Stagwell agrees to $100 million stake in MDC Partners

Mark Penn takes over as CEO of the holding company

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Credit: MDC Partners

MDC Partners is preparing to announce tomorrow that Mark Penn's Stagwell Group is making a $100 million equity investment in the holding company. Ad Age had earlier reported Stagwell was eyeing an investment.

According to information obtained by Ad Age, the holding company was slated to hold a briefing with its executive team at today at 5 p.m. with Mark Penn, who will become CEO of the holding company, to offer full details. The holding company plans to report its fourth quarter earnings results Friday morning.

The minority investment comes amid a difficult period for MDC Partners. The holding company's ailing stock continued to slide in the days after the news broke about Stagwell's interest in an investment last week. MDC shares slumped to a 52-week low of $2.01 on Thursday and closed at $2.03, down 6 cents for the day, giving MDC a market cap — value of outstanding shares — of just $120 million.

In a memo circulated to senior staff today, MDC said "The objectives of our strategic review were clear: solidify our balance sheet, bring strong leadership to the parent, create greater stability for MDC's partner firms in the market, and improve our ability to invest behind our core strengths. Tomorrow's announcement allows us to do exactly that, and enables us to proudly focus on our position as the preeminent talent-first network in the industry, dedicated to supporting the strategy, creativity and growth of our partners."

MDC could not immediately be reached for comment.

Though many questions remain as to the future of MDC's agencies and the unusual level of autonomy they're known to hold within the holding company, the deal at least puts to an end the long waiting game MDC's agencies endured as the company tried to figure out what was next.

"I see 40 years of experience Mark Penn can bring to bear," an MDC agency exec who wanted to remain anonymous, told Ad Age. "The nature of the working relationship-dynamic is TBD," the exec added, noting that Penn's reputation as a manager precedes him. "Any movement is good movement. The status quo was unbearable."

Added another MDC agency exec: "I think it's a step in the right direction. It's better than the status quo." Another person familiar with MDC referenced Penn's reputation as a micromanager, but said the deal "makes him a Madison Avenue player."

Penn launched Stagwell Group in 2015 as a holding company that would focus on advertising, research, data analytics, PR and digital marketing companies with $250 million in investment capital, including funds from ex-Microsoft CEO Steve Ballmer. Stagwell's portfolio now includes more than 15 agencies it describes "digital-first," including MMI Agency, Scout, Harris Insights & Analytics, performance marketing firm PMX Agency, creative digital shop Code and Theory and strategic communications agency SKDKnickerbocker. In August 2018, Stagwell said it had raised $260 million in funding from global private equity investor AlpInvest Partners.

Whereas MDC is known as having a number of creative agencies that often compete with one another — including 72andSunny, Anomaly and Doner — Stagwell Group holds companies that are more complementary.

Jay Pattisall, a Forrester Research analyst, says this presents opportunity for MDC's and Stagwell's agencies to work together where appropriate and might help the agencies organically grow their businesses with one another's client bases since they're not necessarily offering competing services.

MDC's high amount of debt has likely made it a questionable offering for potential buyers — and Penn will be tasked with pushing that debt down. The company reported net debt of $997.6 million as of September 30.

"His record seems to be one that suggests he may be up for that challenge," Pattisall says.

An MDC agency executive who asked for confidentiality agreed. "The potential for a positive turnaround is ripe and the underlying value of the core businesses is strong," adding, that "the problems with MDC have nothing to do with capabilities or talent. They have everything to do with bad decision-making from a board of directors that was utterly clueless and useless most of the time."

In after-hours trading this afternoon, shares jumped 32 cents to $2.35. MDC traded around $10 a share at the beginning of 2018.

Contributing: Megan Graham, E.J. Schultz, Brian Braiker, Judann Pollack, Bradley Johnson

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