La Croisette is the glittering nexus of Cannes’ luxury retailers and big hotels, and just one street away is L’Affable, a small restaurant with warm, sand-coloured walls and room for about 80 guests to enjoy Jambon San Daniel and Crème brûlée à la bergamote.
On June 23, more than half this space is fi lled with MDC Partners executives and clients, even though one of the International Advertising Festival’s award shows is taking place not fi ve minutes away. MDC chairman Miles Nadal has invited this select group to break baguette with him and his rapidly growing family.
THE GUEST LIST IS IMPRESSIVE given its size–which is to say small in comparison to the decadent agency network parties Cannes Lions was once known for . In one corner sits the publisher of a major American daily newspaper. Near the back is a marketer with several of the world’s largest alcohol brands in his portfolio. There is even a “Happiness Factory” foreman in attendance, mingling with some royalty from the agency world–Ty Montague, Chuck Porter, Lori Senecal, to name a few.
After much clinking of glasses and shushing, Dave Rolfe quiets the crowd enough to make a short announcement. Rolfe, director of integrated production at Crispin Porter + Bogusky, informs the room that his shop was just named Cannes Lions’ digital agency of the year at that award show they all skipped. And before he can even fi nish his impromptu speech, co-workers Rob Reilly and Winston Binch enter the restaurant to enthusiastic cheers, like returning Roman generals with their Lion held forth like tribute.
Nadal, smiling broadly as a proud father should, pats them each on the back before letting them wade into their peer s’ congratulations. It’s a rare moment when Nadal’s attention is focused on just one thing. The Torontonian is typically the very defi nition of “BlackBerry addict,” tweeting and taking phone calls while at business meetings or having coffee with reporters. His mind works fast, and he never misses a beat on any of the 10 things he’s doing simultaneously. But in the calm confi nes of this fi ne French restaurant, he seems a slow-motion version of himself– taking a sip of wine, then leaning over to speak to Porter, then watching his team cheer the Lion. His phone isn’t even in his hand, even though he’s in the middle of a $100 million shopping spree.
Perhaps he’s so relaxed because he’s been in this position before. The Lion for CP+B is one more accolade for the agency he fi nancially fostered to prominence on the world scene. MDC’s fi nancial backing was a major factor in its growth from a 40-person Miami shop to a 1,000-plus multinational powerhouse. To Nadal, this was proof of concept for his strategy of incremental investment–buy-in around the 50% mark, stay out of day-to-day management and let the company succeed or fail on its own terms with an agreement to invest more if things go well. None would blame him for wanting to do it again.
It wasn’t so long ago that independent and network agencies alike viewed Nadal as an also-ran, a dabbler with no real marketing know-how. That sense of being at arm’s length from the business of his investments has vanished. “ For a long time the jury was out on MDC and Miles Nadal,” says Rob Guenette, CEO of Taxi. “But as time went on and he stuck to his strategy and plans, MDC became more successful and his acquisitions became more targeted. We compare MDC to bigger networks like WPP… but [Nadal] never seemed to suffer from any fear factor in going head to head with them.”
Does he see Nadal as a serious player in the industry? “I sure do now.”
In the year of MDC’s 30th anniversary, having seemingly hitched his wagon to the CP+B phenomenon, Nadal has armed himself with CP+B’s thought leaders, a deep war chest and gone on the offensive, acquiring businesses across disciplines from coast to coast. He doesn’t necessarily want to be as big as WPP or Interpublic, but he wants to own the future of advertising, which is digital, trackable and based on brilliant minds working together. He’s looking for another business (or fi ve) in his lineup that will continue to expand MDC’s visibility as CP+B has.
If the current strategy works, it likely won’t produce another breakout creative agency. Success this time around will mean better profi ts, a better rating for MDC stocks and a greater ability to deliver what clients need in a digitized market.
The fi rst step in MDC’s recent growth happened last year when it refi nanced to get easier access to cash. It suddenly had more than $300 million at its disposal, and Nadal set out to invest more than $100 million of that in new ventures before next summer. So far, he’s added three New York businesses–social media agency Attention Partners , analytics and database marketing fi rm Communefx and public relations fi rm Sloane & Co.–the Florida-based experiential marketing agency Team Enterprises, California PR shop Allison & Partners, and the direct response media and analytics fi rm Integrated Media Solutions, also in California.
