S4 Capital plc (SFOR) Earnings Call Transcript & Summary

Hello, and welcome to day 3 and the final day of our S4 Capital market event. I hope you enjoyed yesterday's sessions with our partners and got an impression of how strong those relationships are and how much they contribute to our growth. We also had a pretty busy day yesterday outside of the Capital Markets Day, with the announcement of our BMW Whopper win, and our merger with the exciting French agency, Dare.Win. Today, we're going to kick off with a panel session, where I'll discuss our merger and integration process with some of the entrepreneurial founders who have joined S4. Then we'll have a short special guest section with Victor, the CEO of MediaMonks, before we end, on an extended show reel of some of our best work and case studies from all around the world and Martin's closing comments. Now many of the questions we get asked by investors and analysts are around our merger strategy and process and the integration approach. Now in the previous presentation, I discussed our strategy, what we look for and our deal structure in detail. But who better to hear about the process than from some of the founders who have merged their businesses into S4. [Presentation]

So with that in mind, I'm delighted to introduce in chronological order of them joining us S4: Wesley, Founder of MediaMonks; Pete, Co-Founder of MightyHive; Natalia, Co-Founder of ProgMedia; Lanya, Co-Founder of Firewood; and last but not least, Bruno, Founder of Circus Marketing. Welcome all today. Thanks for joining us. And for the audience, please feel free to type your own questions into the app on the right, and I'll get to as many of those as possible later.

Now I'm going to start with you in chronological order as well. So Wes, I'll start with you. Could you give me the 60-second history of MediaMonks, please?

Of course, the long and winding road. We started MediaMonks back in 2001 as a freshly minted college dropout. I think a lot of people on this call will know that, that wasn't the best year to start anything in digital or as we used to call it, the Internet. And looking at that path, which is almost 20 years now, we went through all the stages and phases you need to go through to stay on the front lines of an ever-changing landscape. I think we hit our stride about 10 to 12 years ago, where we became this global engine of creative team crafts for the legacy networks and traditional agencies. They needed partners like us to put best-in-class station work against their clients' needs. So that was a really interesting time, allowed us to become a global company. And then the industry change, decoupling became more and more important for brands. They wanted to build direct relationships with different models, different teams, different talent. So the last 6 to 7 years, we built ourselves into a global creative and production partner. Really combining best-in-class digital design thinking, consumer experience thinking with what we call quality [ scale ] production. And that's till about 2 years ago, just before S4.

All right. And then you took the plunge with S4, which at the time was literally a blank piece of paper. So what was it about Martin and S4 that caught your attention and actually persuaded you to take that big step?

Well, it's interesting. We have talked to the legacy networks throughout the years because we did have this feeling that we wanted to get to a bigger stage, and we wanted our teams and talent to be able to perform on that stage. But we have talked to the networks many, many times and we never [ quietly ] get to the point where it made sense to join because it felt like we would be joining the end of something. And we had and still have way too much sort of entrepreneurial energy and excitement to keep building and keep growing. So that never felt like it was going to line up. We started talking to the consultancies. We read the same articles that I think everybody read which had the hypothesis that if you put these really strong businesses with lots of really smart people to work, they would be able to crack this idea of doing consultancy and creativity at scale. We went through that cycle. We had those conversations, met some amazing people, very impressed by those businesses. But I honestly don't think they will be able to do that. I'm not sure they want to even. So when -- so Martin and S4 came up that was the opportunity. The blank piece of paper was the thing that excited us because it allows us to disrupt an industry that we think needs some disrupting, and doing that with Sir Martin who built that industry to a large extent from an entrepreneurial perspective, which is an amazing opportunity. I call this my MBA, which stands for Martin's Business Advice. And it means that blank piece of paper is something we can fill in. It means we have a decade, we can go out and win, changing the work, changing how the work gets done, changing who does the work, and that was the most exciting thing for me.

Great. And then -- so 2 years into that now. I'm sure you had some ideas or dreams or ambitions of how things were going to go, how have they gone? How do you feel about it?

