• by January 30, 2004

A NEW NEW M&A MODEL, EH -- It used to be that Madison Avenue just had to worry about the French and the Brits gobbling up plumb U.S. advertising assets, but now the action is heating up north of the border, thanks to an innovative M&A strategy developed by Toronto-based marketing services conglomerate MDC Partners. Instead of buying agencies out wholly, MDC takes a significant controlling stake that still lives the original agency principals with a significant interest in the enterprise. MDC calls this approach a "perpetual partnership program" and it's pretty smart. Instead of allowing key agency stakeholders to cash out, the system provides them with long-term incentives to keep building their and their client's brand equities on a perpetual basis. The model has been a successful driver, enabling MDC to acquire assets representing $132 billion (U.S.) in gross advertising billings through the first three quarters of 2003, and just this week it picked up another key asset, a 60 percent stake in kirshenbaum bond + partners.

In fact, the only thing the Riff doesn't like about MDC's strategy, is its casual disregard for the value of media service agencies. In its M&A pitch, the Canadians say they are pursuing a wide variety of marketing services agencies, though media is noticeably absent from the mix. Now this could either be a very good, or a very bad thing for Media Kitchen, the hot media shop that is part of KB+P. It would be a good thing, if Media Kitchen becomes the default media strategy and communications planning unit within MDC's multi-billion ad empire. Or, it could be a very bad thing, if the media agency becomes subsumed by a non-media orientation that seems to preoccupy these North-of-the-borderers. In fact, the Riff was especially troubled by the comments of KB+P chief Richard Kirshenbaum. Upon announcing the deal, he said, "Both parties agree there is a need in the marketplace for a "new new" network based solely on creativity and entrepreneurial spirit. [MDC chief] Miles Nadal is the patron saint of creative agencies. Now that's the kind of partner we want to work with." Patron saint of creative agencies, indeed. Aside from ripping off Paul Woolmington's trademark "new new" line, the statement seems to undermine the strategic importance of Woolmington's Media Kitchen, which we consider to be the real prize in this deal.

GETTING DOWN TO BUSINESS, TO BUSINESS -- Speaking of new concerns, the Riff is also troubled by the findings of a new study published by the trade-minded editors at BtoB magazine. The survey of 422 marketing executives says they have shifted their marketing focus toward driving immediate sales as opposed to the long-term building of brands. If that's true, it would be an anathema for the business press, which have already been suffering from one of the most pronounced downturns of the recent advertising recession. The research suggests that cutbacks in B-to-B ad spending may not be part of a cyclical pattern, but may be suffering from a fundamental shift in the strategy of marketers. On the other hand, the study did provide some near-term encouragement. Nearly half (48.2 percent) of the marketing executives said they plan to increase their B-to-B ad budgets in 2004, while only about a third (36.1 percent) would be flat and 15.7 percent planned to spend less.