What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-03-16 compared with 2020-03-05 · 113 added, 83 removed, 51 unchanged (79% of the section changed)

MDC PARTNERS INC.

MDC was formed by Certificate of Amalgamation effective December 19, 1986, pursuant to the Business Corporations Act (Ontario).

Effective December 19, 1986, MDC amalgamated with Branbury Explorations Limited, and thereby became a public company operating under the name of MDC Corporation.

On January 1, 2004, MDC changed its name to its current name, MDC Partners Inc., and on June 28, 2004, MDC was continued under Section 187 of the Canada Business Corporations Act.

MDC’s registered address is located at 33 Draper Street, Toronto, Ontario, M5V 2M3, and its head office address is located at 330 Hudson Street, 10th Floor, New York, New York 10013.

MDC is a corporation governed by the Canada Business Corporations Act.

MDC’s registered address is located at 33 Draper Street, Toronto, Ontario, M5V 2M3, and its head office address is located at One World Trade Center, Floor 65, New York, New York 10017.

MDC is not a “foreign private issuer” as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Recent Developments

On December 21, 2020, MDC and Stagwell Media LP, a Delaware limited partnership (“Stagwell”), announced that they entered into a definitive transaction agreement (the “Transaction Agreement”) providing for the combination of MDC with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the “Stagwell Entities”).

Under the terms of the Transaction Agreement, the combination between MDC and the Stagwell Entities will be effected using an “Up-C” partnership structure.

Through a series of steps and transactions (collectively, the “Transactions”), including the domestication of MDC to a Delaware corporation and the merger of MDC Delaware with one of its indirect wholly owned subsidiaries (the “MDC Merger”), MDC Delaware will become a direct subsidiary (from and after the merger, “OpCo”) of a newly-formed, Delaware-organized, NASDAQ-listed corporation (“New MDC”).

Following the MDC Merger, (i) OpCo will convert into a limited liability company that will hold MDC’s operating assets and to which Stagwell will contribute the equity interests of the Stagwell Entities (the “Stagwell Contribution”) in exchange for 216,250,000 common membership interests of OpCo (the “Stagwell OpCo Units”), and (ii) Stagwell will contribute to New MDC an aggregate amount of cash equal to $100 in exchange for shares of a new Class C series of voting-only common stock (the “New MDC Class C Stock”) equal in number to the Stagwell OpCo Units.

On a pro forma basis, without giving effect to any outstanding preference shares of MDC, the existing holders of MDC’s Class A and Class B shares would receive interests equal to approximately 26% of the combined company and Stagwell would be issued New MDC Class C Stock equivalent to approximately 74% of the voting rights of the combined company and exchangeable, together with Stagwell OpCo Units, into Class A shares of New MDC on a one-for-one basis at Stagwell’s election.

The number of Stagwell OpCo Units and shares of New MDC Class C Stock that Stagwell will receive in the Transactions, and the percentage of the combined company that Stagwell will hold following the consummation of the Transactions, will be reduced, and the percentage of the combined company that existing MDC shareholders will hold will be proportionally increased, if Stagwell is unable to effect certain restructuring transactions prior to the closing of the Transactions.

On December 21, 2020, MDC and Broad Street Principal Investments, L.L.C., an affiliate of Goldman Sachs (“Broad Street”), entered into a letter agreement, pursuant to which Broad Street consented to the Transactions subject to entry with MDC into a definitive agreement reflecting revised terms of MDC’s issued and outstanding Series 4 convertible preference shares (the “Goldman Letter Agreement”).

The revised terms of the Series 4 convertible preference shares would (subject to the closing of the Transactions) reduce the conversion price from $7.42 to $5.00 and extend accretion for two years beyond the date on which accretion would have otherwise ceased, at a reduced rate of 6%.

In connection with the closing of the Transactions, Broad Street 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.

On December 21, 2020, MDC entered into consent and support agreements (the “Consent and Support Agreements”) with holders of more than 50% of the aggregate principal amount of its Senior Notes to consent to the consummation of the combination of MDC with the Stagwell Entities.

Pursuant to the Consent and Support Agreements, MDC agreed to increase the interest rate on the Senior Notes by 1% per annum effective as of the date of the Consent and Support Agreements and to pay a consent fee of 2% to all holders of Notes upon a successful consent solicitation, or 3% if a supplemental indenture with the waivers and amendments is executed and becomes operative and the combination of MDC with the Stagwell Entities is consummated.