They've gone quite well. This is our second full year. And I'll be honest, the first year was us really getting our heads around this new thing, defining the promise and this year from easier proof points. And I think if I look at how we are turning up during COVID, and not just the numbers, I mean you and Sir Martin and Peter reported numbers a few days ago, they're best-in-class industry-leading. But if I look at what we're doing for our clients. And if I look at what our team and talent is doing, and it's just so different to many of our competitors. So that's a huge proof point for me because this is such a moment of compression where the speed, and the agility and additional native elements that we bring into play are more important than ever. And then, of course, we have the momentum, we have the BMW MINI RFP results coming yesterday. I think, in the words of clients, you can really see what a disruptive partner we are. There's so much momentum building. And then we have all of these teams joining, many of them on this call, but we had Brightblue join last week, Dare.Win, this week. It feels like we're going from strength to strength. And I think we're all very excited about year 3.

Yes, absolutely. And I see the BMW next to you, very nice. I believe Martin promised you he'd buy you a car once. So that's it, right?

[indiscernible] Yes, it's the faster, better, cheaper option of BMW [indiscernible].

Exactly. Great. Well, I'll be back to you later, Wes. So 2 months after the -- or several months after the MediaMonks deal, the next company to join the family was Pete and his colleagues at MightyHive. So I think that was just -- literally just before Christmas in 2018, right, Pete? So maybe you can give us a bit of background to how you build MightyHive.

Sorry about that. So MightyHive was founded about 8 years ago. And what ended up happening was we went down the path originally of starting a company that was focused on the Silicon Valley tradition, which is software. And so we ended up going down the standard route. Walking up and down Sandhill Road in Silicon Valley to attract venture capital. And what we were really focused on was first-party data. And we wanted to create a software platform around first-party data and raise some capital from some very notable sources of venture capital, including Andreessen Horowitz, Menlo Ventures, noted angels like the CTO of Salesforce.com, things like that. And away we went in kind of that time on or tradition of trying to create a software company from nothing in the valley called Silicon Valley. So what ended up happening from there was we found out that, though we were right about the importance of first-party data, we were a little bit off in terms of our timing. And so we're just a little bit too early, which happens quite a bit actually inside of the world of technology. And so we were basically looking to try and pivot the company to something. We didn't know exactly what it was. And what ended up happening was we found as is so often the case that the answer lied -- lay in solving our own problems. And one of the limitations and one of the ways that we knew we were too early was that the sort of services around the advanced advertising technologies that we were trying to build and that were already there, just weren't sort of up to snuff. And so what would happen, and the way that we like to explain it is that when you're thinking about technology and you're thinking about the impact that it can have on the world, there's always going to be 2 sides of the coin. One side of the coin is the technology itself. And the other side of the coin is going to be the actual people who use this technology. And so if you think about it as like a musical instrument then if somebody has just invented the guitar, then this technology -- new instrument is never going to reach its potential until you find that there is somebody out there who can actually play it. And so that was the opportunity that we saw. And we basically started getting into marketing services, doing advanced hands-on keyboard work, using the tools that in many cases, my co-founders and I, have helped to design. We all came from not an agency background but from a technology background. I came from Google; my Co-Founder, Lexi, came from Salesforce.com; and our third Co-Founder, Chris Martin, who also serves on the Board of S4 with me came from Yahoo!. And so none of us really had the background of marketing services, we just do the technology. But that ended up being a very, very good background on this. And so we -- away we went into the marketing services, and we just started growing very, very, very quickly. And eventually expanded into many different types of media, not just the programmatic stuff that we started with, but into search, and social, and then eventually into entire new rooms completely like data.

Great. It was a great ride. And then I believe you did the traditional Silicon Valley thing of instituting a process, hiring a Wall Street banker and going around and having a pretty formal process and ended up with many suitors. So what was it about S4 that attracted you? And how was it that you ended up joining us S4?

