Industry watches for the next big holding company acquisition
With a healthy balance sheet and increasing revenues, MDC Partners chairman and CEO Miles Nadal was thrilled to see two of his competitors – the advertising industry’s second and third largest holding companies – come together this weekend.
The marketing communications firm reported last week that revenues for the three months ended June 30 increased 5.3% to $288.1 million, while EBITDA increased from $32.3 million to $43.4 million. Net new business wins for the quarter totaled $20.3 million.
On a year-to-date basis, MDC’s revenues are up 9.1% to $555.2 million, while EBITDA increased to $73.8 million from $40.7 million. Net new business wins for the period totaled $73.3 million.
Nadal said the results give MDC – which operates agency networks including KBS+, CP+B and 72andSunny – the confidence to increase its financial guidance for 2013, with revenue growth of between 8-10%, EBITDA growth of between 28-33% and free cash flow growth of between 8-10%.
MDC attributed the results in part to a “solid new business pipeline,” and Nadal sounded confident that pipeline is going to flow even faster as the new Publicis Omnicom Group spins out clients from a combination of conflicts and dissatisfaction with the new holding company.
Speaking after the Omnicom/Publicis deal was announced, Nadal was elated. “On the back of another record quarter, and our stock being up 117% for the year, we couldn’t have dreamt about a better opportunity coming our way at this time,” he told Marketing. “We’re just clicking our heels.”
Nadal was non-committal when asked if he believes that MDC is now more in play than it was prior to the merger. “I don’t think it puts us any more or less in play,” he said. “The one thing it does do in our own minds is give us way more runway to grow our business. We can see a clear path to growing in a very significant way.”
What will be the next merger
Relatively smaller holding companies such as Interpublic Group of Companies (IPG) and MDC have emerged as prime acquisition targets in the wake of the blockbuster Omnicom Group/Publicis Groupe SA merger on the weekend
In the wake of the merger, New York’s Pivotal Research Group raised its year-end price target on IPG from $16 to $21 and maintained its buy rating. In a research note, Pivotal’s senior research analyst Brian Wieser said that IPG immediately becomes considered in play by investors.
While the world’s current (and likely soon-to-be former) No. 1, WPP, is the most logical suitor, Wieser said that both Havas and Dentsu are also in the mix – Havas because of the Bollore family’s commitment to the industry and Dentsu because it needs to grow in the U.S. and Europe to complement its strong position in Japan (where Wieser said its dominance remains “unquestioned” even after the Omnicom/Publicis merger).
At the same time, Wieser said that IPG is arguably better positioned than any of its competitors to win new creative business from its McCann WorldGroup, DraftFCB and Lowe networks, particularly as they bolster their offerings. At the same time, IPG’s Mediabrands agencies (including Initiative and UM) could also be better positioned to offer more customized, client-first media services at a global level. “Heads they win, tails they win,” said Wieser of IPG’s current position.
Nadal, meanwhile, sounded skeptical that if the Omnicom/Publicis merger proceeds and creates a company with more than US$22 billion in revenues, WPP could ever regain its status as the world’s largest marketing communications company.
“I’m sure [WPP] would like to respond and I’m sure [WPP CEO Martin Sorrell] will wrack his brain to try and figure something out,” said Nadal. “The question is what could he do to respond and what would the impact be? This combination really is something that I think, statistically, makes it hard for WPP to ever be the largest in the industry again.”
