MDC, Stagwell come to terms on a merger
MDC Partners’ board of directors approved a merger agreement with The Stagwell Group in a deal that has been anticipated since its initial proposal in June.
Stagwell, already MDC's biggest shareholder, would own 79% of the combined company under the deal. The deal is subject to various approvals including approval by MDC shareholders. Stagwell and MDC hope to complete the deal in the first half of 2021.
Stagwell and MDC said the merged business would have estimated 2020 worldwide pro forma revenue of about $2.1 billion.
The companies said in a letter to shareholders that, combined, they hope to generate $3 billion in revenue by 2025 “with the potential of producing” 5% organic revenue growth and achieving cost savings of $30 million.
Stagwell is the owner of companies like creative consultancy Wolfgang; digital creative shop Code and Theory; communications firm Sloan and Co.; and digital agency Targeted Victory. MDC Partners is the parent of agencies like CPB, Anomaly, 72andSunny, Doner and Instrument. The 8,675-person combined company would span 23 countries, managing $4.4 billion in media spend. The merged company would remain headquartered in New York with “a significant presence in Washington D.C.,” according to the companies.
MDC Partners Chairman-CEO Mark Penn, currently managing partner of Stagwell Group, is set to continue on as the chief executive and chairman of the combined company. The companies said a management team for the merged company would be formed and “consist of existing executives from both MDC and Stagwell.”
“This is a new day for MDC and Stagwell,” Penn said in a statement. “Together, they unleash precisely the right talent and technology to create a transformative marketing services company offering scaled creative performance.”
Following the deal’s closing, the companies said what they are calling “New MDC” would trade on Nasdaq under the same symbol as MDC does today, “MDCA.”
Stagwell proposed a merger with MDC in June, in a deal that was estimated to turn the two firms led by Penn into a $2 billion agency group.
Penn has led MDC Partners as CEO since March 2019 after Stagwell, which he leads as managing partner, invested $100 million in the holding company. Penn formed Stagwell in 2015 as a holding company that would focus on advertising, research, data analytics, PR and digital marketing companies.
Penn added the post of MDC chairman in April 2019.
MDC, with 2019 worldwide revenue of $1.4 billion, ranked as the world’s 15th largest agency company in 2019, according to Ad Age Datacenter. Stagwell ranked as the world’s No. 23 agency company with 2019 revenue of $627 million.
If the deal goes through, Stagwell would end up with about 79% of common equity of the combined company (assuming no conversion of outstanding so-called preference shares of MDC).
Goldman Sachs, an existing MDC investor, would continue to hold preference shares, though MDC and the investment bank agreed to renegotiate terms of those shares as part of the merger transaction.
Stagwell also owns preference shares that can be converted into MDC common stock.
Stagwell would control the merged venture, but more than half of revenue and employees would come from MDC.
Based on June 2020 staffing levels, the combined venture would have about 8,675 employees across 23 countries; 4,900 of the employees would come from the old MDC, and the rest from Stagwell.
Stagwell and MDC said the merged business would have estimated 2020 worldwide pro forma revenue of $2.065 billion to $2.075 billion. Well over half of the revenue ($1.180 billion) would come from MDC; the rest from Stagwell’s holdings.
The companies projected 2021 pro forma revenue of $2.095 billion to $2.135 billion.
MDC and Stagwell announced their planned deal after the market closed Monday. MDC shares on Monday ended trading at $2.23 a share, up 8 cents.
MDC’s stock closed at $1.17 on June 24, the day before Stagwell unveiled a merger proposal.
Contributing: Bradley Johnson