Mark Penn explains why MDC was the right deal (and what comes next)

Mark Penn's first act as CEO of MDC Partners was to outline how he will spur growth at the struggling holding company during its fourth-quarter earnings call. Penn, whose Stagwell Group is investing $100 million in MDC, was introduced during the holding company's fourth-quarter earnings call Friday morning, in which it disclosed that MDC revenue fell to $393.7 million versus $402.7 million a year ago. Organic revenue decreased 0.3 percent. On the call, MDC Chief Financial Officer David Doft attributed this to economic concerns during the holiday season that lead clients to spend at less elevated levels, as well as client delays, including some related to the government shutdown. MDC also reported it sold its interest in Kingsdale Advisors, which advises public companies on shareholder matters and reduced its number of reporting units to 25 from 37 last year. But the highlight was details of the deal with Stagwell, which Ad Age first reported Thursday afternoon. The $100 million investment involved the purchase of $50 million in MDC Partners' common shares and $50 million in non-voting convertible preference shares. In addition to becoming CEO, Penn joins MDC's board of directors and Stagwell will be able to bring on an additional board member. A meeting to discuss a potential board shakeup at the requisition of shareholder FrontFour is still scheduled to occur in June. Ad Age caught up with Penn by phone after the earnings call to hear more about what he sees as his tasks at hand at MDC Partners, in this lightly edited Q&A. What was ultimately compelling to you about this deal and MDC Partners? Having spent three years really in the marketplace kicking the tires on marketing services companies, there was no other deal in the world that includes such crown jewel agencies and reputations in marketing such as the MDC deal does. Everyone talked about the incredible core agencies here that are true flagships within the industry. There's no other way to have made a sizeable investment in properties of that scale and that nature except by coming into MDC, which I thought at that time was an underappreciated group of assets that with the right leadership, the right plan, creating a greater sense of group collaboration, has a tremendous potential for upside here. And as I said, the complementary nature of a lot the properties we put together at Stagwell will create an opportunity for enhanced collaboration among the agencies if we provide the right incentives. MDC hasn't really been known for the collaboration among its agencies, historically. How do you make that part of the culture? We're going to have definite, clear actual financial incentives for working together together within the MDC group. And that's something I thought was missing when I was at WPP. Everyone there saw their fellow agencies as competitors rather than as agencies that might, when possible, make sense to work together. Second, you've got to create more opportunities to bring people together around group pitches and group accounts as larger opportunities and many other larger clients sometimes ask for those kinds of services. Creating that culture of collaboration will help the agencies at MDC leverage their individual skills to a greater extent than they've done, and I know what it takes to bring that about. I suppose it's hard to resist if it actually does bring about growth. That's right. And it takes some time. It's not something you can legislate. It's something you can really bring into part of the culture and encourage. No one will work with someone they don't trust to do a great job on the account that they have. Building those relationships of trust both within the network and then potentially across some of the complementary agencies at Stagwell, I think those are low-hanging fruit. When you launched Stagwell, you said you intended it to be a new kind of holding company. How do you help it avoid some of the difficulties other holding companies have had? The biggest holding companies were actually created a generation before MDC. MDC comes in a generation later. And Stagwell comes in a generation later than that. I think all of these assets are more modern and more nimble in their approach to creativity, in their approach to meeting the new digital world and the expansion of digital within the campaign. The big holding companies have such a percentage of legacy assets that they are experiencing a lot more difficulty than an efficient, nimble leadership like MDC can achieve. What's the CEO's role in that? The holding companies have historically had such a range from very hands-on leaders to more laid back CEOs. Where do you land on that spectrum? I've had hands-on experience with these kinds of businesses from their inception, being a founder to growing them, to being within a holding company, then even being a client with a $2 billion budget on the other side. So I bring all of that experience both on the business side then on the professional side. I've been someone who has created well-known concepts and messages, like "soccer moms," ads like 3 a.m. (for Hillary Clinton's 2008 campaign) and working with the team to create the Microsoft Super Bowl ad. I bring a combination of business sense and substantive experience that I hope will be something the agency leaders will tap into. In the role of CEO you have to supply a vision and I think the vision here at MDC was always a great one. The great vision was that it would be the house for great talent. Great talent--really in many ways I see that as the driving vision before and after my taking over as CEO and I hope to give that kind of new life, new meaning. With all the turmoil at some of the big holding companies, we can be a great magnet again for talent. Do you plan to further consolidate or offload assets from MDC? We'll look at whether more consolidation makes sense from the 25 reporting units. Almost every unit here really is profitable, has a purpose, has a core mission. This notion that there aren't those kinds of units here from what I look at isn't correct. The question is how do they operate most efficiently with their leadership, how do they take advantage of the scale, how do they get their costs down so they can provide the more-for-less that every CMO seems to want today? You've mentioned cost savings. Where will those come from? We're looking to put in cost savings with a run rate at the end of the first year of about $35 million. I think part of the way I look at agencies, if you go back to the history, when I ran Burson, I would say I had the best-paid management and the highest margins. What you try to do is find expenses that aren't adding to the great talent, and if you can save money on say something like real estate, you can put that money into greater talent. I think there's a greater availability of talent now. Talent is what makes these agencies go forward and be successful, so I hope these savings will put us strongly in the market of continuing to build talent. Taking talent away from the more vulnerable holding companies and continue to build out the practice for growth. How concerning are some of the trends we're seeing hurt agencies — like in-housing or a move to project work? I call them medium worries. These trends have been around for a couple of years. Marketing is becoming more complex rather than less so. So [as for] the swing back-and-forth between in-house and agency, I think people are going to need first-rate expertise. And that we are able to hire first-rate expertise [that is] very difficult to get within most corporations. Those were our concerns, but a lot of what we also look at is the full balance of services that MDC provides. If we can pick up more media and strengthen the media area along with the creative segment, that's where we could make tremendous gains that would put the services in balance. It will be a lot of focusing and looking at the media area and how we can take advantage of the 4 to 5 percent annual growth now in what people are spending in media.

Mark Penn explains why MDC was the right deal (and what comes next)

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