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A Little-League Holding Co. Gets a Bigger Profile

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With 'partnership' model, MDC carves a growing niche for itself

MDC CEO Miles Nadal says his company's partnership model "took 24 years to build and six months to get recognized."

Toronto-based Nadal has been snapping up stakes in U.S. creative shops since 1998. But he raised MDC's profile when he announced last year that the company had $100 million to spend—and followed up with the purchase of a 60 percent stake in Kirshenbaum Bond + Partners in February. MDC acquired its latest "partner" two weeks ago, taking a 20 percent stake in Cliff Freeman and Partners.

MDC has built a reputation as the anti-holding company—where creativity is said to feed the bottom line—which in turn has lured marquee shops and clients. That includes new Crispin Porter + Bogusky client Burger King, a $350 million marketer, a win Nadal said rebuts the argument that MDC cannot compete against the global networks. "We may be smaller than the top five, but we are in as good a position, if not better, to attract top talent than any of them," Nadal said. "It's not about global reach, it's about the creative."

"Smaller," however, is an understatement. With 2003 revenue of $312 million, MDC is a far cry from No. 1 holding company Omnicom, at $8.6 billion in revenue. It is a far cry as well from fifth place Havas' $2 billion.

But Nadal's business model—a loose collection of entrepreneurs that occasionally refer clients to each other or call for creative help in pitches but otherwise operate independently—makes a lot of sense to some observers. "Large holding companies go at it in a backwards manner," said Arnie Ursaner, president of CJS Securities in White Plains, N.Y. "They buy a company and focus on cost cutting. Miles buys a company and focuses on expanding revenue."

Freeman said he spent six months in discussions with Nadal and CP+B chairman Chuck Porter, who scouts acquisitions as chief strategist for MDC. "Their relationship with Crispin has been so ideal," said Freeman. MDC's network of "best-in-class" agencies, he said, "has sort of proven that inspired creative and inspired ideas have results for the client."

While Ursaner said MDC generally buys into agencies that are "already making a lot of money," Freeman's shop has been slipping for a few years. But as research analyst Kyle Stults at WM Smith & Co. in Denver pointed out, Freeman has a creative track record. "MDC thinks that in a market where creativity is important above all else, Cliff Freeman can deliver," he said. "In the long run it will be a good investment."

Sources estimated MDC paid $3-5 million for its stake in Freeman, which earned an estimated $15 million in revenue last year. Sources pegged the Kirshenbaum deal at $50-75 million. MDC's deals are generally a majority cash and minority stock split and pay out over a number of years, sources said. (MDC declined to discuss terms of its acquisitions.)

Nadal's U.S. holdings also include an 80 percent stake in Margeotes|Fertitta + Partners (acquired in 1998 for what sources estimated at $25-35 million), all of Colle + McVoy (80 percent was bought in 1999 for an estimated $20 million and the remainder picked up later) and 49 percent of CP+B (for an estimated $10-15 million in 2001).

Nadal said that under his "partnership model," MDC defines financial best practices and recruits top talent for the agencies. Each agency's executives continue to run day-to-day operations and retain a stake in the business's profitability. They identify a second generation of managers who should own a piece of MDC, providing up-and-comers with a vested interest in the holding company's success.

MDC has found a solid niche by buying into creatively minded shops with alternative-media bents, Stults said. "The Procter & Gambles and DaimlerChryslers of the world are always going to want and need a global network like the big guys," he said. "There is plenty of business for MDC to win on a slightly smaller scale, and that's where they are focused right now."