MDC also started a Los Angeles-based production company, Shout Media, and there are several ongoing conversations with independent agencies around North America, as well as Nadal’s ongoing talks with Montague and Rosemarie Ryan , formerly the top brass at JWT North America. In a March report , BMO Capital Markets’ Dan Salmon wrote that he “wouldn’t be surprised” to see a mobile marketing fi rm added in the near future.
Notice the lack of full-service agencies on Nadal’s shopping list? Why invest in data analytics? Why database marketing? Why create an entirely new “performance marketing services” or PMS group for number crunchers like Communefx? MDC recognizes that as marketing becomes more digital and measurable, clients are tracking their investments far more closely than before . One of Nadal’s media mantras is , “We don’t see ourselves in the advertising business, we’re in the investment management business.” Like other, more traditional forms of investment, marketing now requires extensive data and research to sell to clients, hence the need for companies that take a more quantitative look at marketing.
“Marketers are shifting more and more dollars to these rapidly growing areas of analytics, data mining and social media,” Nadal says . “These were areas we didn’t have as strong a presence in as we did in integrated agencies. They’re entrepreneurial areas that are growing.” Because MDC already has integrated, full-service agencies that Nadal wants bolstered by new talent rather than new acquisitions, the time had come to offer more robust back-end services to clients, who Nadal says are looking for “return on marketing investment.”
“The whole idea of becoming a more eclectic partnership is a good thing,” says Chuck Porter, chair of CP+B and chief strategist for MDC . “Advertising’s in transition… so having capabilities in a broad area is a very smart thing for MDC to do. ” This is not to say that MDC is ignoring its ad agencies. It fully supported CP+B’s recent expansion to Canada through a merger with Toronto-based Zig, which rebranded earlier this month (see sidebar above).
Bay Street estimates Nadal has spent around $50 million so far with nearly a year left to spend the second half of the promised amount. MDC’s stock has been trading above $10 since March and has generally trended upward for the past 12 months, topping at over $13 in late June. BMO’s current target price for the stock is $17. A year ago, the stock was down around $5.50 (it dropped below $2.50 in late 2008, but what industry stock wasn’t suffering then?).
Recent Bloomberg data had MDC’s stock up 236.2% YTD over 2009. Havas was the only other holding company to post triple-digit numbers by the same comparison–138.6%. Publicis was a distant third with 74.2%. Arguably, the best news the acquisitions have generated for investors is MDC’s upgraded revenue expectations. New businesses bring new client fees. In May, guidance on 2010 annual revenues rose to as much as $635 million from approximately $580 million.
However, this doesn’t address the question of profi ts, which remain problematic for MDC. It has recorded net losses on fi ve of its last six annual reports, showing black only in 2008 when it reached $133,000 in net income. Analysts have pointed to high corporate costs, like a head count around 5,000, as the main culprit. However, Nadal says all his investors care about are cash fl ow and stock performance.
“They only look at cash fl ow because at the end of the day cash is all that matters,” Nadal says . “Our cash fl ow has seen the biggest percentage increases of anybody else in the industry.” That said, “We will have net income, positive earnings and positive earnings per share this year.” There are those who believe MDC’s outlook is bright enough to make it an acquisition target itself. As Salmon noted in a report on the company’s fi rst quarter fi nances, there is an “increasing likelihood of being acquired, which is boosted in part by MDC’s ongoing success, but is driven more by stability and growth at the larger global peers which are now looking to return to the M&A market more aggressively.”
“I don’t focus on that,” Nadal counters . “We are as independent as ever and will continue to be.” MDC has always been a strange amalgam of creative and fi nancial enterprises, or as Nadal calls it “a merger of art and commerce.” Launched in 1980 with $500 from his own credit card, Multi Discipline Communications went public in 1987 with $2.1 million in annual revenues. Over the remainder of the decade MDC would become known for security printers and commercial photography . Communication fi rms were always in the mix–Bryan Mills was acquired in 1989, Onbrand in 1992, Integrated Healthcare Communications in 1997 –but did not become a real priority until the turn of the century. That’s when MDC spawned its subsidiary Maxxcom and began its fi rst spending spree to bolster its ad agency credentials.
