MDC Partners Begins The Mark Penn Era

It’s official: Mark Penn is MDC Partners new CEO, a role Penn agreed to take on as his own burgeoning holding company Stagwell Group struck a deal to invest $100 million in the MDC network. 

As CEO, Penn will lead all day-to-day operations as well as join the MDC Board of Directors. He will also continue to oversee Stagwell.

“MDC is home to some of the world’s best creative and strategic talent; strategists with a deep understanding of the way technology and media solutions address the needs of today’s modern marketer," says Penn adding that the financial infusion includes a personal investment. 

Penn added that MDC’s agencies, which include Crispin Porter Bogusky, 72andSunny and media shop assembly among others, “share an impressive entrepreneurial culture and the network as a whole is steeped in untapped potential. I am eager to begin applying not only our investment and resources, but also a plan based on my expertise, towards growth and the creation of significant value for our shareholders.” 

That plan will include cost savings efforts via real estate synergies and other measures. "We will be focusing on those segments that have the most upside potential," he says. 

On an MDC analyst call Friday morning, Penn declined to address reports that he initially want to buy all or most of MDC.  But he said the deal struck for a minority stake in the firm is the "most prudent" strategy since it isn't breaking prior covenants, existing financial agreements, or loading his company with too much debt.   

Penn brings a wealth of experience and connections to his new CEO role, succeeding Scott Kauffman who stepped down at the end of 2018. Before founding The Stagwell Group, Penn served in senior executive positions at Microsoft, where as executive vice president and chief strategy officer, he was responsible for working on core strategic issues across Microsoft's products, value propositions and investments and leading the company's competitive research and analysis. Penn also oversaw Microsoft’s $2 billion advertising budget.

Earlier in his career, he was the co-founder and CEO of Penn Schoen Berland, a global market research firm that he built and sold to WPP. At WPP, he also became CEO of Burson-Marsteller. Penn has also served as a senior adviser to global corporate and political leaders including the Clintons, Bill Gates and Steve Ballmer, Bill Ford and U.K. Prime Minister Tony Blair. 

Stagwell's financial investment gives it about 25% of MDC after purchasing $50 million of the company’s common shares and $50 million of non-voting convertible preference shares. MDC Partners expects to use the net proceeds from this investment to pay down existing debt under a credit facility and for general corporate purposes.

Further, as part of this financial re-alignment, MDC is entering into an amendment to the existing senior secured revolving credit facility with Wells Fargo Bank as well as selling its interest in subsidiary firm Kingsdale Advisors for $50 million to Kingsdale's executive chairman and founder Wes Hal. MDC will, however, continue its engagement of Kingsdale as its proxy solicitation advisor. Collectively, these announcements conclude the strategic review process and CEO search that MDC initiated in September, 2018.

While Penn's announcement sent the stock soaring 33% after market closed on Thursday, MDC also revealed the company's disappointing fourth quarter and full-year 2018 results after a number of advertisers did not utilize the firm’s services as expected. 

Fourth quarter revenue dropped 2.3% year over year to reach $393.7 million while organic revenue decreased 0.3%. Full year revenue also declined, to $1.48 billion from $1.51 billion a year ago, though organic revenue was up slightly (0.1%). 

New net business revenue last year totaled $76.1 million including NFL and Booking.com. 

"We made important strides in strengthening our business in 2018, including the fourth quarter, in which we delivered our highest level of net new business wins in two years," says David Doft, MDC’s chief financial officer. "The streamlining of costs and refocusing of go-to-market strategies across several of our agencies also sets the company up for improved performance in 2019."

Commenting on Penn’s appointment, Forrester analyst Jay Pattisall said it’s a “significant opportunity” for both MDC and Stagwell. The big question he adds is how Penn will navigate the quite different cultures at the firms with “Stagwell known for its efficiency versus MDC Partners, known for its autonomy. It will be important for Penn to strike the right balance and foster the best of both.”

MDC shares were up about 5% in mid-morning trading following word of the deal with Stagwell. 


This story has been updated. 

 

 

 

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