MDC Partners (ticker = MDCA): Like Valeant Pharmaceuticals, But with Understated Debts

GOTHAM CITY RESEARCH’S OPINIONS:

• MDCA shares are worth less than $1.00 per share, implying 96%+ downside.

• MDCA will restate several years’ historical results as a result of the issues covered in this report and elsewhere.

• The on-going SEC investigation will lead to new revelations of wrong-doing.

SUMMARY OF FINDINGS:

• 2015 organic revenue growth is ~1.5%, not 7.2% as reported. Organic growth well below industry averages.

• MDCA’s true Debt is understated by ~$300 million, or 23% of stated Debt as of 2015.

• At least 42%-53% of reported profits are suspect.

• 7+ executive departures within recent quarters. At most 3 of Crispin Porter Bogursky’s original 13 partners remain.

• Doner lost a key 16 year-old client account in Q4 2015.

• 72andSunny was recently sued twice for copyright infringement. Crispin Porter Bogursky was similarly sued several years ago before CP+B’s fell from grace.

• BDO and David Wiener & Co are quasi-captive entities MDCA used to structure its dubious accounting strategies.

• Tax deductible intangibles and goodwill have declined from 100% tax deductible in 2013 to only 16% in 2015.

• MDCA’s former auditor KPMG expressed “an adverse opinion on the effective operation of, internal control over financial reporting”. MDCA soon after hired BDO.

• The BDO audit partner assigned to MDCA, after MDCA’s switch from KPMG to BDO, was sued in Nussdorf v BDO Seidman for promoting fraudulent & illegal tax shelters.

• Deferred acquisition considerations paid out to acquired companies’ partners may be taxed at ordinary income.

• Dubious related party transactions continue, despite Miles Nadal’s departure, e.g. Lori Senecal’s husband hired last year & compensated $1 million for 5 months’ work.