MDC CEO on Spending Sprees, Selling Potential and Why U.S. Is Best
NEW YORK (AdAge.com) -- After five years of laying low, MDC Partners in recent months has bought several little-known outfits: an analytics firm called Communifx; social-media agency Attention Partners; experiential-marketing firm Team Enterprises; two PR firms, Sloane & Co. and Allison & Partners; and more are coming in other areas such as media services.
With cash on hand, the march to buy up agencies will continue, MDC CEO Miles Nadal said, as long as the price is right. Ad Age briefly caught up with the Blackberry-addicted, constantly tweeting head of the Canadian holding company last week.
Here's Mr. Nadal on how Crispin is like Kobe Bryant and how a recent lawsuit over execs being poached from a certain rival network has actually sparked a wave of resumes onto MDC agencies' desks.
Ad Age: You've been on an acquisition spree, buying up a number of lesser-known agencies. Why is MDC so aggressive right now?
Mr. Nadal: There was a great quote by Warren Buffett that says when it's raining gold, you should find a pail and not a thimble. We started [acquiring] a year ago when the world was very uncertain. There were a number of firms that were in the fastest-growing areas of marketing communications, i.e. PR, social media, interactive, data analytics and data mining and experimental. These are firms we had been following for a long period of time.
We intentionally [held off before] because we didn't understand the value proposition of the businesses other people were acquiring. We are contrarian. When everyone was growing through acquisition, we were growing organically. ... When nobody was being acquisitive, we thought this is a wonderful time. For the most part, banks are not lending, and our access to capital is more valuable to partners today than before.
The marketplace has changed drastically and the environment of media has changed with fragmentation. The firms that really understand the changing landscape and know how to come up ... are the younger, more entrepreneurial firms in our industry. They really are in the business of trying to identify return on marketing investment for our clients.
Ad Age: You raised some $300 million in capital and have been using that to make acquisitions. How many more acquisitions will we see MDC make this year?
Mr. Nadal: We are seeing wonderful businesses with extraordinary management teams, at reasonable prices, with growth potential. As long as we see that, you'll see MDC continue to be acquisitive. We have the best balance sheet in the industry, and we have no maturities on any of our debt obligations. We are in the position to continue the [same] pace of our acquisitions throughout the rest of the year and into next year.
Ad Age: It's kind of surprising how little you are investing in digital agencies. Why?
Mr. Nadal: Because we have done it the best of anybody. We invested hugely in digital, but we did it organically. One thousand of our people are digital and 40.5% of our business is digital. We have the most integrated and media-agnostic capabilities -- we didn't buy digital as a bolt-on, we wove it into the fabric of our agencies. That's why our growth rate is better than everyone else in the industry, our margins are better and our free cash flow is better.
When I look back in hindsight at what others have paid for businesses in digital, we couldn't rationalize the costs in relation to what the benefits would be. Investing in talent was a much better and more productive investment for us. But you will see us look at digital capabilities to provide a more comprehensive offering to clients, and now that nobody else is in the marketplace, it makes life a lot easier.
Ad Age: It seems like there's barely been any foreign investment. Is MDC not interested in growing its footprint globally?
Mr. Nadal: We've made one acquisition to expand Crispin's capabilities in Europe through the acquisition of Daddy [in Sweden]. If you look at what's going on in Europe and other parts of the world, we're glad we have focused predominantly in North America. Look at the meltdown of Greece. Approximately 95% of our revenue comes from North America and of that, 85% of that is the U.S. alone. Our primary focus will continue to be the U.S. because 50% of the global ad spend is in the U.S. They've got real laws, you will get paid, there's more stability to the economy and the multiples are better in the U.S. For us, the focus on the U.S. has been a smart strategy and we'll continue that. If one of our agencies needs to open up offices to service global brands, we're supportive in terms of time and capital to help them.
