General Mills, Volkswagen, Sony, Citi, Coca-Cola, Procter & Gamble. There are an unusual amount of media agency reviews — totaling an estimated $80 billion in billings — which presents an opportunity for MDC Partners, according to CFO David Doft, speaking at the Bernstein Global Future of Media and Telecommunications Summit. "We love change. All change," he says. Although the holding company is not in a position to actually compete for these big accounts, "from our standpoint, we are not the incumbent so there is no risk for us."
However, MDC recognizes that these reviews are likely to cause competitors to neglect their other clients. "Every major player has their most senior people fighting to hold [these] accounts [which] causes disruption for us to go after smaller and mid-size accounts," says Doft. And eventually, these smaller accounts add up to enabling MDC "to compete for larger businesses and open doors to somewhere else."
Doft was not asked about the company's recent SEC troubles during this investor conference, but the moderator did ask him "one of my favorite questions" about media fragmentation. MDC believes complexity is an "agency friend," he says. "There is a need for unbiased arbiters to optimize performance and this has opened up a massive opportunity for newer models [like MDC] to gain market share," says Doft, noting its compounded growth stands at 11%, compared to an industry average of 2%. "Our progressive model is built around technology, not [with] technology as an add-on."
Doft is optimistic about MDC's growth potential for several reasons. First, there is an increased opportunity for MDC to generate revenue since the industry is relying less on outsourced production and more on in-house work. "Historically, creative [agencies] get monthly fees for strategy, but TV production was a pass-through. No agency has volume to have director or cameramen on staff." Now, however, there are more opportunities to shift from a third-party back to the agency. "Website building, more often than not, that is built in-house by us. [We] manage social media and content creation around that, even video," he says. "There is a big opportunity to get a bigger piece of the pie."
MDC is also well-positioned to grow thanks to its small international footprint. Currently 55%-60% of industry revenue comes from outside North America, yet MDC's international earnings only comprise 7% of its total earnings. "We look at revenue from incremental growth opportunity. We are built on our core creative business in U.S., so maybe we say core trade slows [down in the U.S.], then we will talk [more] about expanding internationally."
MDC will also look at "low hanging fruit" offered by cross-selling opportunities, such as bundling its PR or media buying and planning divisions with its creative or digital shops.
Also there's the option of growing the company via acquisition. Doft says the company has a "fairly active" mergers and acquisitions capability to grow its revenue through smaller deals.
"We may be smaller than the larger guys," he says. "I think we are the 7th or 8th largest, but we work with the largest brands [including Budweiser, BMW, and Samsung]. And increasingly we see clients [who] want to work with smaller agencies to find breakthrough solutions to solve business problems."
That said, the company’s stock is still trading on the NASDAQ Exchange (MDCA) just a little above where it nosedived to in April after the company disclosed the SEC investigation. At the end of the trading day Wednesday it closed at $20.75, more than $7 below where it was prior to the disclosure.