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MDC Addresses the Next Generation

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NEW YORK In the early part of next year, MDC Partners is set to pay remaining earn-outs of $47 million in cash and stock to principals at its two largest agencies, Crispin Porter + Bogusky and Kirshenbaum Bond + Partners.

The creation of a second generation of managers at those shops, which together contribute 35 percent of MDC's revenue, will be keenly watched, not least because of the collapse of Margeotes Fertitta Powell, which was folded into KBP in 2007 after the departure of its founder, George Fertitta.
 
Crispin addressed its succession issue in January when Alex Bogusky, the creative face of the agency, took on the co-chairman title and turned over the day-to-day operations to ecds Andrew Keller and Rob Reilly. At KBP, a shop that has always been closely identified with its founders, the lines of succession are not so clear. In fact, MDC chief executive Miles Nadal is quietly interviewing for a new KBP top executive to "take the agency in a new direction," sources said. Co-chairs Richard Kirshenbaum and Jon Bond, who are part of that search, will have reduced roles at the agency as a result, per sources. (Aaron Reitkopf, a 12-year veteran at the agency, is CEO at the shop, which has 10 managing partners in addition to its founders.) As part of that reinvention process, MDC recently hired an in-house PR representative for KBP to raise the profile of the agency beyond its founders, who had relied on an outside publicist working on their behalf.

MDC founder Nadal didn't comment on the search other than to say: "We are always in the marketplace looking for talent. We have great confidence in Richard and Jon and are very supportive of current management."

He said employment contracts are in place with top execs at Crsipin and KBP, but declined to discuss their duration other than to say they have "evergreen clauses."

"Nothing is changing in the relationship with our partners," said Nadal. "Each and every principal at Kirshenbaum Bond and Crispin Porter + Bogusky were successful people before I got involved in their companies, and they still have the same drive and passion for the success they've enjoyed."

KBP's Bond did not return calls; Kirshenbaum's publicist said he was on vacation and could not be reached. Crispin's Bogusky and co-chair Chuck Porter didn't return calls or e-mails. However, as this story went to press, PR reps at both agencies released statements: Kirshenbaum is quoted as saying the MDC partnership relationship "exceeded our expectations on all levels"; Bond said he looks forward to "expanding our partnership relationship in the years ahead," and Porter echoed Bond's prepared statement, adding the MDC association "has been the envy of the industry."

One major difference in grooming succession management may lie in whether staffers were offered a financial stake in their agencies. MDC owns 100 percent of KBP while Crispin has sold 94 percent to its Canadian parent and added another 10-15 agency stakeholders to its original four. KBP's founders had closely held on to ownership of their agency, with other top execs receiving small stakes, sources said. As evidence of the disparity, industry observers point to the December 2003 departure of Rosemarie Ryan, KBP's president of nearly 10 years, to the same role at JWT New York just two months before MDC announced its acquisition of the agency. Ryan couldn't be reached for comment.

Kirshenbaum, 48, is still close to certain clients, but, sources said, has stepped back from the 22-year-old agency's creative operations in recent years to pursue other interests. These include collecting art and interviewing celebrities and ad friends like Donny Deutsch for Kirshenbaum's program on Plum TV on Long Island, where he has a home in the Hamptons.
 
Bond, 51, is more engaged with the business, sources said, and enjoys a hands-on role in new business. While some sources expect him to stay at his namesake or take on an expanded role at KBP's parent, others suggest he is already looking for his next opportunity.

"Jon is an entrepreneur who makes things happen and he definitely has the appetite for something else with wealth creation in mind," said a source. "Whether that's inside or outside MDC is a 50/50 chance."

Even with the final payouts calculated, Nadal would not disclose the indicated purchase price of each agency, other than to describe them as "fair-market value." He initially acquired a 49 percent stake in Crispin in 2001 and a 60 percent stake in KBP in 2004. Original transaction terms were never disclosed.
In 2007, amid speculation Crispin was considering a private-equity funded buyback, MDC upped its stake to 77 percent in Crispin and bought the remainder of KBP. Together the agencies received an additional $48 million that year.
 
The $47 million earn-out is an estimate of MDC's obligations to the two agencies as of June 30, based on performance criteria and can be adjusted accordingly before the payout around the beginning of the second quarter of 2010.
 
Recent events at KBP could impact that final earn-out. In July, KBP lost its creative lead role on Wendy's, which is thought to have accounted for 11 percent, or about $8 million, of KBP's $70 million in revenue. In a second-quarter conference call with investors on July 31, Nadal said KBP has "significant" unannounced wins that "almost" replace the loss of revenue from the fast-food company. He declined to identify the sources of that additional new business. The loss of Wendy's resulted in a layoff of 7 percent, or 18 of the agency's nearly 260 staffers.

Nadal emphasized that while there are "no other quantifiable" payouts to the two shops, MDC continues to financially incentivize the next generations of management at its agency partners. "We believe in the perpetuation of partnership alignments and as management is expanded we create new pools so more people can participate in the future growth and prosperity of the business," he said. "It's important that the next generation is both emotional and financial owners of the business."

--with Andrew McMains