Why MDC Partners is the most interesting – and riskiest – game in town

MDC Partners, now without founder and CEO Miles Nadal as he battles US government charges over his expenses, reports its half yearly numbers on August 6.

Screen Shot 2013-06-02 at 6.12.07 PMSome analysts say the company will be better off without Nadal – it will certainly spend less on trains and boats and planes – so there’s a big upside in the shares and consequent value of the company. Others think so too – former Omnicom CFO Randy Weisenburger (left), who should know about these things, has made two hefty investments in MDC through his new hedge fund Mile 26.

Others are not so sanguine. The Toronto Globe and Mail, in an extensive analysis, recently pointed out that Nadal and MDC’s arguments with the US SEC didn’t just involve expenses. Rather the SEC questioned the whole way MDC reported, specifically its use of EBITDA conventions (earnings before tax, interest and depreciation), allegedly to massage the numbers.

EBITDA was designed to show the underlying trading position of new and/or highly leveraged businesses. But tax and depreciation are facts of life for more established businesses, which MDC should be by now (it was founded in 1986). Some estimates are that it’s burned through $500m of shareholders’ money while only reporting a profit in one year.

The money, Weisenburger and others would argue, has mainly gone on a potentially highly valuable collection of assets: chiefly creative agencies Anomaly, Crispin Porter, 72andSunny, KBS and Albion in the UK. MDC, though, does lack a big media operation and that’s a more reliable source of revenue and profits these days.

At $900m or so (only one and a half times what Providence Equity Capital and WPP have just paid for UK-only business Chime Communications) MDC is an interesting play. But many of its assets are part owned and a lot depends on whether or not the part-owners of these, like Anomaly’s Carl Johnson, see their future with MDC. Will they get their earn-outs? Some, at least, were shocked when the revelations of Nadal’s misdeeds surfaced (he’s to pay back the company $10m in wrongfully claimed expenses).

And we still wait to see if past accounts are to be substantially revised and what this year’s first half numbers show.

One Comment

  1. Oh, I’m sure that the folks running the agencies Miles bought with his titanium AmEx over the past decade are truly “shocked” about his financial skullduggery. Except that anyone with a passing interest and a sixth-grade education could see that the company lost huge sums of money every single year. They were no doubt more than happy to hop on the EBITDA Express. Unfortunately, now that the SEC has finally woken up, I would expect that the flow of additional borrowing to help repay the money already borrowed is going to slow down considerably. Look for significant “rightsizing” and maybe a divestiture or three as the “new MDC” attempts to actually balance the balance sheet. BTW you forgot Miles’s favorite conveyance, his $1.3 million bespoke McLaren P1, called (with customary modesty) the “Miles Nadal Edition.”

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