- Gotham City Research LLC
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.