This Holding Company Sets The Talent Free

Miles Nadal is something of a mystery to his shareholders. Drawn to Crispin Porter + Bogusky in 1999, when the Miami ad agency was gaining notoriety for an antismoking campaign, the Toronto businessman, who made his fortune in private equity and check printing, bought 49% of the firm in 2001 and tossed it into a fledgling company known as MDC Partners Inc. (MDCA ) That's the eclectic collection of ad, design, communications, and sales promotions firms that Nadal has put under one roof.

Crispin's billings are now six times their level when Nadal bought in. But last August, the 48-year-old chairman and CEO faced angry stock analysts and fund managers on a conference call after MDC's profits fell short of forecasts. Then, just a few weeks later, Volkswagen drove its $400 million account through Crispin's door, injecting more than $40 million in new revenue. Critics were quelled, at least temporarily.

So is Nadal smart or lucky? There are many who say neither. In fact, most of Madison Avenue, not to mention Wall Street, doesn't know what to make of his strategy of buying partial stakes in small outfits and keeping them mostly autonomous rather than buying them out. Of the 32 companies MDC owns pieces of, no others have achieved the fame of Crispin.

Still, Nadal defends his strategy as a blow against large ad agency holding companies such as WPP Group PLC (WPPGY ) and Omnicom Group Inc. (OMC ) These giants tend to enrich a small number of executives, he says, who cash out and leave behind agencies that become "slaves to quarterly profit statements instead of building their own cultures." That's hardly music to investors' ears.

For 20 years, says Jon Bond, co-chairman of Kirshenbaum Bond & Partners, his New York agency spurned offers from holding companies. "Miles was the first guy we actually liked," says Bond, whose agency's profit has tripled on wins such as BMW's digital marketing business and Panasonic since selling 60% to MDC in 2004.

MDC agencies give up about half of their profits but get to use MDC as a bank, lawyer, real estate manager, and human resources and business consultant. Says Crispin Chairman Chuck Porter, 60, who is also Nadal's chief scout: "We're interested in firms that have terrific talent and need a partner to get the business issues out of the way so they can concentrate on the work."

So far, investors are mixed on the model. U.S. analysts don't even cover MDC, calling it too small. Richard Shuster, managing director of Robeco Investment Management in New York, which owns MDC shares, says Nadal is communicating more realistic expectations than he used to. Shuster also likes MDC's declining debt as it sells off its secured documents business. First-quarter free cash flow was six times its level a year ago, and revenues from agencies were up 33%. Still, MDC is losing money, and the stock remains flat.

Sure, it's more complicated than the check-printing business, Nadal says, but way more exciting. "It's a rush to be able to say: 'You know about Subservient Chicken? We did that."'

By David Kiley

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