The results were poor. MDC racked up a reported $720 million in debt buying 13 new businesses in 2000. As a result, in 2001 the company recorded a loss of more than $150 million. In 2002, several big-name print operations were sold to free up cash, and by 2003 all Maxxcom shares had been bought back from minority holders and the subsidiary was folded.
“We didn’t have the infrastructure or strategic resources ,” says Nadal, explaining what went wrong. “We didn’t have the talent base or the capital, the level of maturity to make it work. We didn’t have the scale.” However, it was in the Maxxcom phase when Nadal found CP+B. The arrangement struck with the Miami agency was in keeping with Nadal’s pattern of incremental investment: buy-in small and invest more with success , which Nadal did as early and as often as the CP+B agreement allowed. The agency skyrocketed and Nadal brought its leaders–notably Porter, Bob Van Horn and eventually Alex Bogusky (see sidebar on page 23)–inside his own company, which went far in solving the “talent” and “maturity” parts of the equation.
“Chuck has grown up not only with the experience of having grown CP+B, but he has a view of talent in the industry and a perspective that makes him immensely valuable as chief talent scout and strategist,” says Andy Macaulay, chairman of Crispin Porter + Bogusky Canada. Armed with Porter’s knack for fi nding good investments and cash from the sale of his print businesses, Nadal began another buying spree in 2004. That was the year Canadian fi rms such as Bruce Mau Design, Henderson Bas and Zig came on board.
“One of the benefi ts that attracted us to MDC was the notion that we would be in a club that was populated with really smart people that had been through some of the business challenges that we were going to go through,” Macaulay says . “ It’s not surprising that within the [MDC] pantheon, CP+B has the most lessons for all for us. “When we did our initial deal with MDC , the fi rst part of that was Miles and I sitting across the table from one another talking. There weren’t underlings or proxies brought in to evaluate us. Once Miles felt [we were] the company he wanted to work with, there’s the talent scout in the form of Chuck Porter, and now others, who look at the portfolio of the companies being acquired to see if they’re at the leading edge of their craft.”
However, as sharp as Porter’s eye for talent is, the new PMS group partners are different.
Porter knows the creative agency business, but admits he “doesn’t have the skills to assess companies” like Communefx. That task fell to Gavin Swartzman, a managing director who’s spent 10 years with MDC’s existing analytics companies, and Chris McDonald, president of the company’s consumer insights group. McDonald came up through Abacus (part of the DoubleClick online empire) and Pluris, a company smack-dab in the middle of the industry MDC is investing in.
Meanwhile, Nadal and his acquisition team are putting their instincts to another kind of test. Two days after his dinner affair at L’Affable, Nadal addressed a packed house in Cannes’ Debussy Theatre inside the Palais des Festival, with Porter and fellow independent spirit David Droga. While his BlackBerry was safely stowed in his pocket, he was certainly operating at full speed. His eyes darted from Porter to Droga to the offstage area. He watched the audience, found his two daughters in the front rows, then back to Porter.
When he fi nally got the spotlight, you could see his mind working to hit all his talking points, though he delivered his message clearly and with understated gravitas: he challenged anyone to bring him a business plan for a start-up marketing business. He will interview those who present ideas with the most potential and give $1 million start-up cash to those who can sell their ideas through. It’s another tactic for fi nding big, entrepreneurial thinkers he craves to work with. Nadal is betting his challenge will be so successful in attracting top talent, it will become an annual event.
It could have been seen as a gimmick, a reality show-inspired PR grab but Taxi’s Guenette calls it “the real deal.” “Nadal has big ambitions, the wherewithal to fund those ambitions and the courage to make provocative challenges. The challenge he made in Cannes was just the icing on the cake.”
Sitting on that Debussy stage, Nadal was smiling just as he was at L’Affable. Looking out at that audience of young, Lion-winning creatives, he may have been thinking about those very multinationals with which he is so often compared . While his company might not be as big as WPP or Interpublic, it may soon steal away their more entrepreneurial creative directors looking to fi nd their own Crispin-like spark.
