a change of company to adopt it?

“It’s a good question, I’ve asked him that myself. When he said we are going to launch S4 and that is the idea, that’s the first thing that came into my mind,” says de Rijk.

“I’m not sure [Sir Martin] is going to like this, but I’m going to say it anyway: we need to understand how big WPP grew, how many different forces there were and how much it actually took to make significant changes like this,” he continues.

“If you do tens or hundreds of acquisitions on an annual basis, the difference between doing an acquisition and buying a 40, 50, 60, 70 per cent [share], like WPP used to do, versus 100 per cent, has a significant impact on cashflow, risk, things like that. So it is very difficult the moment you are down a certain path to make that change. The luxury that we have with S4 is the moment that the business started, it was a clean sheet of paper.”

Whereas the holding companies and even some of the consultancies remain stuck in silos, suggests de Rijk. 

“It's very difficult to make a change and that is one of the reasons why you see holding companies struggle right now. Because they're really smart people there and they see what the future is going to look like.

“But they've got this thousand pound gorilla that they need to turn around. And a lot of the old stuff is sort of holding them back from being able to make that pivot and sail in the right direction.”

Given that divisional CEOs within WPP have complained for many years about a complete lack of autonomy in decision making, Mi3 suggests Sir Martin – a reputed control freak – could have surely bent the company to his will.

“I look at it in a different way. I don’t see him as a control freak. I do think he likes to be involved in a lot of things, but he also gives a lot of trust and confidence the moment that business is running the right way,” says de Rijk.

“And how much of a control freak can you be in a $17 billion company with 60,000 employees? So I think it's all relative,” he suggests. “And I also think that in a lot of cases, his ‘control freakiness’ has been used as an excuse for underperformance and incapability, if I'm really honest.”

On Xaxis, arbitrage hypocrisy and hitting the numbers

Legend has it that Sir Martin picked de Rijk to head up APAC because he always hit the numbers at Xaxis. But in the heyday of early programmatic, with its early business models, there was perhaps more opportunity to blow targets out of the water. Less so now.

“If you look back at the model, it was a good model for that time,” says de Rijk, whereas the Xaxis leadership has long since changed the model to move with the times.

“That's exactly what you need to do - and that's exactly what a Xaxis could do, because it has always been run very independently,” he adds.

At the beginning, Xaxis was a “start up on steroids” that retained autonomy within the group and big growth ensued. De Rijk suggests that the reason why programmatic desks within other holding groups “were not so successful is because they did not get that freedom.”

In terms of growth, the “prime years” came in 2013-2015, says de Rijk. But around the same time, brands started to get twitchy. Questions around mark-ups and media transparency became increasingly pointed. The programmatic 1.0 model, it transpired, was not sustainable.

De Rijk, however, is unbowed.

“Partly it wasn't sustainable, but I also think that the press took a very negative view on it, if I'm really honest, because Xaxis had and still has a lot of happy clients.”

While stressing he can no longer speak for Xaxis’ current position, “at the time it was, yes – call it arbitrage – but we make a margin. But we also do a lot of investment in trading commitments or technology, people, resources, data. Eventually it didn't operate that differently to, let’s call it an ad network at that time. But because it was owned by a holding company, all of a sudden there was a lot of scrutiny around it.”

Yet de Rijk suggests some of the marketers making bold public statements around transparency were less choosy when it came to hitting their own KPIs.

“There have been multiple cases where brands have been outspoken about being against the ‘Xaxis business model’. But once they were approaching the end of the year and targets were not yet hit, all of a sudden there was a little bit more flexibility in their positioning towards Xaxis, because they knew that Xaxis was able to deliver the results. So, you know, if it suits them, then all of a sudden the model is accepted.”

The future: More acquisitions, strategic growth

S4 has done more than a dozen M&A deals in two years, with two in Australia. Is it more likely to focus on building out than acquisition locally now?

“Both options are there. In all markets we have organic and inorganic strategies – they are not mutually exclusive,” says de Rijk. “We are having conversations [with potential targets] at the same time as building the team on the ground.”

However, he adds that Australia has “quite a lot of interesting and good shops … so don’t be surprised if there is something in the press in the near future”.

While it has built up Adobe and Google capability, and recently announced a merger with Amazon specialist Orca Pacific in Seattle, de Rijk says there are ”another few mergers coming up” with firms that specialise in platforms such as “the Salesforces of the world”. Meanwhile, “in China on the Ali Baba and Tencent side, you can expect to hear more”.

However, de Rijk says the company is not aiming to be in every world market.

“The reality is we are not going to be in 150 countries like back in the day. We are going to be in 35-40 countries max, and within those, we look for the best, to eventually bring to other markets.”