- Combined company poised to deliver meaningful shareholder value creation, accelerated growth and enhanced services to clients.
- Combination unleashes the power of talent and technology around the world to create a top ten global integrated marketing services company that will provide the best-in-class solutions that marketers need to thrive in today’s marketplace.
- More than triples the contribution of high-growth digital services and expertise compared to MDC standalone.
- Existing MDC common shareholders (including Stagwell) will receive 26% of the common equity of the combined company and Stagwell will receive share consideration equal to 74% (excluding Stagwell’s pre-transaction holdings of MDC common shares and without giving effect to any conversion of outstanding preference shares).
- Complementary offerings have the potential to produce 5%+ annual organic revenue growth, decrease net leverage from 4.2x to 3.4x and deliver over $200 million of pro forma cash generation in 2021.
- Run-rate cost savings of ~$30 million from operational efficiencies and integrated services over time, with 90% expected to be achieved within 24 months.
- Plans to invest in expanding services across global markets and in expanded digital marketing products.
- MDC Board of Directors has approved the Transaction, following a recommendation by a Special Committee of independent directors.
MDC Partners Inc. (“MDC”) (NASDAQ: MDCA) and Stagwell Media LP (“Stagwell”) announced today that they have entered into a definitive transaction agreement (the “Transaction Agreement”) to combine their respective businesses, uniting the award-winning talent of MDC with the advanced technology platform of Stagwell to create the transformative marketing company today’s marketplace demands (the “Transaction”). Together, the companies will significantly expand their range of best-in-class capabilities, depth of expertise, and geographic footprint to deliver expanded value to clients, and meaningfully accelerate the combined company’s growth.
“This is a new day for MDC and Stagwell,” said Mark Penn, Chairman and CEO of MDC Partners, and Managing Partner of The Stagwell Group. “Together, they unleash precisely the right talent and technology to create a transformative marketing services company offering scaled Creative Performance. MDC is celebrated for bringing award-winning creative firepower to the world’s leading and most ambitious companies, and Stagwell has been built with deep and sophisticated technology at its core. Unencumbered by legacy structures or assets, the combined company will have the integrated, modern offerings marketers deserve, and the resources to invest meaningfully in our global capabilities, our talent, and our clients’ future.”
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The combined company will provide the balance of integrated solutions that modern marketers need to succeed, including second-to-none creativity and communications, scaled media and data capabilities, superior consumer insights, technology development and innovation, and digital transformation. Without giving effect to any conversion of outstanding preference shares, the pre-Transaction holders of MDC Class A and Class B shares (“MDC Shares”) would receive 26% of the common equity of the combined company and Stagwell would receive share consideration equal to 74% of the common equity of the combined company (excluding Stagwell’s ownership in the combined company derived from its ownership of pre-Transaction MDC Shares), each on a pro forma basis. Stagwell and its affiliates are expected to hold approximately 79% of the common equity of the combined company immediately after closing of the Transaction (assuming no conversion of outstanding preference shares of MDC).
With over 8,600 employees across 23 countries, the combined company will be ideally suited to lead marketers into the future, with deepened expertise in digital services, and more than tripling high-growth digital offerings to 32% of the combined business. With a track record of collaboration across disciplines bringing the right technology solutions to its blue-chip clients’ business and marketing challenges, the combined company’s network also brings experience in building and developing its own proprietary digital products to solve for gaps in the marketing ecosystem, which together could generate $90 – $150 million annual top-line benefit over time.
“Having thoroughly evaluated the Transaction – and having received the recommendation of the Special Committee, which, in close collaboration with its independent legal and financial advisors, met extensively to assess, evaluate and negotiate the Transaction – we are pleased to have reached a definitive agreement that maximizes growth potential for MDC and opportunity for all stakeholders,” said Irwin D. Simon, Presiding Director of MDC Partners and Chair of the Special Committee of MDC Partners’ Board of Directors. “MDC boasts a rich history and culture of entrepreneurship while innovating to solve for core client and industry needs. Combining these two companies will build on that legacy to create an even stronger industry leader.”
Highly Compelling Strategic Rationale
In contrast to MDC remaining a standalone company, the highly compelling combination creates a leading marketing services company with enhanced global scale and broadened premium capabilities highlighted by the following strategic rationale:
Strategic Advantages of Combined Company:
- Targeting 5%+ annual organic growth, driven by 10-15% digital marketing growth and complementary capabilities, and 9%+ total annual revenue growth including new products and acquisitions
- Media and data operation managing $4.4 billion in media spend, bringing added scale and sophistication
- New revenue streams from expanded digital and technology products
- More than tripling high-growth digital offerings, with 32% of business in digital services
- Enhanced global scale across 23 countries
- Leadership team with experience in value creation in marketing services
- Expanded opportunities for high-performing network talent
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Financial Strength:
- Run-rate savings of ~$30 million from operational synergies over time, with ~90% expected to be achieved within 24 months
- Enhanced capital structure, decreasing net leverage ratio from 4.2x to 3.4x, after giving full effect to run-rate operational synergies
- Over $200m of pro forma cash generation in 2021
- Target to grow to $3 billion+ in revenue in 2025, including acquisitions, organic growth and new products
Governance and Management
Mark Penn, current CEO and Chairman of MDC and Managing Partner of Stagwell, will continue as CEO and Chairman of the combined company. The management team for the combined company will consist of existing executives from both MDC and Stagwell.