Yes. So by the beginning of 2018. We -- and the co-founders and I were thinking about how best to move forward. And for us, it really was never about trying to cash out or monetize the work that we had done so far. Instead, what we were looking for was methods to grow even faster. Since we made the pivot into marketing services, we had actually grown what we call the old-fashioned way just by reinvesting profits into the company and financing our growth. But by the beginning of 2018, it was very clear that if we were just kind of following the profits back in the company, we weren't going to have enough capital to really do justice to the potential. And so we were trying to sell the company. We're just trying to grow faster. And so we hired a banker to kind of bring us through all the different options that we had. We looked at all of them, not just mergers, but also debt, or minority investments, strategic investment, et cetera. And we were lucky enough to have 30 different offers just on the merger front, and we ended up sort of connecting with Sir Martin. And this is very interesting for us. And a lot of people think that Sir Martin was 100% of the reason why we came to S4. And although Sir Martin was a big part of it, what's not as well-known is that there was a singular meeting in Amsterdam where I met with Victor and Wes for the MediaMonks team. And we really just connected there. And part of my background is that I cut my team that started in online advertising by introducing and working on dynamic creative technologies over at Yahoo!. So you know those ads that follow you around the Internet with things that you didn't buy, sorry about that. And so what was interesting was that background really kind of gave me the appreciation for the creative possibilities of technology, but I've always been looking for the right creative artists who once again, couldn't use that technology to its fullest extent. And I never found it. I'd spent more than 10 years looking for somebody who truly understood the crafts of the creative and the content but also understood the possibilities from a technology angle. And in MediaMonks, we found that for the first time. And so when we were taking a look at the overall S4 proposition, not only Sir Martin's story of history and ability to connect to capital and clients and things like that, but combined with the MediaMonks' sort of obvious talents inside of creative, particularly with big technology-oriented mindset. And then the entire story around unitary, faster, better, cheaper, it was intoxicating, and the choice for us was clear.

Great. And then I guess we're 18 months into that choice now. So a lot's happened in that time. I'm sure, probably a little more than you anticipated. But how do you feel it's gone from your initial expectations?

Unbelievable. We started -- and the deal closed, I remember, it was the last meeting of the year for me, and I boarded a plane in Seoul, South Korea, and it was Christmas Eve getting the last meeting in, chasing that one last client before we called it a year. And when I landed -- when we took off, the deal hadn't been closed and when I landed, the deal will have been closed. And so it's been what 19, 20 months and change since then. And it's just been absolutely fantastic. Going from strength to strength, super, super exciting just to kind of -- not only sort of see the commercial wins. But as Wesley mentioned, to really start inventing the future. And that really is what I think drives all the entrepreneurs that have joined S4, which is not to try to monetize, but instead to do that purest of entrepreneurial sort of endeavors, which is just to figure out what's going to happen next. And instead of just wait for it, bring and usher it in.

Great. And I think one of the ambitions when you guys joined was certainly to expand geographically. So actually, the next merger we did was exactly that. So that brings me over to Natalia, who's down in Brazil. And that was -- the next deal we did was ProgMedia to give us that presence in Latin America. So Natalia, maybe you can give us a bit of background on Prog.

Sure. First of all, thanks for having me, and good morning from Brazil. It's awesome to hear these stories. I've already heard this before, but it's also -- it's inspiring to here Wes and Pete telling their story. Now I'm going to share ProgMedia's story. Well, both founders, me and Bruno, we came from Google where we had a very good scale in the digital marketing and in the media biz that where we work that. But besides being part of this dream company that it's known, Google, we decided to create in different times. Bruno founded for the -- ProgMedia in 2016. I joined 2017, and then we actually started operating. So at the time, we took advantage of very specific conditions from the market in Brazil. We have a lack of specialized people that truly understand the digital and digital marketing work. That's the first thing. The second thing is that the traditional ad agency, they were struggling to serve the client's needs on the digital transformation. So we saw interesting opportunity. And to build this, as we had this lack of expertise in the market, we build people as a key pillar of our sustainable growth. So we invested in hiring and training and to have a career dev from this people in the ProgMedia's way, which was amazing because we were able to deliver a very high-quality service level. And so by having this, we were able to do the fast growth. So 19 months after deciding operating, we joined S4. So it was super aggressive and faster growth. And based on quality, digital transformation and what we're best doing at the moment, that was programmatic. Not only programmatic, but at a time, we're pretty much focused on this. So summing up, this is the story, 60-second story from ProgMedia.

