Nadal: MDC Lost One-Third Value In '11

Miles-Nadal

Miles Nadal, CEO, MDC Partners, outlined plans for boosting the company’s stock price at the Deutsche Bank Media and Telecom Conference on Wednesday.

Those plans include creating incentive rewards for managers who deliver above-target profit margins. MDC’s corporate goal is to be at a 15% profit margin in five years, up from the current 12.8%.

The strategy also includes moderating M&A activity in 2012 and training new-to-the-fold companies how to better manage the flow of working capital, particularly the process of billing and collecting fees.

Going forward, Nadal said, the company will also demand a greater amount of client “underwriting” before it expands further outside the U.S.

He told conference attendees that the company will refinance its debt load in 2013, which will free up an estimated $15 million to $20 million a year in cash flow. The company has been on a buying spree over the past two years, spending $150 million to purchase 20 additional agencies. The cost of borrowing to make those acquisitions was expensive, given the recessionary climate at the time, Nadal acknowledged at the conference.

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Now trading at just under $13 per share, the company’s stock has lost one-third of its value over the past year. Wall Street wasn’t particularly pleased with MDC’s third-quarter results. While the company’s full-year organic revenue growth was a healthy 17%, annual pre-tax profits came in under the targets set by many analysts.

Investors have told Nadal they want a “better balance” of investment versus return. MDC posted a nearly $85 million loss for 2011. “It’s harvesting time,” he said.

Another cost area that the company will address is talent. Up until now, MDC has spent 4% to 5% more than its competitors. Nadal contended that the company has done a good job of driving growth over the past seven years at both the revenue and pre-tax profit levels. “But we didn’t manage as judiciously in between,” he acknowledged. Labor costs, he said, will be managed down so they are more in line with industry averages.

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