Saturday, September 17, 2005
Ending Advertising's Spiral
On a summer morning in a hotel restaurant a block from Madison Avenue, Miles Nadal offers a harsh if familiar assessment of the advertising industry. The giant holding companies that dominate the business -- Interpublic, Omnicom, WPP, etc. -- are bloated, top-heavy, slow-witted beasts, inherently resistant to change. They're deeply wedded to the 30-second spot, a mode of persuasion that any fool can see is clearly on the wane. The industry has lost its passion and sense of fun. Its work is rapidly becoming less effective. Its customers are losing patience. "Clients are good and pissed off," Nadal says, "with institutionalized mediocrity."
By now you're thinking, yeah, OK -- but who the hell is Miles Nadal? As the chairman and CEO of Toronto-based MDC Partners, Nadal has built a different kind of holding company, investing in a loosely knit network of some of the hippest shops in advertising, including Miami’s Crispin Porter & Bogusky, the creator of Burger King's notorious "subservient chicken." At 47, Nadal has a fleshy face and a checkered history in business. He’s a Bahamas-dwelling wannabe mogul with an unfortunate tendency to lapse into New Age business mumbo jumbo. (“Cross-referral of opportunity through facilitation, not mandate” is how he describes MDC’s approach to management.) He’s also fast becoming a force to be reckoned with -- and one who just might be onto something.
MDC’s lineage runs back to 1980, when Nadal dropped out of college and used his Visa card to start a commercial photography venture. Soon he began to diversify, branching out first into printing and then into marketing. In the 1990s he went on an acquisition binge that nearly buried him in debt. When the bubble burst, Nadal sold off several of his lucrative printing operations, recapitalized MDC, and decided to focus on marketing and advertising.
Crystallizing that decision was MDC's purchase, in 2001, of a 49 percent stake in Crispin Porter. Nadal had entered the American market for cutting-edge agencies three years earlier, when MDC bought a majority interest in Margeotes Fertitta. But the Crispin Porter deal was more significant, not only because the agency was about to become searingly hot with its work for BMW’s Mini Cooper, but because it introduced Nadal to Chuck Porter, who became MDC's chief strategist. "Chuck and I together are the perfect person," Nadal explains. "With his brilliance about the industry and my financial acumen, we had the ideal solution."
With Porter serving as Nadal's eyes, ears, and brains on the acquisition front, MDC has expanded its network to include more than 30 firms, from ad agencies and media buyers to shops specializing in everything from interactive marketing to "branded entertainment." In 2004, Nadal did nine deals for a total of roughly $50 million, including snapping up 60 percent of New York- and San Francisco-based agency Kirshenbaum Bond (known for its work for Hennessy, Meow Mix, and Target (TGT)). In April, MDC agreed to pay $64 million for 62 percent of the Zyman Group, the boutique consulting outfit run by legendary Coca-Cola (KO) marketing guru Sergio Zyman.
Even with these deals in place, MDC remains a relative small fry in adland compared with the mega-holding companies. Its revenue last year was $317 million, it lost $2.2 million, and its network had essentially zero presence on the international scene.
But for clients, according to Nadal, size increasingly doesn't matter. "Crispin Porter taught us the world was going away from big and integrated and multinational toward smaller, more entrepreneurial firms," he says. "Clients are saying, 'I don’t care how many offices or people you have. I just want results.'"
For agencies, too, in Nadal's telling, being part of MDC seems an attractive proposition. The relationship is what he calls a "perpetual partnership." Though the size of the stake taken by MDC varies, it’s never 100 percent. Typically the deals consist of 50 to 90 percent cash and the remainder in MDC stock -- keeping shares in reserve for successive generations of executives. The firms are given autonomy, not forced to cross-sell services. But they can draw on the network’s resources if they choose. "Before MDC, agencies had two choices: Stay independent and hold the equity forever, or sell out," Nadal says. "What we've provided is an alternative that lets them retain what's made them successful but deals with fundamental business issues -- succession, liquidity, capital to grow."
