What Stagwell Group's Investment Means for the Future of MDC Partners and Its Agencies

For MDC Partners, change seemed inevitable, even before former CEO Scott Kauffman announced he would be stepping down from that role last September. Recently, the chatter around some kind of deal began to intensify amidst continued financial struggles, and the expected denouement arrived Thursday when Stagwell Group, the holding company founded by former Microsoft executive Mark Penn in 2015, agreed to a $100 million investment in MDC Partners. Referring to the deal, Penn said that he thought both Stagwell and MDC Partners "found a win-win formula. There were a lot of formulas that would have put the company at more, rather than less, peril. I bring $100 million to improve the balance sheet, leadership that I hope can give confidence to the partners and the agencies, and I’ve developed a plan that I’m going to be able to take to them." Details about what that plan entails remain unclear, and not everyone agrees that Penn's optimistic view of the deal is accurate. Michael Farmer, the author of Madison Avenue Manslaughter and chairman and CEO of consulting firm Farmer & Co., questioned the logic behind the deal. "Stagwell is making a $100 million investment in a portfolio of clients who underpay, don’t respect their agencies, who support too few people who are junior," Farmer said. "I don’t understand why that’s a good business decision unless [Stagwell has] a very good turnaround plan, which they might." Farmer noted that $100 million is a drop in the bucket for MDC, which he estimated will need an investment of likely "$500 million for the hole they’re in." He added that MDC will have to invest in hiring senior leaders who require higher salaries to start reversing their woes, which is likely the exact opposite of what the company will do. They also need to have tough conversations with clients to demand better pay for agencies. "It looks like a risky investment," he said. Forrester Research analyst Jay Pattisall, meanwhile, called the deal a "positive development for both entities," which he described as having "complementary offerings." "They provide one another access to some expertise and capabilities pretty instantly," he explained, with the Stagwell Group providing "very research, digital marketing and technology-centric" capabilities that complement MDC Partners’ creative and media offerings. [kickout id="1"] "The combination of the two has potential," he said, describing it as "necessary ... for both to continue to compete," adding that "it looks like the appropriate combination of the right companies and the right skills to build existing business and to go pitch new business." The outlook within MDC Partners, which includes agencies like 72andSunny, Anomaly, Crispin Porter + Bogusky, Doner and Assembly, appears to be positive as well, at least among the sources Adweek spoke with for this story. "We believe this will be a great fit," Colle McVoy CEO Christine Fruechte said in a statement. "We admire Mark’s background, his entrepreneurial and digital-first mindset as well as his appreciation for MDC’s exceptional creative talent. We look forward to his partnership." Another source within an MDC Partners agency who spoke to Adweek anonymously called the move "very good for MDC," adding that there was a "leadership vacuum" at the holding company, "and therefore anybody being placed in charge, being in control, is a good thing." "To me, they’ve needed leadership for some time," the source added. That leads to the question of whether Mark Penn is the right fit to lead MDC Partners. Tom Denford, North America CEO of ID Comms, praised Penn’s leadership, which he said, "will hopefully make the group listen more closely to the changing needs of marketers." "That is where the answer lies about the group's future success," he said. "Their ability to be more agile and flexible is an advantage, to make things simpler and adapt quickly to the needs of ambitious marketers." "Radically" simplifying the group from “a family of agency brands to being a highly-focused organization," Denford said, should be Stagwell’s first priority. Pattisall noted that one challenge for Penn will be tackling the management of two separate cultures in Stagwell Group and MDC Partners, the latter known for a more autonomous culture amongst its agencies. [kickout id="2"] One individual at an MDC Partners agency, who spoke to Adweek under the condition of anonymity, saw a more hands-on approach as a positive, at least for certain agencies, explaining that MDC Partners’ previous approach could be explained in part by previous leaders not having a full understanding of the advertising business. "One of the reasons why MDC wasn't too intrusive is they didn’t know how an agency works," this individual told Adweek. "You can’t really give guidance or advice if you don’t really understand agencies." Penn, on the other hand, is someone "who has lived inside the ad world" and possesses "the right skill set for a next-generation holding company leader," Wongdoody CEO Ben Wiener told Adweek. Pattisall said the combination of capabilities borne out of the deal is "certainly not a strange or unforeseen strategy in the marketplace right now," comparing it to WPP’s VMLY&R and Wunderman Thompson consolidations. "The combination of digital and creative is an inevitability, and so this is a positive move for MDC in that regard." Wiener foresees "a more aggressive, structured approach to collaboration," emerging from the investment, however. "I don’t how much how much current collaboration there is across multiple MDC brands, but my perception is that it’s less than what exists at WPP and Omnicom, that they're less advanced in terms of their ability to put together a single agency solution incorporating multiple brands for a giant client." Pattisall pointed to Ford's decision to transition its creative account to a BBDO-led Omnicom team last October as exemplifying the importance of such collaboration. "It’s the combination of Omnicom precision marketing, and BBDO that won that," he said. Such collaboration could potentially lead to consolidation. "If a collaboration of two compatible groups makes sense, then the eventual consolidation of the right pieces of that would also make sense," Pattisall said. Wiener is unconvinced such consolidation would be the right move for MDC Partners. "Just because that’s what WPP is doing doesn’t mean it’s what MDC should be doing," he said. "I think there’s a lot more daylight between many of the brands under MDC where consolidation seems like a less obvious, less natural and probably less smart approach." Divestment is one likely outcome of the investment, at least according to one source at an MDC Partners agency. "In an analysis of the entire portfolio, it would be surprising if they didn’t divest from something," the source told Adweek, estimating that somewhere between one to three properties would be the target of such divestment. The only certainty at the moment, however, appears to be more change.