For the past decade, the advertising industry has been driving along with a billboard growing larger and larger on the horizon. It was easy to miss for a while; after all, the only thing that keeps pace with the billions of marketing messages that vie for our attention is our ability to ignore them. But eventually, the billboard loomed so large, its words were unavoidable: “Digital technology is the future. This message brought to you by the Internet and anyone under 25.”
How marketers reacted to this inescapable truth varies. Two years ago, many dismissed Facebook. Now they’re spending millions to tap its potential. Miles Nadal’s response has proven more nimble than most of his peers. A decade ago, the 53-year-old chairman and CEO of Toronto-based marketing holding company MDC Partners invested heavily in tech-savvy agencies staffed with creative entrepreneurs that scoffed at the lumbering dinosaurs of the traditional ad world.
The company’s model of sharing equity with its agency partners and willingness to invest in needed technology has made it an example of how to do business in Adland amid the world’s new economic realities. Digital work makes up about 50% of the company’s revenues, compared to the 25% industry average.
Soaking in the mid-morning sun on the patio of Toronto’s Hazelton Hotel, Nadal explains his company’s strategy—rather than defending the old order that ruled his industry for decades, he funded the revolutionaries. “We started investing behind entrepreneurs who had a passion and dedication to doing things differently,” he says. Dressed in a deep navy suit and a crisp white shirt, his tie is speckled with small yellow flecks that on second glance turn out to be tiny logos for the Masters golf tournament. MDC, he says, is “really committed to being the insurgents and challenging the status quo, who wanted to be the black sheep and the people who redefine the industry.”
But Miles Nadal isn’t an adman. In 1980, he used $500 off his Visa card to start Multi Discipline Communications, initially investing in marketing communications firms but also acquiring printing companies that specialized in secure documents like cheques. He went public in 1986. In 2000, the company spun out the marketing business as Maxxcom, with MDC as the controlling shareholder. As Maxxcom acquired a slew of other ad and marketing services companies, it quickly racked up US$720 million in debt. After write-downs and a sell-off of the printing business, Maxxcom ceased to exist, but MDC was still standing. Since then, starting with its 2001 purchase of a 51% stake in independent U.S. ad agency Crispin Porter & Bogusky, MDC Partners has built up an impressive roster of creative ad agencies, increased its revenues and established itself as a major player in global marketing. Each agency is run as a separate business, with MDC Partners traditionally working behind the scenes as a business strategy and financial resource. If ad agencies were star athletes, MDC would be their agent, accountant and lawyer all in one.
Over the past two years, the company has made more than 15 acquisitions, including two of the hottest independent ad agencies in North America: Anomaly and 72andSunny. It now owns or has a majority stake in 48 marketing-related agencies, with offices in North America, the U.K. and Europe. It’s still just the ninth-largest ad holding company in the world, with less than a 10th of the revenues posted by any of the Big Four—Omnicom, Publicis, WPP and Interpublic—but MDC casts a long shadow for a small contender. Even before the added revenue from their numerous acquisitions is taken into account, the company boasted 24% revenue growth in the first half of 2011, outpacing every other agency holding company in the world. Its agencies’ client lists are as high profile as they are diverse, including Calvin Klein, Nike, Kraft, Budweiser, Target and BMW.
Nadal could be seen this fall on CNBC, BNN and Business Insider, offering confident reassurances on the state of the ad business and boasting that while the Big Four chose to batten down the economic hatches over the past couple of years, MDC saw it as a key time for bold investment. Thanks to its growing size and reputation, the company is becoming a more visible industry presence, recently opening the MDC Innovation Centre in New York, a 16,000-square-foot office on Fifth Avenue above Bergdorf Goodman’s, with a balcony overlooking Central Park for clients and partner agencies to use as a meeting and workspace.
But some say the company’s success is mostly hype. (Of course, a little hype is expected—they’re in advertising.) In its most recent earnings report, the company posted a US$19.6-million loss in the quarter ended Sept. 30, despite a 33% jump in revenue, and total net borrowings rose to $388 million. Critics point to MDC’s lack of overall profits and its huge amount of debt as signs of a company making more bets than it can afford to lose, (this, despite its increased revenues, organic growth and free cash flow). With a keen eye for talent and a huge buildup of creative and technical services over the past two years, Nadal clearly has a plan to succeed in marketing’s brave new world. Question is, can he pay for it?