All right. And then as you said, it was only 19 months later that you became part of S4. So I'd imagine when S4 came knocking on the door, that was probably a little earlier than you had anticipated. So what was it about the story that S4 is telling that made you want to be part of it?

That's true. We always wanted to be part of a big player of the market to guarantee our leadership. We were leader at the time, but we really want to guarantee once it was a fast-growing market due to the lack of expertise and the need from the clients. So when S4 came, it was amazing because we could see that we're different pieces of a puzzle being together because you shared common values. So we were not digital first. We are digital only. We were at the time and we are digital only and the same for S4. We truly wanted to build something new 100% different from what the marketing is doing. And we are -- we could face this in S4 as well. And also we truly believe in people that people was the key pillar for a sustainable growth and the same for S4. So when we came, it was, whoa, that's amazing because we can have shared values. And it was kind of a confirmation that we're doing in the right decision to have them -- to maintain the leadership and gain another territories in the Latin America.

Great. And how is it going? It's, I guess, 1.5 years in. This year has been a little weird, but how is it been for you guys?

Intense. First of all it was really intense. The -- the interesting thing is that since we joined S4, we could've gain another leverage of service to offer to clients. So once we wanted to drive our clients through the digital transformation, by joining S4, we were able to do this with a much more expertise because you had data piece, we had the content piece, we had the programmatic piece, and that makes the offer much better. Also by the structure deal structure that were presented and that we started having was really interesting that is we're not part of a business unit, and we are not attached by longer notes. It's totally different. We are part of S4 group. And that's the best way for you to keep specialized and get people by your side because you feel you're part of this, and that's amazing. So we're not able just to make our role of services broader. But we are truly part of this innovation and of this innovative way to work in the market.

Great. Thank you. So a couple of months after that, it was the turn of Firewood, so I'll now switch over to you, Lanya. So maybe give us a bit of background as to how Firewood got started and the kind of services you were offering up until you became part of S4.

Absolutely, and good morning from smoky California. It's crazy here. Firewood was founded 10 years ago in the California wine country. And people often ask me, why did you start an agency? Two reasons. One, I had a kid. I know a bit counterintuitive, but my mindset was more work-life balance, being with my newborn. Naive, yes. But the second reason was I wasn't afraid to go out on my own, entrepreneurial appearance. And it was also a time in the market where there was a need for something different. So really, it brings me to why the success of Firewood. Two reasons, we didn't come from the client side, and that was really an opportunity to come into this industry. Like many of us on the call, we're not agency people. We really came in to disrupt as it were. And so I had talked to many of my former clients at the time, also friends, and we talked about this broken model. There was a lack of transparency, a lack of flexibility and a lack of collaboration, which brings me to the second reason. What we created at Firewood was this disruptive model. And at the time, we didn't have a name for it, but it was what we later called the embedded model. A lot of people now, call it the in-housings. And what it was is to align your people next to -- to be an extension of the client. The -- what we found back 10 years ago is that people, agencies, in particular, they were -- they would receive a creative brief, they go away for 2 weeks. They work on that beautiful idea, and they come back with the big reveal, the ta-da. But in those 2 weeks, particularly in this environment and particularly in the Silicon Valley with tech clients, so many things could change. And we came into it with being so close to our clients that in that 2-week period, we knew exactly what was going on, and we could change on a dime, and that scale and that level of collaboration really struck a chord with our clients. And proof is in the pudding, right? With this model, we have clients that we've worked with for over 8 years. That level of collaboration and partnership is very, very sticky. And it's paying off. Here we are 2020, Firewood, we're 400 people, we're in 7 offices in 4 countries. And we have ranked #1 in the San Francisco Bay Area, #1 in Silicon Valley. We were ranked #6 in Adweek's fastest growing companies, and that's the largest agencies. And in 2020, we became Ad Age's Best Places to Work. So we're really pleased where we've come from.

