'Not a good story for MDC': What CEO's exit means for company's future

A huge question mark looms over MDC Partners after the holding company announced that Chairman and CEO Scott Kauffman is stepping down from his role.

The board announced on Wednesday he is stepping down, but will remain in the role until the company finds a successor. Kauffman, who has been leading MDC since the summer of 2015, will remain on the MDC Partners Board following the appointment of a new CEO.

The news comes after MDC reported an organic revenue decline of 1.7 percent for the second quarter of 2018, a year in which Kauffman said "continues to be challenging."

He added in the earnings statement and a Q&A session that the company has been "taking the necessary steps to improve our financial performance," and "that includes looking at the possibility of the disposition of assets that are not core or will be more valuable in someone else’s hands."

Potential sales of MDC assets are an "ongoing conversation around the table." The company counts 72andSunny, Allison+Partners, CP+B and Anomaly among its stable.

Brian Wieser, senior analyst at Pivotal Research, told Campaign that MDC is "in a difficult place because their growth is topped out."

Find out what else Wieser and other industry insiders have to say about what Kauffman’s departure means for the holding company’s future.

Nancy Hill, Founder, Media Sherpas

Scott did a terrific job steering MDC through some serious issues that needed to be cleaned up. The timing seems right for both to now look for a different kind of leader. MDC’s agencies have always been regarded as highly talented and creative and yet, MDC has struggled to be profitable.

They need to look for someone with a deft hand who can help their agencies realize profitable revenue with a minimum of holding company overhead. That requires both a single-minded vision to continue to deliver ideas that drive business and a relentless focus on how to get paid for that value—a unique person who can balance the needs of their clients with the needs of their agencies. There are many talented women in the industry who are up for that challenge.

Greg Paull, Co-Founder and Principal, R3

For MDC, the sum of the parts might be worth less than the whole. They have some outstanding individual assets and it seems likely the new leadership will take the opportunity to monetize them.

The group still represents strong potential for someone trying to ‘jumpstart’ their marketing services business—an Accenture, PwC or Deloitte—but it brings with it risk of return to strong profitability.

Brian Wieser, Senior Analyst, Pivotal

MDC’s in a difficult place because their growth is topped out. Small agencies on average grow faster than large ones, and they’re full of those, relative to the other holding companies. Most of the large marketers and other holding companies today are looking to reduce costs disproportionally on the creative side. It’s difficult for them to get back to the kind of growth they were seeing.

There are many among the investor community who bought into the idea that they could be a desirable acquisition target. What they have is the means to differentiate—72andSunny and Anomaly—but it would only work as long as they don’t operate as part of a traditional holding company—at least, that’s the nature of those hot-shops. So the paradox is that no matter how well 72andSunny and Anomaly do, it doesn’t make MDC more attractive. It’s not really a good story for the holding company.

Over the years there have been some unrealistic expectations about the relative desirability of the company to potential acquirers. It’s difficult to blame an individual for an industry-wide trend.

Ken Robinson, Partner, Ark Advisors

There appears to be a rush of high-profile CEO’s running (being pushed?) to the exit lately, not only within our industry but also in the marketplace as a whole. This is yet another agency network CEO that is "stepping down" without an heir-apparent immediately stepping in. Unlike the situation at WPP, at least MDC has the benefit of Kauffman staying on until his successor is found.

Havas and Publicis managed their CEO transitions smoothly by naming and supporting successors in advance, while the heirs-apparent at the other networks has been a steady topic of conversation and speculation for years.

The disruption of a CEO change is always complicated, both operationally and financially, and it causes strain and uncertainty—for the board, the stockholders, the agencies, and for key clients—even in the best of times. In the case of MDC, however, the organization is not entering into this change from a position of financial strength.

Is the culling of further highly-paid, senior network level talent (many of whom were let go this summer) signal MDC’s intent to become a more desirable takeover target?

Mitchell Caplan, U.S. Managing Director, Flock Associates

I believe we will continue to see a level of change at the holding companies, and at the agency level. The industry is transforming, and leaders who can think differently about what the future holds, and how the holding companies and agencies need to evolve, especially with ever mounting client pressure, will be in strong demand.

Bill Bruno, North America CEO, Ebiquity

It’s yet another change, with many of the changes being focused on getting new thinking and skills into senior positions throughout the holding companies.

I think holding companies have accepted that they have to adapt in order to maintain relevance and strategic positions with their key clients, and we’re going to continue to see a "changing of the guard" as it were to align against that. For MDC specifically, they are in a tough position in the marketplace and struggling to maintain the growth they need/want. So, I’m sure all of this factored into the change with Scott.

Industry consultant

Not all of MDC would be of value to Sir Martin Sorrell. Not sure the MDC shareholders are interested in a partial sale. And I also think that some of the creative shops may not be too keen on a Sorrell ownership, while Sorrell probably would want at least one top tier creative brand. And the (digital) media footprint is pretty small. All in all: perhaps it’s not the shoe in everybody seems to think it is.