Nadal is known for many things. Snappy dresser, tireless mover and shaker. His philanthropy alone has anybody in Toronto outside the marketing world calling him “the JCC guy,” after the Jewish community centre that bears his name. And he may yet be known as the “community centre guy”; the Miles and Kelly Nadal Youth Centre will soon open its doors in Toronto’s Regent Park neighbourhood. Another thing Nadal really likes is quotes. Franklin D. Roosevelt, Harriet Beecher Stowe, Muhammad Ali, Fitzhugh Dodson. His Twitter feed is where cynicism goes to die. “Without goals, and plans to reach them, you are like a ship that has set sail with no destination.” (That’s Dodson.) It’s as if Tony Robbins and Cheers’ Cliff Clavin had a baby that could only speak 140-characters at a time. Nadal even had a book of his favourite quotes put together by Bruce Mau Design, another MDC firm, called The Secret to Making a Difference.
Nadal’s iconoclast tendencies extend to how he runs his company, and while MDC technically existed before, the modern incarnation was born in 2001. At the time, the name MDC was far from well-known in ad circles. That changed when it bought a 49% stake in a small agency called Crispin Porter & Bogusky, based in Miami, Fla. After MDC invested more than US$20 million in stock and cash, Crispin went on an unprecedented hot streak, attracting the likes of Burger King, BMW, Mini and Volkswagen, while raking in piles of industry awards over the past decade. The agency has grown from one office and about 40 people in 2001 to more than 1,200 employees in several global offices today, and with work like Burger King’s Whopper Freakout and Domino’s Turnaround campaigns, its reputation for creating some of the most creative, effective advertising in the world is firmly intact.
Nadal says Crispin was the greatest thing to happen to MDC. “They became the proof point that you could be involved in an organization that would provide a support centre without cannibalizing the entrepreneurial culture that made the agency successful in the first place.”
Since then, MDC has positioned itself as more strategic partner than benevolent financial overlord. “We don’t interfere in the creative process, what clients they go after, how they bill or any of those things,” says Nadal. “That’s their job. I’m here with a cheque, not a gun. They run the car. They’ve got control of the accelerator, brake and steering wheel. I’m just the guy who supplies the fuel and have input in the navigation system.”
“It’s great working with MDC,” says Crispin CEO Andrew Keller. “I think the concern of any advertising agency is always about how much involvement there’s going to be, how much pressure is there going to be, how much are they going to tell us about our business. Those are the concerns, because you’re talking about business people getting involved in a creative endeavour.”
It’s this approach and the precedent set with Crispin that continues to attract new partners to the MDC fold. “That’s the case study of the century in terms of partnerships and an agency scaling while maintaining its ethos and culture,” says Matt Jarvis, partner and chief strategy officer at 72andSunny, the Los Angeles–based agency known for its award-winning Next Level campaign for Nike, the hilarious Kenny Powers K-Swiss campaign and the recent launch of Call of Duty: Modern Warfare 3 for Activision. It sold a majority stake to MDC in December 2010.
MDC has hedged its bet on advertising’s future with wagers in both traditional and digital media. On one hand, to complement its all-purpose agencies like Crispin and 72andSunny, the company has invested heavily in specialized agencies with expertise in specialized fields like social media, analytics, consumer insight, digital technology, public relations and experiential marketing. In September, the company also acquired medical ad agency Concentric, whose clients include Pfizer and Novartis. On the other hand, Nadal and MDC have not allowed these auxiliary businesses to overwhelm their commitment to attracting the talent that produce great ads. “The killer app is always a great story,” says MDC’s chief strategist and Crispin Porter & Bogusky co-founder Chuck Porter. “And talented people who can tell one regardless of the medium are the people marketers are going to look for.”
That philosophy isn’t limited to the present. In 2009, the company and Crispin teamed up with the University of Colorado, Boulder to create Boulder Digital Works, a multi-disciplinary program designed to provide the skills across technology, creative communication and business. Last year at the Cannes Lions advertising festival, Nadal awarded $1-million startup funding for an advanced program in New York called the Digital Works Institute. The company is currently in talks to add two more similar programs in Canada and the U.S. “The reality is you want to train more and more people to have a better understanding of the world of marketing, communications, digital innovation and social media, and give them the tools to take it from here,” says Nadal. “That will benefit the industry as a whole, but obviously we hope by being at the epicenter of it we’ll attract more of our fair share of that talent.”