Amazing achievements there. I don't think I've ever told you this, Lanya, but my first day at S4, I remember very clearly, I was sat in the back of a car with Martin in New York stuck in traffic. And the first call we had was with your friend and banker, Phil, and he was giving us the news that you guys were really interested to proceed things with us. So my first task on day 1 was to write up an offer letter for you, which I'm very grateful that you then accepted. And obviously, you then became part of S4. But I'm again, curious, what was it about S4 that attracted you? Because I'm sure you'd have many approaches over the years and I don't think you were ever that particularly interested in sort of merging the company or selling the company.

Yes, absolutely. This is a great question. And to your point, no, we weren't looking to sell. We were -- we had no investment. We were profitable. However, we like to say that what attracted us to S4 is we were S4 before S4. We love the way they viewed the agency model. They knew it was broken. They knew that -- Sir Martin really knew that things needed to change in the industry. That disruption was critical to growth of this next right generation of agencies, although I don't think agency is the right word. And I love the motto that Sir Martin -- the better, faster, cheaper. We had a motto too. We said it more eloquently, see quality value, and still trying to convince Sir Martin that this is a better choice. So in January of 2019, back to the decision, clearly aligned in terms of how we thought about the industry and what we could do together, but there were other things at play. There were 4 things that we were really focused on. One, career opportunities for our people. That was critical. The other thing was opening new doors, having better and more business opportunities. Not every opportunity that -- not every organization that we were talking to had those opportunities. Sir Martin has been an incredible megaphone. He's amazing. Opening doors was really important to us. The other thing, the global footprint. We clearly work with some of the top grounds in the world and having access to grow our global footprint to support and service our clients was really important. And finally, fit, I think Pete said it well. Making sure that we were going to work with like-minded entrepreneurs, everybody on this call, we like each other. And so that was really important to us. And honestly, the S4 checked all those boxes for us.

I saw everyone smile when you said everyone on this call, we like each other. And I think that's true, hopefully. So how has that gone for you then? Because obviously, the seduction period of the deal is one thing, but then you have the reality of life afterwards. So if you still like us all, I'm guessing it's gone pretty well, but how have things been?

It's been amazing. So we're a year in, actually, we'll be a year in on October 25, my son's birthday. That was a good day. But it's honestly gone very, very well. I've gone through integrations before, connecting with a number of companies. But I would say -- we're a year in. We're working collectively on client work. It's been amazing how clients have responded to not only how we're doing it, but the offering we have, I would say like anything, integration is painful. But it's really the focus and the commitment that all of us, again, on the call, and I'm sure we can all smile here, is that it takes a lot of focus, and we have cross-functional teams to ensure that we are integrating at light speed. So really pleased.

I'll come back to you on some of those points later. But moving on last but certainly not least, to my friend, Bruno. So Bruno, give us a little bit of background on Circus Marketing.

Hola, Scott. Hola [Foreign Language]. Hi there. So Circus in a nutshell, we founded Circus 15 years ago in Mexico City. As many of my peers said there was this, on one side, broken model. On the other side, we have -- that there was a big problem related to great places to work. So we put our energy in creating the best place to work in Mexico, while we were client first. So after a couple of days, we understood that the model wasn't to create and duplicate what most of the agencies were doing to duplicate walls. So our first employee was in Buenos Aires. So from there, we opened our office in Buenos Aires. One single-office model where we could take care, not only of our people, but at the same time, of the quality of our product and the margins. So after a couple of years, we opened Buenos Aires, we opened Madrid, we opened L.A. And then thanks to our clients, and I'm talking about Netflix, Spotify, Uber, they asked us to open 3 more offices: Bogota, Santiago de Chile and Costa Rica. And from there, we opened São Paulo. So now we are 8 offices. We are at 400 people. We work with the best clients out there, and we are part of the most amazing rocket ship possible.

Well, speaking of that rocket ship, so I know the Circus name and business, we only met when the deal got done. But I know the business from my time at WPP. And whenever I went down to Latin America and I would ask, "Who's doing well? Which independent agencies are doing well?" it was pretty unanimous that it was Circus. But that was always followed by, "There's no point talking to them. He's fiercely independent. He'll never become part of any of the holding companies," and you proved them right. But what was it about S4 that sort of change your mind a little bit and maybe you see that maybe being part of something bigger had some benefits and some prospects too?

