Close-up: Newsmaker - A new template for the invasion by the men in suits

MDC's chief strategist thinks partners with equity remain involved, Bob Willott reports.

Is it possible to combine creativity with entrepreneurial business sense? Is it possible to sell your agency but still retain a big ownership stake for yourself and your successors, as well as keeping control of the day-to-day management? Is it possible to be successful without being part of a global network? Or is this all pure fantasy?

Not if Chuck Porter and his fellow directors at MDC Partners are to be believed. MDC Partners? It's not a name that will ring many bells, but it is an ambitious public company founded by its chairman, Miles Nadel, 25 years ago and listed on both the Toronto Stock Exchange and Nasdaq.

What's more, it has about $60 million burning a hole in its balance sheet and it has companies such as Naked Communications, Michaelides & Bednash, Mother and Strawberryfrog in its sights.

Porter is also the chairman of the Miami agency Crispin Porter & Bogusky, in which MDC bought a 49 per cent stake in 2001. "We were looking for a partner who would give us some money to grow with, but would leave us alone," Porter says. "Also, MDC was small enough at the time for us to have an influence in shaping the strategy."

Now Porter is travelling the world as MDC's chief strategist, hunting down businesses to turn strategy into reality. He's not too fussed about size (he's backed start-ups, although Nadel prefers businesses making £1 million profit) and is more interested in whether an agency is run by smart, innovative thinkers who add value, irrespective of whether it is in content, new media, direct marketing or traditional advertising.

But what's a former creative director doing dabbling with business strategy and acquisitions? Surely that's a job for a suit? Not as Porter sees it. He doesn't come from the lock-creatives-in-a-back-room-til- they-come-up-with-a-good-idea school of advertising. "I don't see the dichotomy, frankly," he says. "Some of the smartest business people I know are writers, art directors and creatives. In our agency, from day one, creatives always have a seat at the table."

MDC started as a Canadian marketing services business in 1980. Later it diversified into security printing and similar activities but, by 1996, the group was beginning to dispose of those businesses, often at a healthy profit. The plan is to shed the rest of those businesses by the end of this year and add to the cash pile. "After that, marketing services is the only business we'll be in," Nadel says.

The dream offering that MDC has put together for target companies is called a perpetual partnership. "Marketers are looking more for innovation, for new ideas," Porter claims. "So I guess we're looking for the next generation of really talented, smart, highly creative, innovative thinkers."

Of course, that's hardly a unique ambition; the difference is in how MDC goes about it. "We're not really looking to buy agencies," Porter says. "MDC is really much more in the partnership business. The philosophy of MDC is to do essentially 50/50 deals. The numbers may be slightly different but essentially we're looking to partner with smart people and to provide the resources for them to grow faster."

It sounds very different from the acquisitive style of the global groups, apart perhaps from Hakuhodo, which bought substantial minority stakes in Mustoes and various other agencies around the world. But does MDC acquire legal ownership control? Porter disclaims any legal insight. "As a practical matter, MDC wants to partner people who, hopefully, are better at growing their business than an outsider would be. So, we are not seeking to gain management control of companies we partner with," he argues.

But, with the best will in the world, some companies get into difficulty, so presumably MDC would then get involved? "The answer is yes. But it's not our intention to get involved," he says.

That leads us on to MDC's first UK acquisition, Interfocus Group, which was bought from Lowe some years ago and has since parted company with several top executives, including Matthew Hooper and, more recently, Chris Zandonati. It went into liquidation after a period of catastrophic losses resulted in a deficiency of £8 million.

Interfocus Network was left as the surviving business and is now wholly owned by MDC.

According to Porter, Interfocus is one of two businesses of which MDC owns 100 per cent: "We're changing that. It's not going to be a quick overnight fix but, ultimately, we want the shares to be held by people who work in the business."

But why would a company founder want to sell just half a business to MDC when other groups would happily buy the lot? And what happens when the founder wants to sell the remainder?

First, Porter believes that many owners would prefer to retain a big stake in their business with day-to-day management control rather than sell outright. As for eventual retirement, he has an attractive proposition: "MDC has developed a second-generation model. The idea is that the people who are still going to be working in the business will always be equity holders in the company. MDC will finance the sale of shares by founding partners to the next generation. I believe that people with a stake in the game always think differently from employees about their business, no matter how well you pay the employees. I have passed on a lot of the equity in my own agency to my partners. It keeps them engaged. It keeps them thinking."

Whether this attractive proposition catches on in the UK will depend on how well MDC can demonstrate that it would adopt a genuinely hands-off stance and if it can attract the calibre of partner company that will attract others to join. Its creative credentials will be important, but its financial prowess will also come under scrutiny.

While talking bullishly about its financial performance, the fact remains that MDC lost $1 million in the first quarter of this year and still has cumulative historic losses of $26 million to recoup. Furthermore, profits reported in the past two years were almost entirely derived from asset disposals. That said, with net assets of £100 million, MDC's balance sheet is fairly strong and should get stronger after divesting its remaining security businesses. But it's hard to forget that, not so long ago, another Canadian company, Envoy Communications, set out on the acquisition trail and nearly went bust. By contrast, the Quebec-based Cossette Communication Group, which recently bought Identica from Michael Peters, is bigger than MDC and has virtually no debt.

What is clearly on offer is a refreshing alternative to the standard acquisition model available from WPP and Omnicom. Porter is not alone in arguing the global giants are getting too institutionalised, that creative personnel and clients are looking for something better. And not every brand needs a global network to provide creative input. So Porter's dream of a collection of bright young agencies devoid of any global network, each partly and perpetually owned by its management and delivering excellent work, may come true.

And if owners still want to sell 100 per cent? "Call Sir Martin," is Porter's unequivocal answer.

- Bob Willott is the editor of Marketing Services Financial Intelligence (www.fintellect.com) and a special professor at the University of Nottingham Business School.

QUESTIONNAIRE

Favourite ad: The "1984" Apple spot from Chiat Day. Ran once, changed

everything

Describe yourself in three words: Really likes dogs

Greatest extravagance: The occasional private charter flight

Most treasured possession: A tie, financial independence and yellow

cashmere socks from Barneys New York

Most admired agency: Wells Rich Green in 1970

Living person you most admire: Person is too broad, narrow it down to

copywriter and I'd say David Abbott

One to watch: I'd keep watching Alex Bogusky

Motto: Try to get more sleep

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