On February 5, 2021, MDC announced it had received and accepted consents from holders of at least a majority in principal amount of the Senior Notes, and on February 8, 2021, MDC entered into a supplemental indenture providing for waivers and amendments in connection with the combination of MDC with the Stagwell Entities.

On February 8, 2021, MDC filed a proxy statement/prospectus on Form S-4, which describes the Transaction Agreement, the Transactions, and ancillary agreements related thereto in more detail.

MDC Partners is a leading global marketing and communications network, providing marketing and business solutions that realize the potential of combining data and creativity.

Through its network of agencies, MDC delivers a broad range of client services, including (1) global advertising and marketing, (2) data analytics and insights, (3) mobile and technology experiences, (4) media buying, planning and optimization, (5) direct marketing, (6) database and customer relationship management, (7) business consulting, (8) sales promotion, (9) corporate communications, (10) market research, (11) corporate identity, design and branding services, (12) social media strategy and communications, (13) product and service innovation, and (14) e-commerce management.

business consulting, (8) sales promotion, (9) corporate communications, (10) market research, (11) corporate identity, design and branding services, (12) social media strategy and communications, (13) product and service innovation, and (14) e-commerce management.

These marketing, communications, and consulting agencies (or “Partner Firms”) provide a wide range of service offerings both domestically and globally.

8 unchanged sentences

MDC creates solutions that aim to realize the potential of data and creativity, bringing the network’s award-winning creativity to modern solutions in mobile, digital experiences, and all methods of marketing communications.

This is reinforced by the venture investments the Company makes in technology solutions as well as those it makes in building its own proprietary technologies and solutions from the ground up.

This is reinforced by MDC's horizontal data offering, the venture investments the Company makes in technology solutions, and the proprietary technologies, solutions, and digital products the Company builds from the ground up.

Talent + Entrepreneurialism .

The entrepreneurial spirit of both MDC and its firms is optimized through (1) its model that incentivizes senior-level ambition, including the creation of multi-agency networks that enable proven leaders to steward increasingly scaled platforms and provide growth opportunities for talent at all levels, (2) best-in-class shared resources within the corporate group that allow individual firms to focus on client business and company growth, and (3) the formation of the Global Affiliates program, which fosters partnerships with like-minded agencies in key international markets to scale the creative, performance, media and technology capabilities that brands need to thrive in today's global economy.

Collaboration .

MDC values collaboration as manifested through (1) MDC’s creation of customized solutions for clients across disciplines that foster the integration of complementary disciplines, driving better results for clients, and in turn, growth for its firms, and (2) the creation of multi-agency networks that drive greater opportunity for individual firms to benefit from the scale of the holding company and as well as resources of like-minded agencies within the group, and create fewer cost centers.

MDC values collaboration as manifested through (1) MDC’s creation of customized solutions for clients across disciplines that foster the integration of complementary disciplines, driving better results for clients, and in turn, growth for its firms, (2) the growing Integrated Client Solutions group at MDC corporate that operationalizes these cross-discipline offerings, and (3) the creation of multi-agency networks that drive greater opportunity for individual firms to benefit from the scale of the holding company as well as resources of like-minded agencies within the group, and create fewer cost centers.

Impact of COVID-19

The novel coronavirus (“COVID-19”) is a pandemic that has altered how society interacts across the world.

The outbreak of COVID-19 and the measures put in place to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have adversely impacted the global economy.

We took various actions to address the pandemic.

The Company implemented comprehensive controls and procedures to protect our employees, families, clients, and their communities.

This included implementing a world-wide work-from-home policy and stress-testing our infrastructure to ensure that all employees had the tools and resources to work virtually.

Our leadership and business continuity teams also proactively took thorough measures to ensure the highest level of continued service and partnership for our clients.

Our Partner Firms altered how they work and respond to client challenges around the world, generating impactful creative work, rapid pivots, and inventive business solutions for brands in every sector.

Early in 2020, the Company aligned operating expenses with changes in revenue.

We implemented freezes on hiring, staff reductions, furloughs, salary reductions, benefit reductions and a significant reduction in discretionary spending.

