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To its partners, Maxxcom seemed almost too good to be true. Maybe it was.

In a consolidating industry, Maxxcom was an alternative for growing agencies that were looking for capital but were reluctant to become lost in the ranks of the larger holding companies. It acted as a kind of arm's-length banker and consultant to its 21 marketing-services partners, who were promised operational freedom in exchange for a healthy return on Maxxcom's investment.

Its entrepreneurial spirit mirrored that of Miles Nadal, the 43-year-old Canadian business-school dropout who created Maxxcom parent MDC Corp., one of the world's largest providers of secure-transaction products. Sought-after independents like Margeotes|Fertitta + Partners and Crispin Porter + Bogusky signed on.

Even Maxxcom's CEO bore little resemblance to her hard-charging peers. Coming from a human-resources background, Beverley Morden was well-known for people skills that helped manage the personalities at Maxxcom's partners.

But in these tough times, it turns out Maxxcom isn't so different after all. Last week Morden, who built the Toronto-based company into Canada's largest marketing-services entity, was shown the door. Her replacement is Harold Reiter, who was recruited from Tyco Capital (Canada) Inc., a top commercial-finance company.

Reiter has no advertising or marketing experience. He comes in as the turnaround guy looking to shore up operations at a business that derives 70 percent of its revenue from the U.S. and has been hit hard by the market's slowdown. What's more, by some analysts' estimates, Maxxcom has about US$15.5 million in earn-out obligations coming due this quarter.

Parent MDC is having its own financial difficulties, and brought in merchant banker Jamie Johnson as president last September to restructure operations.
Reiter is expected to focus on priorities like debt restructuring. It's not clear whether he'll live by Maxxcom's hands-off policy. If he does demand cuts at the operating level, it will be tough for Maxxcom partners to realize profit levels necessary for earn-out payments.

Morden's fate may have been sealed last fall when she failed to attract new capital investment. Goldman Sachs had been retained to seek a cash infusion or an outright sale, but there was little interest in a company carrying $57 million in debt and $32 million in earn-out liabilities while its market capitalization was only about $27 million.

Therein lies a major frustration Morden's successor will inherit. In 2000, MDC spun off Maxxcom as a publicly traded company at $6.67 per share, with MDC retaining more than 70 percent. MDC's control of such a large chunk leaves just a small float for investors. As a result, there is little market volume and little interest. MDC CEO Nadal says he now may even increase his stake in Maxxcom. Shares now trade at around $1.16.

Nadal expects Maxxcom to resume acquisitions by the second half of the year. But its appeal as an alternative to big holding companies remains to be seen as Maxxcom's entrepreneurial culture meets the cruel realities of the marketplace.