An Ownership Battle Brews at Crispin Porter

MDC's Option to Up Its Stake Could Force Issue

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Crispin Porter & Bogusky could be a coming to a crossroads: a choice between giving up a chunk of control or trying to go it alone.
MDC Partners CEO Miles Nadal
MDC Partners CEO Miles Nadal

MDC Partners CEO Miles Nadal has long touted his model of partial ownership of agencies as the way to get and retain creative talent. Now he has the opportunity to take a majority stake in MDC's crown jewel.

This year, MDC has the option to raise its stake in Crispin from 49% to 60%, according to financial filings. In 2008, the stake could be increased to 77%. MDC has deferred these options in the past and could do so again. If it doesn't, say people close to the agency, it could encounter friction with a creative shop that not only values its independence but also knows just how crucial it is to the prospects of MDC.

Up to Crispin
The principals painted a placid portrait of the state of affairs. "That decision will always be in the hands of Crispin," said Mr. Nadal, who added he wouldn't try to up his stake without the agency's cooperation.

Said Crispin CEO Jeff Hicks: "It's not MDC's style to make unilateral decisions about its agencies."

Beneath this, however, the story is more complex, especially within the agency walls, where the ownership-stake question has been a topic of more than a little conversation. "It's raised a lot of questions here," said one senior insider.

The eyebrow-raising has translated into curiosity about whether Crispin, if pushed to cede its independence, might take advantage of some of the private-equity funds and other financial players interested in the agency world. Given the changing habits of consumers and marketers' adjusting budgets, these interests are especially eager to scoop up businesses that understand digital media.

Equity question
For Crispin not to indulge those scenarios, things likely will have to remain status quo in regard to its financial and operational relationship with MDC. And the equity question, said one senior insider, is an important part of that.

The schedule already has sent rumors flying around the business that Crispin is looking to buy out of MDC. That's something Chuck Porter, Crispin chairman, denied. "We are not contemplating buying ourselves back from MDC. They've always been agreeable to us keeping as much equity in the agency as we want for as long as we want."
Crispin CEO Jeff Hicks
Crispin CEO Jeff Hicks

And for good reason. Crispin's importance to MDC is difficult to overstate. While most agencies have been struggling with their questions of relevance, Crispin has rather noisily been building a roster of massive clients and growing to a headcount of more than 700 staffers, contained mostly in its Miami and Boulder, Colo., offices. A three-year hot streak kicked off with the win of Burger King in 2004 and hasn't tapered off. New accounts this year include Best Buy's Geek Squad, American Express' small-business account, digital work from Nike and Domino's Pizza massive agency-of-record account.

But Crispin's cachet hasn't translated into broader successes for MDC, and that's partially due to the structure of the holding company. The upside of MDC's model, unlike those of much-larger rivals that buy shops outright, is that it allows the agencies a large amount of independence and helps preserve the cultures and talent that made the agencies desirable targets in the first place.

The downside is that it's not easy to coordinate offerings or cross-sell services, something that Omnicom Group, the ad field's largest player, is expert in. For these structural reasons, other MDC-agency heads say Crispin doesn't provide much of a halo for them.

Then there's MDC's financial picture, which would only be helped by a bigger chunk of Crispin, by all accounts a fast-growing and very profitable agency. After several difficult quarters, MDC's fortunes are starting to turn slightly, even if it has a long way to go. And because of MDC's rather small size, Mr. Nadal has also struggled to get analyst coverage in the U.S., which hurts it in the investor community. This summer, however, William Blair's Troy Mastin began to follow the firm. Shares this year are up about 40%.
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