Miles Nadal, the flamboyant head of advertising agency holding company MDC Partners, is stepping down as the company’s chief executive offer amid an investigation into its financial accounting by the U.S. Securities and Exchange Commission.
MDC also announced Monday that Nadal would repay US$10.58 million in retention payments made to him between 2012 and 2015, as well as an additional $1.9 million in expenses. The move follows April’s announcement that Nadal would repay $8.6 million to the company following an internal investigation. Last October MDC disclosed it had received a subpoena from the U.S. Securities Exchange Commission related to Nadal’s expenses and the company’s accounting practices.
Nadal, 57, launched what was then called Multi Discipline Communications in 1980, using $500 from his Visa card. It has grown into a sizable holding company with assets including the hot shops KBS, 72andSunny and CP&B. Recently, it has expanded its expertise in other areas of marketing communication such as media.
Scott Kauffman, who has served on the MDC Partners board for the past nine-and-a-half years, is replacing Nadal as the company’s chairman and CEO. Board member Irwin Simon will replace Kauffman as the company’s presiding director.
The company said in a statement it expected the transition to a new leadership team to be “seamless.” Kauffman started his career as a media planner with Benton & Bowles before moving to Silicon Valley to serve in leadership roles at several emerging tech companies.
He has served as chairman or CEO of ad tech companies including AdKnowledge, Coremetrics and Lotame, and was chief operating officer of Blue Lithium when it was acquired by Yahoo.
“[Nadal] founded MDC Partners and for more than three decades guided the company’s strong growth,” said Kauffman, in a statement. “Without his vision and leadership, MDC Partners would not have achieved the exceptional success we enjoy today.”
Kauffman said the company is “strategically well placed” to remain on a path of profitable growth and is a “very strong” financial and operational position.
MDC’s chief accounting officer Michael Sabatino is also resigning, and has agreed to repay the company US$208,535 in cash bonus payments that he received between 2012 and 2014.
The company said it does not expect the additional repayments to have any “material impact” on previously issued financial statements.
In his exit statement, Nadal called MDC Partners an “exceptional organization. I’m gratified knowing that after 35 years I am leaving the company in a strong position, with brilliant partners; exceptional talent, dedicated employees, wonderful clients, a strong shareholder base, and an incredible culture and reputation as ‘The place where great talent lives.’ I have every confidence that the company’s deep leadership team will build on this strong foundation in the years ahead.”
The company reaffirmed its financial guidance, and that its second-quarter results are currently tracking “consistent with internal expectations.” MDC Partners will announce its results for the period ending June 30 on Aug. 6.
In a research note issued today, Daniel Salmon of BMO Capital Markets Group said the change in management would not resolve “the cloud of uncertainty” over MDC Partners. “Only resolution of the SEC investigation will do that,” he wrote.
Salmon said market bears will regard Nadal’s exit as another negative, while bulls will point to it as being a turning point now that the two employees directly associated with the SEC subpoena are no longer with the company.
“We see the validity of both sides, but expect the bear view to win out in Tuesday’s trading,” wrote Salmon.
He said the leadership change is unlikely to result in a fundamental change in strategy at the company, particularly in light of Kauffman’s expertise with entrepreneurial marketing companies and his years on the MDC board.
BMO lowered its target price to $20 from $26, but said there are no changes to its earnings estimates of US$205.6 million this year and $228 million in 2016.
