Free Agency Vol. 2 📈 - How to build the biggest advertising agency in the world, quit, then do it again, as a short king: The Martin Sorrell Saga

There's a lot of talk about building conglomerates, buying companies, making acquisitions. This week, I want to talk about someone who did it, and reshaped an industry. Someone who referenced themselves as being "as tall as Napoleon", and shared his appetite for conquest and domination. Martin Sorrell.

Nothing and no one grows on accident. It's all intentional and specific.

Get to the Money

To understand Martin, you have to have to look into what he built. WPP is his crown jewel, one of the notorious BIG 4. The Big Four refers to the four holding companies that are dominant the field of marketing and advertising.

They are called 'holding companies', because they are collections of other agencies with focus areas. Some do PR, others do design, some do experiential marketing, media buying etc. They are ecosystems that feed other ecosystems, and it is always changing and growing. Imagine each of them like an octopus, with tentacles in all kinds of industries, but connected to a central place.

Here's an adjusted chart of the Big 4 revenue for 2023, in their reported currencies.

Paper or Plastic

Fresh out of Cambridge and Harvard Business School, Sorrell worked at IMG, a talent management firm. He looked after the financial affairs and merchandising of some the high-profile stars, and he ended up investing on behalf of a client, buying into shell companies that were publicly traded.

In 1985, Sorrell and his business partner started searching for their own company to buy and used it to acquire an advertising business. They had a clear thesis for what the company needed to look like:

• Management that was "mature, but not senile"
• Simple manufacturing process
• Profitable
• Listed on a public exchange

The company they acquired was called Wire and Plastic Products. They got 29.9% for around £400,000 ($675,000) and WPP was born.

The Balance Sheet Bully

For growth, Sorrell had one key strategy: acquisition by any means.

As a buyer, you can approach the leadership, express interest, go through a vetting process, get agreement from the board of directors, and proceed. Not all takeovers are equal; some are hostile.

A hostile takeover means approaching the shareholders directly without any input from leadership input. This typically happens by purchasing enough shares in a company to have significant voting power then making an offer to the remaining shareholders for their shares as well. You can buy their shares, or you can convince them to vote with you to boot the management team of the company. If you have enough buy-in, you can purchase the company, regardless of the management’s feelings.

In the case of companies that are publicly traded, their shareholders are interested in returns. If you present a better case than the management team, you can take control without their approval, as long as the board approves. You may want to play nice with the founder, but you don’t have to, because you have leverage. The movie "Wall Street" with Michael Douglas and Charlie Sheen, has a scene where the Douglas' character talks about how "Greed is good". This is an old school example of presenting a case to shareholders that you have a better plan for growth.

The businesses WPP targeted usually had some form of institutional investors and shareholders that had a vested interest in getting their money back, and Sorrell presented WPP and its size and dominance an opportunity to get to that faster.

Let’s say you’re a pension fund for teachers somewhere in Europe, and you invested in a company WPP wants. Your shareholders are the educators and deserve a secure retirement. Martin comes over and says, “Hey, I want to pay 20% more than this business is worth, and give you stock in my big company, that has a history of buying and growing companies, how does that sound? I just need you to agree, and the other investors will like it, and we’ll tell the founder later, ok?”

Buying was a core to WPP’s growth. Over the next two decades, Sorrell kept going. If he wanted your company, he’d get it. This is a snapshot of a few of his greatest hits while CEO:

Non-Disclosure for What?

I mean, this is a guy who made the teleprompter look like a Twitter feed every time he got on camera.

No run lasts forever though. In April 2018, Sorrell resigned from WPP, amidst wild accusations. It’s the stuff that ends careers, tarnishes legacies, and will have you riding off into the sunset to go live a quiet life. Unless it doesn't. He did what any good founder would do after leaving a company you built for 33 years with a market capitalization of £24B; build a direct competitor in public. He left without a non-compete clause, meaning he was free to do whatever (within the law).

He invests £40M of his own capital and raises £100M to start S4 Capital. His vision was to create a “next generation multinational communications business.” In July 2018, he buys Dutch agency Media.Monks for $350M, beating WPP.

S4 Capital debuted on the London Stock Exchange in September 2018, giving them access to capital markets, and five months after the WPP fiasco. Five months is the compound interest of 33 years remaking a market. Since then, they’ve done over 20 more acquisitions of digital agencies and providers that fit the thesis.

When you are that big, speed can become your weakness. You have to stay nimble, but you also have global operations, economic headwinds, changing industries, massive headcount, and a whole host of other issues. You are vulnerable for the same reason the businesses you purchased were: you are looking for efficiency, and will make changes to ensure that the business persists. Reinvention is a demand.

Legacies Are Mixxy

In June 2012, Sorrel wrote a Financial Times op-ed outlining his personal credo for running WPP.

“I have been behaving as an owner, rather than as a ‘highly paid manager.’ If that is so, mea culpa. I thought that was the object of the exercise, to behave like an owner and entrepreneur and not a bureaucrat.”

That explains your zeal and abandon in structuring an organization of 200,000 people in 112 countries. He ran WPP like an early stage business, but had the resources to do things an early stage company can’t and wouldn’t risk. Founders navigate risk in building companies. Sorrell did it via his strategy of buying ones.

Today, S4 Capital has 7,700 people in 32 countries. It brought in £1B revenue in 2023, much smaller than WPP. Why compete on size when you can win on speed, in disrupted market?

Tactics are actions, strategy is the plan. Sorrell aimed to maximize and build the biggest business using available resources. It’s early for S4, but he’s employing a similar updated strategy for the current market. WPP is still a giant, buying things, and looking to reclaim its position as the most valuable holding company. Founders aren’t CEOs, not all CEOs are managers, and managers are not owners.

You can take an old formula, apply it in a new way (or industry), and build something new. Once you have that knowledge, your limits are your imagination (and where you find capital). There are always costs, but what’s really free these days?

See you next week.

Jonathan