Ex-WPP boss Sorrell agrees £266m deal for new venture through cash shell Derriston Capital (DESS)

Cash shell Derriston Capital (LSE:DERR), the new home of former WPP boss Sir Martin Sorrell, was once again thrust into the limelight today after announcing its first major acquisition as a communications business. Derriston, which will acquire Sorrell’s newly incorporated firm S4 Capital in a reverse takeover, will purchase Dutch digital production company MediaMonks for about €300m (£266m).

The deal has done very little to improve the already frosty relations between Sorrell and his previous employer, with WPP also taking part in the auction process for MediaMonks. This comes despite WPP threatening to take away share awards worth about £20m from Sorrell over S4’s bid, alleging that he was in breach of his confidentiality agreement.

The incorporation of S4 in May and today’s deal mark the first stages of a dramatic, swift return to advertising for Sorrell, who was forced out of WPP – the company he founded – in April on allegations of misconduct. He had been the longest-serving director in the history of the FTSE 100 at WPP, joining as chief executive back in 1986.  In 2016, he earned just over £70m, the bulk of which was generated by a long-term incentive scheme, which continues to this day.

MediaMonks has revenues of c.€110m and operates through 11 offices in 10 countries with clients including Adidas, Amazon, GE, Google, Hyundai. According to S4, the objective behind the merger is to provide clients with digital services ‘which are agile, efficient, and of premium creative quality’.

S4’s deal with MediaMonks follows an auction process handled by Clarity Corporate Finance and includes a mix of cash and shares. Unusually, it will not involve an earnout. It marks the first step in Sorrell’s pledge in May to build S4 into a ‘multinational communication services business’ shortly after completing a £51m equity fundraise in which he contributed £40m of his own money. According to The Guardian, his backers include the investment firms Schroders, Miton Group and Lombard Odier, as well as the financier Lord Rothschild.

Once the transaction has completed, Derriston will change its name to S4 Capital, and Sorrell will take over as executive chairman.  Paul Roy, co-founder of investment management firm NewSmith Capital Partners, and Rupert Walker, WPP’s former adviser, are also expected to also join S4’s board as non-executive directors.  Derriston’s current board members – Harry Hyman, Roger Sargent, and James Serjeant – will all resign when the deal completes.

Derriston was created in 2016 as a cash shell to make acquisitions within the global medical technology industry before widening its mandate to the entire technology sector last August. Before its shares suspended today in line with stock market rules around reverse takeovers, it had a market cap of just £2.9m.

 

Author: Daniel Flynn

Disclosure: The author does not hold positions in any of the stocks mentioned above

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