In addition to expense reductions, we tightened capital expenditures where possible to preserve our cash flow.

We discuss the actions taken by the Company in response to COVID-19 and the negative impact on our results of operations, financial position and cash flows in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Reporting Segments

MDC has four reportable segments, plus an All Other category, all of which form the Advertising and Communications Group as of December 31, 2019.

The four reportable segments and the All Other category are as follows:

Global Integrated Agencies - This segment is comprised of the Company’s four global, integrated Partner Firms serving multinational clients around the world.

The Partner Firms within the Global Integrated Agencies reportable segment provide a range of different services for their clients, including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast).

Domestic Creative Agencies - This segment is comprised of seven Partner Firms that are national advertising agencies leveraging creative capabilities at their core.

Specialist Communications - This segment is comprised of four Partner Firms that are each communications agencies with core service offerings in public relations and related communications services.

Media Services - This segment is comprised of one operating segment with media buying and planning as its core competency.

All Other - This category consists of the Company’s remaining Partner Firms that provide a range of diverse marketing communication services but are not eligible for aggregation with the reportable segments.

Each of the Partner Firms in the All Other category represent less than 10% of consolidated revenue and do not meet the criteria to be a separate reportable segment.

Corporate - In addition, MDC reports its corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the Partner Firms as Corporate, including interest expense and public company overhead costs.

Corporate provides client and business development support to the Partner Firms as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions.

Additional expenses managed by the corporate office that are directly related to the Partner Firms are allocated to the appropriate reportable segment and the All Other category.

MDC has three reportable segments as of December 31, 2020.

These reportable segments are as follows:

“Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described in Note 2 of the Notes to the Consolidated Financial Statements included herein.

• The Integrated Networks - Group A reportable segment is comprised of the Anomaly Alliance (Anomaly, Concentric Partners, Hunter, Mono, Y Media Labs) and Colle McVoy operating segments.

• The Integrated Networks - Group B reportable segment is comprised of the Constellation (72andSunny, CPB, Instrument and Redscout) and Doner Partner Network (6degrees, Doner, KWT, Union, Veritas and Yamamoto) operating segments.

The operating segments aggregated within the Integrated Networks - Group A and B reportable segments provide a range of services for their clients, primarily including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast) as well as public relations and communications services, experiential, social media and influencer marketing.

These operating segments share similar characteristics related to (i) the nature of their services;

(ii) the type of clients and the methods used to provide services;

and (iii) the extent to which they may be impacted by global economic and geopolitical risks.

In addition, these operating segments compete with each other for new business and from time to time have business move between them.

While the operating segments are similar in nature, the distinction between the Integrated Networks - Group A and B is the aggregation of operating segments that have the most similar historical average long-term profitability.

• The Media & Data Network reportable segment is comprised of a single operating segment that combines media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast) with technology and data capabilities.

• All Other consists of the Company’s remaining operating segments that provide a range of services including advertising, public relations and marketing communication services, but generally do not have similar services offerings or financial characteristics as those aggregated in the reportable segments.

The All Other category includes Allison & Partners, Bruce Mau, Forsman & Bodenfors, Hello, Team and Vitro.

• Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments.

These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office.

Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category.

For further information relating to the Company’s segments, including financial information, see Note 20 of the Notes to the Consolidated Financial Statements and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”).

Mark Penn, Chief Executive Officer and Chairman of the Company, appointed key agency executives, that report directly into him, to lead each Network.

In connection with the reorganization, we are assessing a change in our reportable segments, effective with the Company’s 2020 fiscal year, to align our external reporting with how we operate the Networks under our new organizational structure.

Ownership Information

1 unchanged sentence

MDC generally has rights to increase ownership of non-wholly owned subsidiaries to 100% over a defined period of time.

MDC’s effective economic interest in each Partner Firm may vary from its voting ownership interest due to certain factors, such as the existence of contingent deferred acquisition payments and/or cash distribution hurdles related to noncontrolling interest holders.

The table below sets forth MDC’s voting ownership percentage of each listed Partner Firm as of December 31, 2019 .

The table does not display all agencies or components within each Partner Firm for which MDC may or may not maintain the same ownership percentage.

Below are the companies reflecting our reporting structure.

MDC PARTNERS INC.