Back sitting on the hotel patio down the block from MDC’s Yorkville offices, Nadal has ordered a very cold bottle of sparkling water and is quoting famed NFL coach Bill Parcells. “You are what your record says you are,” he says matter of factly. “And we think ours speaks for itself. We’ve had the best financial performance in the last five years of any agency or media company anywhere in the world.”
Bob Willott, a U.K.-based analyst and editor of the Marketing Services Financial Intelligence newsletter, disagrees. Citing MDC’s debt and the fact it has held the company to relatively low, if any overall profit despite leaps and bounds in revenue growth, Willott casts doubt on MDC’s ability to turn industry awards and its agencies’ creative prowess into profitability. “The fact they still owe more than $100 million to companies they’ve bought clearly suggests to me they’ve managed to persuade people to come into the MDC fold on the back of the reputation of Crispin,” says Willott. “Chuck Porter’s been a very good ambassador for MDC, and he’s got a very good business, but that’s not enough. It makes you wonder how many years you can carry on buying companies and not making any money out of it.”
But BMO Capital Markets’ equity research analyst Dan Salmon says MDC has made leaps and bounds in the past few years. “The key is, you want to do what you say you’re going to do and they’ve done that,” says Salmon. “They said 2010 was the big acquisition year, and 2011 would be about putting everything in its right place and investing in personnel to scale those smaller businesses. Over the next few years, you’ll ideally see them harvest the profits out of those investments.”
With the company’s massive growth over the past couple of years, and plans for its agencies to push further into Europe, and eyes on Asia and Latin America as well, Nadal is making big bets to move MDC up marketing’s global pecking order. But as it grows, can it keep granting its agencies the same creative freedom and maintain their entrepreneurial drive? There are signs the traditional MDC model is being put to the test. In June, MDC merged Crispin with one of its Toronto agencies, Zig to form Crispin Porter & Bogusky Canada. Three months later Molson fired Crispin Canada (it had worked with Zig for the past seven years) after it found out the agency’s American counterpart was pitching for competitor Bud Light’s business. Unnamed sources told Marketing magazine at the time that Crispin Canada didn’t even know the Boulder, Colo., office was pitching for an AB InBev brand until they heard about it from Molson.
The company is also stepping out from the shadow of its partner agencies and establishing MDC Partners as a brand in its own right. In June, the company won its first account under the MDC Partners name, handling all the marketing needs of American retail giant Target when it crosses the Canadian border in 2012. Success came by pitching with an integrated team of its agencies led by KBS+P Canada and Veritas Communications. While no single MDC agency, particularly in Canada, was big enough to handle an account with needs as varied as Target’s, together they put together a competitive offering. It’s a stark departure from the old MDC adage of leaving agencies to do their own thing, but a practice that could become more common given its ambitions and the number of specialty firms it has recently acquired capable of augmenting the services of MDC’s all-purpose ad agencies.
The opportunity for similar deals is huge, but the challenge for MDC is, as ad legend Jay Chiat famously put it, “How big can we get before we get bad?” Nadal is quick to say this isn’t MDC starting to play the puppet master, and deals like Target will be done on a case-by-case basis. “MDC is not a marketing brand per se, although we do play a much more active role as a strategic partner to our partner firms,” he says. “We still think the vast majority of opportunities are for our partner agencies to deal directly with their clients.”
Nadal has said that anyone in marketing who has a 10-year plan is delusional. The two most important criteria for measuring MDC’s accomplishments, he says, are maintaining its strong relationships with its partner agencies and their work’s impact on client business. “Our job is to drive tangible return on the marketing investment of clients, and the work we’re doing is having greater impact than ever before,” he says. “That’s why we’re in business.”
Salmon credits MDC’s ability to differentiate itself from the larger ad holding companies to Nadal. “Sometimes shareholders get nervous around Miles because he’s a big thinker, he’s a dreamer, not the typical investor’s idea of a straight and narrow, predictable CEO,” he says. “But what that means is he’s a kindred spirit to these creative folks. He understands that, and that’s the kind of culture he’s trying to foster.”
It’s a vision that’s worked wonders over the past few years. But in an industry where one major account can determine financial success or failure, Nadal’s MDC model will be under the gun to prove it’s still the real deal and not just false advertising.