Ad Age: A commonly heard knock on MDC is that it has for years had one star that far outshines the others in Crispin Porter & Bogusky. What do you say to that?
Mr. Nadal: We've been very privileged by our association with what has been the most successful agency of the last decade. Their success has been so overwhelming compared to the rest of the industry that although we have a number of other superb organizations, their profile is so exceptional that it's hard for outsiders to see the success of other firms.
What's happening at HL Group is amazing. Redscout is amazing. Hello Design and Vitro Robertson and some of our newer businesses like Team -- we've got an exceptional network of brilliant entrepreneurial firms but because of Crispin's profile it overshadows some of that. It's like a sports team, if Kobe Bryant is on your team, it's hard to recognize the achievements of others on your team.
Ad Age: The lawsuit McCann Erickson brought against one of your agencies, Kirshenbaum Bond Senecal & Partners, caused a blip of controversy, and was settled quickly despite MDC originally calling it frivolous and vowing to fight it. What's your take on that situation?
Mr. Nadal: It was a tremendous victory for us. It was a litigation that should never have been initiated. We always abided by the agreements everyone had. ... The reality is, you can't prevent employees from doing what they want to do. The best way to retain talent is to treat them well, empower them and create an environment where they love to create.
Nobody can be obtained that's not attainable and the nature of the industry is that there's always movement. If you looked at how we settled -- there was no admission of wrongdoing, we paid no money, and all we did was agree to honor the agreements in place. We didn't give up anything. If anything, the number of new resumes coming to us has doubled since that happened.
Ad Age: On talent -- MDC is investing heavily in bringing top executives from other agencies to places like Redscout, and bringing Ari Merkin back to Crispin, and we hear that you're personally very involved in these negotiations. That's pretty unusual for a holding-company CEO. Why is it so important to you and how do you have the time?
Mr. Nadal: First of all, I'd say we don't see ourselves as a holding company. We see ourselves as hands-on strategic partners, and as that our job is to try and help our partner firms find ways to accelerate growth. There are only two things that a CEO of a firm does that has any meaning: one is attracting great leadership and the second is the allocation of capital. There is nothing I do every day that is more important to the long-term success of MDC and its partner firms than to obtain and retain brilliant talent. I believe that's my most important role. Because no one else does it, it has that much more value to any candidate we're talking to. I'll reach down into the system. ... If someone says, "Can you make this call to Mary Smith because she has another offer and it would make a difference," there's nothing I find more gratifying than speaking to that person or meeting with them to reinforce MDC's reputation as the place where great talent lives. It's a differentiating factor. Plus it's a lot of fun. The most enjoyable part of this business is the people.
Ad Age: Earlier this year, a Deutsche Bank analyst released a report that suggested MDC has been open to selling the holding company to players such as Dentsu and Havas. The report stated that management's "willingness to sell is high ... at the right price." MDC at the time told Ad Age it wasn't for sale. Is that still the case?
Mr. Nadal: That was completely misconstrued. We are fiercely independent. We love our business. We believe in the growth prospects for the company more than ever before, and continue to buy incremental equity on an ongoing basis. We as management own about 30% of the company. The reality is we are a public company and control is in the marketplace. We work for the shareholders. At the end of the day, the shareholders will vote with their feet -- just the same way WPP is a public company, and [as are] Omnicom and Interpublic.
Ad Age: So MDC is not for sale?
Mr. Nadal: We are not for sale. People look at our stock price, which has been up almost 300%, and say the fundamentals of the business would be attractive, but that's never been an initiation on our part.
Ad Age: OK, so you're not initiating, but what if you're approached?
Mr. Nadal: As the CEO of MDC, I work for the shareholders, and ultimately the shareholders and the board will determine if a bid is made for the company and fair value is being paid. My job is to make sure that the commitments I made to each and every employee of every partner firm is true to the mission of MDC, to reinvent the model of the future, that that's honored and followed to the best of my ability no matter who the shareholder is.