AND SUBSIDIARIES

SCHEDULE OF ADVERTISING AND COMMUNICATIONS COMPANIES

SCHEDULE OF REPORTING COMPANIES

Year of Initial

Locations (City or Country)

Consolidated:

Global Integrated Agencies:

Los Angeles, New York, Netherlands, UK, Australia, Singapore

New York, Los Angeles, Netherlands, Canada, UK, China, Germany

Crispin Porter Bogusky

Boulder, Los Angeles, UK, Brazil, China

Forsman & Bodenfors

Sweden, New York, Canada, China, UK, Los Angeles, Singapore

The Media Kitchen

New York, Canada, UK

Domestic Creative Agencies:

Detroit, Cleveland, Los Angeles, UK

Yes & Company

HL Group Partners

New York, Los Angeles, China

Bruce Mau Design

Canada, New York

Northstar Research Partners

Canada, New York, UK, Indonesia

Laird + Partners

Mono Advertising

Minneapolis, San Francisco

Specialist Communications:

Allison & Partners

San Francisco, Los Angeles, New York and other US Locations, China, France, Singapore, UK, Japan, Germany

Washington, D.C.

Sloane & Company (Sold in February 2020)

New York, UK, Canada

Media Services:

MDC Media Partners

New York, Los Angeles

Varick Media Management

New York, Detroit, Atlanta, Los Angeles

Unique Influence

6degrees Communications

Concentric Partners

Gale Partners

Canada, New York, India, Singapore

San Diego, Austin

Redwood City, New York, India

Company Investment Locations

Integrated Networks - Group A:

Anomaly Alliance:

Anomaly 2011 New York, Los Angeles, Venice, CA, Playa Vista, Netherlands, Canada, UK, China, Germany

Concentric Partners 2011 New York

Hunter 2014 New York

Mono Advertising 2004 Minneapolis

Y Media Labs 2015 Redwood City, India, Indianapolis, Atlanta

Colle Network:

Colle McVoy 1999 Minneapolis

Integrated Networks - Group B:

Constellation:

72andSunny 2010 Los Angeles, New York, Netherlands, Australia, Singapore

Crispin Porter + Bogusky 2001 Boulder, Santa Monica, UK, Brazil

Instrument 2018 Portland, New York

Redscout 2007 New York, San Francisco, Los Angeles

Doner Network:

6degrees Communications 1993 Canada

Doner 2012 Detroit, Southfield, Los Angeles, Norwalk, Atlanta, Cleveland, Pennsylvania

KWT Global 2010 New York, UK

Union 2013 Canada

Veritas 1993 Canada

Yamamoto 2000 Minneapolis, Chicago

Media & Data:

Gale Partners 2014 Canada, New York, India

Kenna 2010 Canada

MDC Media Partners 2010 New York, Los Angeles, Century City, Austin

Northstar Research Partners 1998 Canada, UK

Allison & Partners 2010 Los Angeles, San Francisco, San Diego, New York, Washington, Arizona, Atlanta, Boston, Portland, Dallas, Seattle, China, Singapore, Thailand, UK, Japan, Germany

Bruce Mau Design 2004 Canada

Forsman & Bodenfors 2016 Sweden, New York, Canada, China, Singapore

Hello Design 2004 Los Angeles

TEAM 2010 Ft.

Lauderdale, Miramar

Vitro 2004 San Diego, Austin

MDC operates in a highly competitive and fragmented industry.

1 unchanged sentence

and Havas SA, as well as with numerous independent agencies that operate in multiple markets.

Our Partner Firms also face competition from consultancies, tech platforms, media companies and other services firms that offer related services.

Our Partner Firms also face competition from consultancies, like Accenture and Deloitte, tech platforms, media companies and other services firms that offer related services.

MDC’s Partner Firms must compete with all of these other companies to maintain and grow existing client relationships and to obtain new clients and assignments.

3 unchanged sentences

Industry Trends

There are several recent economic and industry trends that affect or may be expected to affect the Company’s results of operations.

There are several recent economic and industry trends that affect or may be expected to affect the Company’s results of operations, most notably the business and consumer behavior changes driven by the COVID-19 pandemic.

Historically, advertising has been the primary service provided by the marketing communications industry.

However, as clients aim to establish one-to-one relationships with customers, and more accurately measure the effectiveness of their marketing expenditures, specialized and digital communications services as well as data and analytics services are consuming a growing portion of marketing dollars.

