'Minority Stake' Miles Now Owns All -- or Most -- of Hotshops

MDC Chief Nadal Ups His Stake Over Time in Kirshenbaum, Crispin

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A correction has been made in this story. See below for details.

NEW YORK (AdAge.com) -- When Miles Nadal is selling the idea of MDC Partners to potential agency acquisitions or the investment community, he talks about the benefits of helping them keep skin in the game. He does this through a practice of buying up partial stakes that leave the founders with half or more of their pride and joy. And that's a big deal when you're talking to creatively bred entrepreneurs leery of signing up with bean counters who, they fear, will suck the lifeblood out of their businesses.
Miles Nadal
Miles Nadal

But the little-talked-about reality of Mr. Nadal's Toronto-based group of ad, branding and design firms is that MDC's stakes in agencies can often creep up as it exercises its options to increase stake over time. Just last week, the self-made ad mogul announced that not only did his company grab a majority stake in Crispin Porter & Bogusky, it also assumed full ownership of Kirshenbaum Bond & Partners, increasing his share in that New York-based shop from 60%.

Sign of things to come
As the reality of the deals Mr. Nadal has structured becomes obvious to potential acquisition targets, it could deter those for whom that payday-for-minority-stake deal seemed so tempting. Simultaneously, however, it may raise his stock among those on Wall Street and at other holding companies who have criticized the MDC structure, arguing that you can't do much with agencies you don't fully own.

For his part, Mr. Nadal says the news won't change a thing about the shops' output. "We are thrilled and proud to delegate all that," Mr. Nadal said in an interview, referring to day-to-day creative duties. "We would have no value to add there."

MDC's hands-off approach is central to its appeal to its "Perpetual Partners," as it dubs its agencies -- a list that, in addition to Crispin and Kirshenbaum, includes creative shop Cliff Freeman & Partners and PR house Veritas, among 36 other companies.

"They have always understood the mixture of art and commerce that makes a place like CP&B run," said Alex Bogusky, Crispin's chief creative officer, in the statement announcing the transaction.

Money helps
But beyond maintaining autonomy, MDC's companies tout the benefits of deep-pocketed backing when they need it. Crispin's management, for example, credits the partnership for helping it branch out to Los Angeles in 2001, to Boulder last year and perhaps overseas in coming years. Kirshenbaum, too, said the influx of cash would enable it to expand its offerings in the near future.

"We have a phenomenal relationship with MDC," said Co-Chairman Richard Kirshenbaum in an interview last week. "We waited a long time to do a deal with someone we felt philosophically and culturally aligned to. We're looking at interesting opportunities, and we've always expanded our network by incubating and purchasing companies. ... This strategy allows us to do more of that." Mr. Kirshenbaum said the shop is looking to add to its digital capability.

Paramount to Mr. Nadal's ability to keep his partner companies happy is that skin-in-the-game strategy that allows the original owners to maintain equity in their firms. By doing so, he aims to avoid the thorny issues that arise when a subordinate company seeks emancipation through a buyback and courtship of private-equity funding. It's a strategy that apparently has Crispin, arguably the hottest creative shop in the country, happy despite rampant speculation it would resist further ownership by MDC.

"We are not contemplating buying ourselves back from MDC," Crispin Chairman Chuck Porter told Advertising Age in October, in a story headlined "Ownership Battle Brewing at Crispin." "They've always been agreeable to us keeping as much equity in the agency as we want for as long as we want."

Creativity threatened?
Still, though the arrangement appears to be beneficial for MDC -- its stock has increased nearly 50% since the start of the year -- some muse that it is creativity and culture that's at stake. And, of course, transitioning to a situation where you're majority-owned means giving up no small amount of strategic independence. Still, if anyone can maintain its creative integrity, it's Crispin.

"Crispin does good work, so I don't think there's a direct relationship" between creativity and holding-company ownership, said Paul Lavoie, chairman-chief creative officer of Canadian indie Taxi. "But they're more the exception to the rule."

While he declined to comment on his views of MDC's upped stakes in its agencies, Mr. Lavoie, who said he "often gets stopped by employees who say, 'Paul, don't sell,'" made it clear he's one of a dying breed of indies who intend to stay that way. "We have a sense of ownership all the way through the company. ... That's a very fragile thing that I don't want to play with and challenge."

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Contributing: Rupal Parekh

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CORRECTION: An earlier version of this story incorrectly referred to Taxi's Paul Lavoie as Paul La Voie, and to his title as chairman-CEO.
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