Pursuant to the Transaction Agreement, the board of directors of the combined company will consist of nine members, including Mark Penn and Bradley Gross. Three independent directors on the Board will continue as directors in the combined company and the combined company shall cause such directors to be nominated at the company’s next two annual meetings; Stagwell will be entitled to designate the other four directors to serve on the Board.
The combined company will remain headquartered in New York, NY and will maintain a significant presence in Washington D.C.
Transaction Structure
Under the terms of the Transaction Agreement, the Transaction will be effected using an “Up-C” partnership structure, to permit additional basis step-up and depreciation for the combined company. Pursuant to the Transaction, MDC will be converted into a limited liability company that holds both Stagwell’s subsidiaries and MDC’s operating assets and Stagwell will contribute its operating businesses to MDC as so converted. The limited liability company will be owned in part by a newly-formed NASDAQ-listed company incorporated in Delaware (“New MDC”), and in part by Stagwell. On a pro forma basis, without giving effect to any conversion of outstanding preference shares of MDC, the pre-Transaction holders of MDC Shares would own 26% of the common equity of New MDC and Stagwell shareholders would be issued shares of a new Class C series equivalent to 74% of the common equity of New MDC and exchangeable into shares of New MDC Class A Shares on a one-for-one basis at Stagwell’s election.
Additionally, MDC and Stagwell will enter into a tax receivable agreement pursuant to which New MDC and Stagwell will share in the economic benefits of tax attributes resulting from Stagwell’s exchanges of “Up-C” units.
Concurrently with the execution of the Transaction Agreement, MDC and an affiliate of Goldman Sachs, as sole holder, agreed to renegotiate the terms of MDC’s issued and outstanding Series 4 convertible preference shares (the “Goldman Amendments”). The revised terms reduce the conversion price from $7.42 to $5.00 and extend accretion for two years at a reduced rate of 6%. In connection with the Transaction, an affiliate of Goldman Sachs, as holder, will have the right to redeem up to $30 million of its preference shares in exchange for a $25 million subordinated note or loan with a 3 year maturity (i.e., exchange at an approximately 17% discount to face value). The $25 million note or loan will accrue interest at 8.0% per annum and is pre-payable any time at par without penalty.
Subject to market conditions and other factors, MDC intends to conduct a consent solicitation for certain waivers and amendments to its 6.50% senior notes due 2024 (the “Notes”) necessary to close the Transaction. MDC has entered into consent and support agreements with holders of more than 50% of the aggregate principal amount of its Notes to consent to the necessary waivers and amendments in the consent solicitation.
Path to Completion
The Transaction is subject to customary approvals, including, but not limited to, approvals from the MDC shareholders at a special meeting called for such purpose (the “Special Meeting”), which will include the approval of (i) 66 2/3% of the votes cast by all holders of various classes of shares of MDC, as applicable, and (ii) pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), a simple majority of the votes cast by the holders of applicable classes of shares of MDC, in each instance voting separately as a class (unless relief or approval is obtained from the applicable securities regulatory authorities to permit voting as a single class), excluding the votes cast by “interested parties” for purposes of MI 61-101 (which will include Stagwell, Mark Penn, Goldman Sachs and their respective affiliates (other than MDC and its subsidiaries) and their joint actors, as applicable) or any votes otherwise excluded for purposes of the “minority approval” determined pursuant to MI 61-101. Additional detail on the process and MI 61-101 can be found below. In consideration for the Goldman Amendments, an affiliate of Goldman Sachs has agreed to consent to the Transaction and waive any conversion ratio adjustments under its MDC Series 4 Preference Shares and has agreed to vote in favor of the Transaction subject to entering into customary definitive documentation to reflect the Goldman Amendments.
Closing of the Transaction is also subject to the satisfaction of a number of other conditions customary for transactions of this nature, including the receipt of certain regulatory and stock exchange approvals. The parties are targeting a closing in the first half of calendar year 2021, subject to receipt of applicable approvals.
Further information regarding the Transaction will be contained in the information circular / proxy statement that MDC will prepare, file and send to each MDC shareholder in connection with the Special Meeting.
Following closing of the Transaction, New MDC will apply to have the Class A shares of New MDC Shares listed on Nasdaq under the same symbol as Class A shares of MDC trade today: “MDCA”.
