S4 Capital executive chairman Martin Sorrell describes himself as “a bit more optimistic than most.” In the early throes of the coronavirus, Sorrell was one of the few executives predicting a “V-shaped” recovery in the marketing services business: describing a graph showing a rapid decline, but then a sharp rebound back to normal.Sorrell said at Digiday’s Programmatic Marketing Summit Live last week he’s slightly amended that shape to a “reverse square root”: a sharp decline, swift initial rebound, but taking a little longer to return to normalized levels of spending.
Sorrell also discussed marketers’ responses to coronavirus and the huge global conversation around equality and race following the killing of George Floyd. He also hinted at the upcoming acquisitions S4 has in its sights. This conversation has been edited for length and clarity.
Are you still predicting a V-shaped recovery?
The shape of the recovery depends on which vertical you’re talking about.
If you’re talking about tech, that’s certainly V-shaped If you’re talking about home entertainment and gaming, that’s V-shaped. If you’re talking about healthcare, that’s V-shaped. Online retail is another area of V-shape.
There are sectors like autos which are more U-shaped. I think they will recover as showrooms in many of the lockdown countries have been reopened.
Travel, leisure, that’s going to be more L-shaped. Attending sporting events is probably going to be L-shaped. Sports rights will probably be more U-shaped, maybe even V-shaped, as the platforms invade the sporting rights area.
I’ve always been a bit more optimistic than most. The glass is half-full for me, not half-empty and that’s for a very important reason. Trying to lead a business or trying to direct a business in these times, I think you have to be realistic. You have to tell the unvarnished truth to your people but similarly you have to give them a vision. The parallels can be to Shackleton and Napoleon: Telling the truth … but also giving them a modus vivendi — a way of thinking about what’s happening in a much more constructive way.
It’s not good preaching doom and gloom. It won’t get you anywhere.
What happens to the ad market?
April was probably the trough. We saw a slightly better May. Then June, probably a little bit better. Certainly the pipeline on the content side of the business is stronger in June than it was at the beginning of May. Q2 is going to be very tough. Q3 will get better, relatively. And Q4, better than that.
If you were looking for an overall shape for what’s happening, it’s what I would call a reverse square root. You had a sharp fall. A recovery coming in Q3, in Q4 and 2021 but maybe taking a bit of time to get back to pre-Covid levels. All in all: Not as bad as some predicted.
In March I asked if you agree with the ad industry notion that if companies spend on advertising through a recession they come out the other side stronger. Your response was: “What you just told me is complete nonsense. Self-serving twaddle.” What about now?
I think it was irresponsible from people in our industry. I heard it from one CEO of a holding company — I won’t name which, but he knows who he was [Editor’s Note: It was WPP CEO Mark Read]. It’s nonsense. That statistic he trotted out about 84% of consumers will judge companies by how they behaved in the [crisis] — well of course they will, but that’s got nothing to do with spending money on advertising.
After this terrible event — [the killing of George Floyd] — meaningful statements are meaningless. What people are looking for is not words. People are looking for actions.
What you have to do in situations like that is act, not talk. In the last few days, we’ve set up a matching fund inside S4. We made a $250,000 matching contribution to our people’s contributions. We’ve progressed. Education and training programs and we will have quantitative and qualitative targets. Thirdly we’re setting up a fellowship scheme … so we can take minority graduates and non-graduates in.
Coming back to Covid-19, most companies understood that unauthentic responses were a bit disingenuous. If you took all the purpose ads and you removed the logos and the company names, they all looked the same.
This recession and Covid-19 is different. This is like wartime. To suggest that clients should willy-nilly spend when they have an existential threat I think is a big mistake.
Our industry has to be more responsible. Our industry has to differentiate the things that are in our interests and what are the interests of our clients.
Where do you see M&A going?
We continue to be active. There’ll be another similar company to Digodat [a Latin America tech consultancy S4 acquired in May] but in a different part of the world in data and analytics. We’ll do something around one of the platforms — filling out and buttressing and developing our service around one of the … big six [platforms] shortly.
The issue for us, as it is for others, is to maintain as strong a balance sheet as you can. During the … beginning of [Covid-19] we did a lot of scenario planning and our cashflow actually has been stronger than even the most optimistic forecast.
[There is] still a lot of liquidity, still a lot of money out there on the sidelines and if pricing did weaken I think frankly it’s a very small window.
Update: S4 Capital has set up a $250,000 matching employee contribution fund. A previous version of this article incorrectly stated the fund’s value was $50,000.