MDC Puts Maxxcom in Focus

In taking MDC Corp. subsidiary Maxxcom private, founder Miles Nadal is returning to the roots of his corporate ambitions: advertising and marketing services.

Twenty-three years ago, the Toronto entrepreneur started to invest in small marketing companies, looking to build a public entity. But Canadian investors were interested only in asset-based businesses. So Nadal shifted his focus to check printing and credit cards as the foundation for MDC, which originally stood for Multidisciplinary Communications.

“MDC’s focus now will be Maxxcom; this is our future,” said Nadal, 45. “We have over $200 million in cash and no debt. We want to be among the [communications industry’s] top 10 firms globally within five years.”

Nadal said he will get more involved in managing Maxxcom, which remains one of the largest providers of security-sensitive transaction products. And he expects Chuck Porter, founder of Maxxcom affiliate Crispin Porter + Bogusky, to play a larger role at the holding company.

“[MDC is] in a strong financial position again, and they’ve asked me to advise on things like acquisitions,” said Porter.

Nadal has proposed a stock buyout of minority shareholders in Maxxcom, of which MDC owns 74 percent. The value of the offer is $1.36 a share, or about $18 million.

Minority shareholders own about 13 million shares. MDC’s offer calls for investors to swap their Maxxcom stock for MDC class A subordinate voting shares. The exchange ratio will be determined by the average trading price of MDC’s stock over a 20-day period, ending on the trading day preceding the special meeting for Maxxcom shareholders to consider the offer.

In addition to shareholder approval, MDC’s bid for Maxxcom is contingent upon negotiation of a final agreement and is subject to court and regulatory approval. MDC expects the takeover to be completed by the end of August, when Maxxcom would become a wholly owned subsidiary.

MDC spun off Maxxcom in March 2000. The move to go public was intended to help expand Nadal’s vision of a network of entrepreneurial affiliates whose growth Maxxcom bankrolls in exchange for a percentage of profits. Maxxcom’s acquisitions grew to include stakes in some 22 companies in Canada, Britain and the U.S., where affiliates include CP+B and Margeotes|Fertitta + Partners. But given MDC’s large stake in Maxxcom, there was little trading volume or investor interest. The stock debuted at $7.95. Last week, it was trading at about $1.30.

Nadal said that now that there are signs of an industry recovery, he is focusing on a strategy of “accelerated internal growth and selective acquisitions.” Harold Reiter, brought in last year as CEO to turn around Maxxcom, will continue in that job. (Maxxcom reported a profit of $1.2 million in the first quarter, compared to a year-earlier loss of $1.3 million.)

Last month, Nadal raised $119 million through an initial public offering of Custom Direct Income Fund, MDC’s U.S. direct-to-consumer check operation. MDC plans to use those proceeds to help fuel Maxxcom’s growth. In addition, MDC’s stock is trading at its 52-week high on both the Toronto Stock Exchange, at about $7.79, and the Nasdaq, at approximately $7.75.

“I love investing in the bottom of the cycle; I think there’s phenomenal opportunities now,” Nadal said. “There’s a redefinition of the industry under way. A network of entrepreneurial firms has a great opportunity. There are a lot of people who are unhappy working for multinational firms and firms that are unhappy being part of multinational holding companies.”