Among agency creative types, Nadal may be seen, as Mediaweek once put it, as a "benevolent banker." But that metaphor isn’t quite right. More apt would be to call Nadal an advertising venture capitalist. "We're like a single-minded VC focused on one industry, but it's not technology -- it's marketing innovation," he says. "The only difference is that our technology is intellectual property. It's cerebral, not tangible." (Which, of course, could also be said of software and Internet services.)
Like many VCs, Nadal harbors ambitions that are vast and yawning. In the past he has said that within five years he expects MDC to have revenue of $2 billion and stakes in 100 companies. "If I had my way, I would own 50 percent of every smart firm in the world," he proclaims. "They could be in Bumfuck, Idaho, in Kuala Lumpur, in New York, in Minneapolis, or in a basement in Shanghai. I don't care. Anybody who’s brilliant, who's working on ideas that are going to reinvent this industry -- I want to own half."
Talk like this should keep MDC shareholders awake at night. For me, it summons to mind three words: delusions of grandeur. In the past, in fact, Nadal has been viewed with suspicion in financial circles. Despite MDC’s financial ups and downs, Nadal pays himself handsomely -- $3 million last year -- financing a lifestyle that includes not just a Paradise Island penthouse but a house in Palm Beach and an 80-foot yacht, which he named Dare to Dream. Until recent changes, the company’s corporate governance practices left much to be desired: Nadal’s former father-in-law sat on MDC’s board, and Nadal and other executives took interest-free loans from its coffers.
Yet for all of Nadal's foibles, the model he’s advancing at MDC strikes me as promising. There's no denying that the major holding companies have become so vast, and were assembled so promiscuously, that they can barely be managed. Clients are indeed pissed off and ready as never before to gamble on new approaches. They recognize that the media landscape has radically fragmented, that 30-second spots are not enough to reach today's consumers, especially the younger, savvier ones. Meanwhile, Nadal seems to have grasped a basic point about why so many acquisitions of small creative agencies have failed so miserably: After the deals were done, the talent walked out the door. "What the agencies care about first and foremost is, hey, don't screw with our culture," Nadal says. "Our culture is precious -- it works."
The larger question, as Nadal understands, is how to create "a culture of institutionalized creativity," as opposed to "institutionalized mediocrity." With Chuck Porter’s help, he's building MDC around principles that stand a decent chance of leading in that direction. The biggest threat to the company's future is his own appetite for growth -- the possibility that, as he puts it, he’ll do "something big and dumb."
Nadal is smart and agressive. But disciplined? There's the rub.
By now you're thinking, yeah, OK -- but who the hell is Miles Nadal? As the chairman and CEO of Toronto-based MDC Partners, Nadal has built a different kind of holding company, investing in a loosely knit network of some of the hippest shops in advertising, including Miami’s Crispin Porter & Bogusky, the creator of Burger King's notorious "subservient chicken." At 47, Nadal has a fleshy face and a checkered history in business. He’s a Bahamas-dwelling wannabe mogul with an unfortunate tendency to lapse into New Age business mumbo jumbo. (“Cross-referral of opportunity through facilitation, not mandate” is how he describes MDC’s approach to management.) He’s also fast becoming a force to be reckoned with -- and one who just might be onto something.
MDC’s lineage runs back to 1980, when Nadal dropped out of college and used his Visa card to start a commercial photography venture. Soon he began to diversify, branching out first into printing and then into marketing. In the 1990s he went on an acquisition binge that nearly buried him in debt. When the bubble burst, Nadal sold off several of his lucrative printing operations, recapitalized MDC, and decided to focus on marketing and advertising.
Crystallizing that decision was MDC's purchase, in 2001, of a 49 percent stake in Crispin Porter. Nadal had entered the American market for cutting-edge agencies three years earlier, when MDC bought a majority interest in Margeotes Fertitta. But the Crispin Porter deal was more significant, not only because the agency was about to become searingly hot with its work for BMW’s Mini Cooper, but because it introduced Nadal to Chuck Porter, who became MDC's chief strategist. "Chuck and I together are the perfect person," Nadal explains. "With his brilliance about the industry and my financial acumen, we had the ideal solution."