So before talking about S4, I could say that I sat down with most of them legacy holding companies. I sat down with a couple of private equity firms, and I sat down with a few of their consultants, including Accenture Interactive. And I -- what I think right now about them is they have the right speech, they just are not set up for success. And it's difficult on their side to be successful and to walk the talk. So when I get my first -- when I had my first meeting with Sorrell, and then I have my second meeting with Wes 2 days after. I thought, "Okay, this is it. This is what we were looking for." We were trying to go global and we're thinking about what was the best way to go global. Is it -- should we do it ourselves? Should we do it with a holding company? Should we do it with these other players? And at the end, when we met, and I understood the plan and I read, of course, about MediaMonks, I read about MightyHive, I read about Firewood, I said, "Hey, we should be there." We want to disrupt the industry. We want to go globally. And this is the kind of space where I'm sure we will strive. Then I went into more details, and I talk about people. And I thought, "Okay, our people, our culture will fit. And our people will thrive in these very entrepreneurial structure." And on the other side, we were there to bring our audience-first, clients-first, one single office model. And when we start talking with Victor, with Pete, with Chris, with Lanya, with Juan, and with Matthew, with Bruno, we were doing the same. And as Lanya said before, I think that we all were part of S4 for before being S4. Even after that, we founded Circus 15 years ago. So -- and now we are happy. I remember when we signed, I create this dashboard for myself. We signed 6 months ago on January 6, even more. And I divide it in 4 pillars. The first one was people. Are our people going to thrive? The second one was related to products. The third one, our partners. And the fourth one, our profits. And after these 6 months, I can say that we are checking all the boxes. Of course, in this bumpy ride where integration is a big part of the deal, and we are putting a lot of effort there. But one of the great things about S4 is that we really feel value in the structure. It's very, on one side, human structure, human-centered structure. On the other side, this unitary structure is based on what we call go-getter spirit, mostly related to the entrepreneurial mindset. And third, this is designed for the future. We are here to disrupt the industry. And I think we are doing, hopefully, a good job.

I think we are. And I'm glad you have that dashboard, and I'm glad to hear that the readings on that dashboard are pretty good. It doesn't surprise me that you have a dashboard. I know everything you do is very data driven, so that's great to hear. And we're all very glad that you made that decision. You certainly put a smile on our faces quite regularly. So I just encourage all the audience, if you have any specific questions, please do enter them on the app to the right of your screen, and I'll happily ask the panel. So coming back to you, Wes. I know you've done some mergers back in the day, pre the S4 deal of MediaMonks after you've taken some private equity and obviously, there have been quite a few more since then. We just met Lanya. We just met Bruno, who are now part of the MediaMonks family. So how has it gone from your perspective of integrating those companies and sort of building the whole, if you like. How has that gone?

Well, to Lanya's point, we like each other still. So that's very important. I think the main thing that I am so focused on is we don't want to make the mistakes of the legacy networks. I have a lot of friends that have sold to those types of organizations. And very quickly, what happens is they buy, they acquire these amazing companies, and they very quickly lose the essence. They lose their talent, they lose their team, they lose their vision, they lose the entrepreneurs, which I think takes away the opportunity to keep growing and renewing and sort of finding new opportunities. So we're doing 2 things. The unitary structure is really about single P&L. This idea of earning in -- or sorry, buying in instead of earning out is key to what we're building. This idea that everybody is working towards a greater good and really is incentivized against a single P&L structure. And, of course, the stock. That's a key part, right? There's no sort of earn-out models. The second part, which is really key, is for us to figure out we all clearly have the same ambition and vision. We all build companies -- and we heard a few people say that we're S4 before S4 so we now are working very diligently on making sure we actually have that combined vision, mission, integrated culture and team sort of focus to make sure we can take that next big step and push. But it's very different to what the traditionals do in this space. It's so much more than a holding company. We say merger instead of acquisition, and that isn't just semantics. I think is a real reflection of how we think about bringing these things together.