Mergers

S4 Capital signs $150 million deal with Silicon Valley's largest digital marketing firm

Martin Sorrell, chairman of S4 Capital, during a Bloomberg Television interview on March 18, 2019
Jason Alden | Bloomberg | Getty Images

S4 Capital, the media firm founded by advertising mogul Sir Martin Sorrell in 2018, has announced a $150 million merger with Silicon Valley's largest digital marketing agency.

Speaking to CNBC's "Squawk Box Europe" on Tuesday, Sorrell, WPP's former CEO, confirmed that the merger had been finalized this month.

He said the deal was worth $150 million, with S4 Capital paying $112 million upfront — half in shares, half in cash — and the rest of the balance coming if Firewood hits its targets for the year.

Firewood, founded in 2010 by Lanya and Juan Zambrano, is the largest digital agency in Silicon Valley. The company will join MediaMonks, S4 Capital's digital content arm.

"We started with a clean sheet of paper, we've been at it for a year and we now have, post-Firewood, 1,800 people in 23 countries and a market cap of $600 million," Sorrell said.

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S4 Capital's chairman on $150 million merger with Firewood

He added that the decision to merge with an established agency rather than build one within S4 had been about the pursuit of organic growth.

"In the first half of this year we were up 40% like-for-like, going into July and August we're up even stronger, so we're showing very significant organic growth, reflecting what's happening in the digital market," he said.

"(The digital market) was up in the first six months of this year by 20% (while) traditional advertising was down by 3%," he added, telling CNBC he wanted "nothing to do with the traditional business, because it's slow growth or no growth."

"Traditional agencies are fighting over pricing, they're fighting over inflation caps, and this puts the agency under tremendous pressure between the client and the media owners," he said. "They're trying to win the business by giving guarantees which probably they can't justify. On the digital side it's not about brawn, it's about brain."

In a press release on Tuesday, Firewood said the merger would help the company "expand its around the clock support across regions, enhancing speed and scale without compromising quality."