With Porter serving as Nadal's eyes, ears, and brains on the acquisition front, MDC has expanded its network to include more than 30 firms, from ad agencies and media buyers to shops specializing in everything from interactive marketing to "branded entertainment." In 2004, Nadal did nine deals for a total of roughly $50 million, including snapping up 60 percent of New York- and San Francisco-based agency Kirshenbaum Bond (known for its work for Hennessy, Meow Mix, and Target (TGT)). In April, MDC agreed to pay $64 million for 62 percent of the Zyman Group, the boutique consulting outfit run by legendary Coca-Cola (KO) marketing guru Sergio Zyman.
Even with these deals in place, MDC remains a relative small fry in adland compared with the mega-holding companies. Its revenue last year was $317 million, it lost $2.2 million, and its network had essentially zero presence on the international scene.
But for clients, according to Nadal, size increasingly doesn't matter. "Crispin Porter taught us the world was going away from big and integrated and multinational toward smaller, more entrepreneurial firms," he says. "Clients are saying, 'I don’t care how many offices or people you have. I just want results.'"
For agencies, too, in Nadal's telling, being part of MDC seems an attractive proposition. The relationship is what he calls a "perpetual partnership." Though the size of the stake taken by MDC varies, it’s never 100 percent. Typically the deals consist of 50 to 90 percent cash and the remainder in MDC stock -- keeping shares in reserve for successive generations of executives. The firms are given autonomy, not forced to cross-sell services. But they can draw on the network’s resources if they choose. "Before MDC, agencies had two choices: Stay independent and hold the equity forever, or sell out," Nadal says. "What we've provided is an alternative that lets them retain what's made them successful but deals with fundamental business issues -- succession, liquidity, capital to grow."
Among agency creative types, Nadal may be seen, as Mediaweek once put it, as a "benevolent banker." But that metaphor isn’t quite right. More apt would be to call Nadal an advertising venture capitalist. "We're like a single-minded VC focused on one industry, but it's not technology -- it's marketing innovation," he says. "The only difference is that our technology is intellectual property. It's cerebral, not tangible." (Which, of course, could also be said of software and Internet services.)
Like many VCs, Nadal harbors ambitions that are vast and yawning. In the past he has said that within five years he expects MDC to have revenue of $2 billion and stakes in 100 companies. "If I had my way, I would own 50 percent of every smart firm in the world," he proclaims. "They could be in Bumfuck, Idaho, in Kuala Lumpur, in New York, in Minneapolis, or in a basement in Shanghai. I don't care. Anybody who’s brilliant, who's working on ideas that are going to reinvent this industry -- I want to own half."
Talk like this should keep MDC shareholders awake at night. For me, it summons to mind three words: delusions of grandeur. In the past, in fact, Nadal has been viewed with suspicion in financial circles. Despite MDC’s financial ups and downs, Nadal pays himself handsomely -- $3 million last year -- financing a lifestyle that includes not just a Paradise Island penthouse but a house in Palm Beach and an 80-foot yacht, which he named Dare to Dream. Until recent changes, the company’s corporate governance practices left much to be desired: Nadal’s former father-in-law sat on MDC’s board, and Nadal and other executives took interest-free loans from its coffers.
Yet for all of Nadal's foibles, the model he’s advancing at MDC strikes me as promising. There's no denying that the major holding companies have become so vast, and were assembled so promiscuously, that they can barely be managed. Clients are indeed pissed off and ready as never before to gamble on new approaches. They recognize that the media landscape has radically fragmented, that 30-second spots are not enough to reach today's consumers, especially the younger, savvier ones. Meanwhile, Nadal seems to have grasped a basic point about why so many acquisitions of small creative agencies have failed so miserably: After the deals were done, the talent walked out the door. "What the agencies care about first and foremost is, hey, don't screw with our culture," Nadal says. "Our culture is precious -- it works."
The larger question, as Nadal understands, is how to create "a culture of institutionalized creativity," as opposed to "institutionalized mediocrity." With Chuck Porter’s help, he's building MDC around principles that stand a decent chance of leading in that direction. The biggest threat to the company's future is his own appetite for growth -- the possibility that, as he puts it, he’ll do "something big and dumb."
Nadal is smart and agressive. But disciplined? There's the rub.
