Sorrell’s Media Monks deal: industry reaction

The fact that Sorrell has opted for an acquisition that’s both digital- and content- centric says a lot about the direction of our industry, and perhaps says something too about whether the legacy media and creative agencies at WPP are currently fit for purpose.

The nature of this buy is undoubtedly responsive to widespread disruption within all sectors, a trend that’s driving a need for marketing solutions that are multidisciplinary but digital-centric.

Mediamonks will be a good cornerstone of this kind of offering, but I expect S4 to look next towards acquiring a modern, forward-looking data business (as well as greater performance-marketing capabilities) to power the delivery of these content-centric skills, something that again WPP never really held in Kantar.

And it is interesting that he seems willing to risk losing his remaining performance share award in WPP over the transaction – that certainly suggests he sees more upside here!”

Given the stiff competition for MediaMonks, Sorrell probably needed to come up with something quite special to secure the prize. He’s cleverly positioned them as a partner, putting MediaMonks at the core of S4 and building everything around them.

If he’s giving significant amounts of equity to staff and management the need for an earn out disappears as there is sufficient incentive for them to grow the business and its profitability and value.

This transaction might however trigger debate over the future of the earn out and the deal model going forwards. Our view is that the earn out isn’t going to disappear any time soon. Earn outs have worked well for many years although there has always been room for deals like the one Sorrell is making here.

Accenture might have entered the market with a no earn out approach, but that hasn’t fundamentally changed the market. And let’s not forget that when large networks acquire a business, that business becomes part of something much bigger and the benefits of share ownership are less attractive as a result.

Moreover historically many agencies have done very well out of earn outs and plenty of people have become rich that way. Most agencies still recognise that they can earn more out from an earn out than from any other deal structure.

It will be so interesting to see how MediaMonks fare with this adventure. One could argue that they have just ‘merged’ with a new man – the Sorrell he’s always wanted to be.

Ready to open his gargantuan contact book, spray wisdom around every corner of the agency and adopt a new laissez faire attitude, allowing creatives to do what they do best and the business to grow at a steady and comfortable pace.

Or, maybe they’ve let a wounded tiger into their house, micromanaging and eager to show the world that he’s stronger and hungrier than before. Supercharged or chewed up and spat out? Place your bets ladies and gents…