The Company believes these changes in the way consumers interact with media are increasing the demand for a broader range of non-advertising marketing communications services (i.e., user experience design, product innovation, direct marketing, sales promotion, interactive, mobile, strategic communications and public relations), which we expect could have a positive impact on our results of operations.

In addition, the rise of technology and data solutions have rendered scale less crucial as it once was in areas such as media buying, creating significant opportunities for agile and modern players.

Over the last year, digital transformation has been meaningfully accelerated, with businesses across all categories relying on the strength of their e-commerce and digital experiences.

The Company believes these accelerated changes in the way consumers interact with media and brands are increasing the demand for a broader range of non-advertising marketing communications services (i.e., user experience design, digital products, Artificial Intelligence, Augmented Reality, product innovation, direct marketing, sales promotion, interactive, mobile, strategic communications, research, and public relations), which we expect could have a positive impact on our results of operations.

In addition, the rise of technology and data solutions have rendered scale less crucial than it once was in areas such as media buying, creating significant opportunities for agile and modern players.

Global marketers now demand breakthrough and integrated creative ideas, and no longer require traditional brick-and-mortar communications partners in every market to optimize the effectiveness of their marketing efforts.

5 unchanged sentences

During 2020, 2019 and 2018, the Company did not have a client that accounted for 5% or more of revenues.

In addition, MDC’s

ten largest clients (measured by revenue generated) accounted for approximately 23% of revenue for the three-year period ended December 31, 2019 .

In addition, MDC’s ten largest clients (measured by revenue generated) accounted for approximately 21%, 23% and 23% of revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

MDC’s agencies have written contracts with many of their clients.

2 unchanged sentences

As of December 31, 2020, we employed 4,866 people worldwide.

The following table provides a breakdown of full time employees across MDC’s four reportable segments, the All Other category, and Corporate:

Global Integrated Agencies

Domestic Creative Agencies

Specialist Communications

Media Services

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the effect of cost of services sold on MDC’s historical results of operations.

Because of the personal service character of the marketing communications businesses, the quality of personnel is of crucial importance to MDC’s continuing success.

MDC considers its relations with its employees to be satisfactory.

The following table provides a breakdown of full time employees across MDC’s three reportable segments, the All Other category, and Corporate:

Segment Total

Integrated Networks - Group A 1,529

Integrated Networks - Group B 1,506

Media & Data Network 703

All Other 1,060

Because of the personal service character of the marketing and communications business, our personnel are of critical importance to our success.

Human capital management strategies are developed by senior management, including the management teams of our Partner Firms, and are overseen at the holding company level.

Our human capital management priorities include providing competitive wages and benefits, professional development, promoting diversity and inclusion and implementing codes of conduct and business ethics throughout the Company.

At the corporate center, centralized human capital management processes include development of human resources governance and policy, executive compensation for senior leaders across the Company, benefits programs, and succession planning focusing on the performance, development and retention of the Company’s senior-most executives and key roles in the Partner Firms.

Historically, with some exceptions, we generate the highest quarterly revenues during the fourth quarter in each year.

The fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail-related consumer marketing occur.

See Note 22 of the Notes to the Consolidated Financial Statements for information relating to the Company’s quarterly results.

See Note 21 of the Notes to the Consolidated Financial Statements included herein for information relating to the Company’s quarterly results.

Regulatory Environment

The marketing and communications services that our agencies provide are subject to laws and regulations in all of the jurisdictions in which we operate.

These include laws and regulations that affect the form and content of marketing and communications activities that we produce for our clients and, for our digital services, laws and regulations concerning user privacy, use of personal information, data protection and online tracking technologies.

We are also subject to laws and regulations that govern whether and how we can receive, transfer or process data that we use in our operations, including data shared between countries in which we operate.

Our international operations are also subject to broad anti-corruption laws.

While these laws and regulations could impact our operations, compliance in the normal course of the Company’s business did not significantly impact the services we provide and did not have a material effect on our business, results of operations or financial position.

Additional information regarding the impact of laws and regulations on our business is included in Item 1A.

Risk Factors under the heading “MDC is subject to regulations and litigation risk that could restrict our activities or negatively impact our revenues.”

Available Information

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business