SecProbe.io

CORRESP
1
filename1.htm

Pursuant to
a request for confidential treatment pursuant to 17 CFR 200.83, the portions of this letter indicated have been redacted from
the publicly filed document and have been furnished separately to the Division of Corporation Finance

    August 10, 2017

Via Edgar

Mr. Larry Spirgel

Mr. Robert Littlepage

Division of
Corporation Finance

Securities
and Exchange Commission 100 F

Street N.E.

Washington, D.C. 20549

 RE: MDC Partners Inc.

Form 10-K for Fiscal
Year Ended December 31, 2016 Filed March 1, 2017

Form 8-K Filed April
26, 2017

File
No. 001-13718

Dear Mr. Spirgel and Mr. Littlepage:

Set forth below and
attached is further information provided by MDC Partners Inc. (the “Company” or “MDC”) in connection with
the ongoing discussions with the Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff”,
the “Commission”, or “SEC”), regarding the Company's above-referenced filings. A confidential treatment
request for the confidential information in this response is being made in a separate letter dated today. The confidential information
in this letter is being provided to supplement our discussions. The information provided herein, except for the supplemental confidential
information contained in this letter, is contained in a separate letter dated today that was filed with the Staff via EDGAR.

In connection
with our ongoing discussions regarding the Staff’s unresolved comments relating to the Company’s aggregation of
reportable segments in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280-10,
please find attached as Exhibit A the Memorandum to File re: Aggregation of Operating Segments.

* * *

Please direct any questions concerning
the above responses to the undersigned (telephone: (646) 429-1818; fax: (212) 937-4365).

    Very truly yours,

    /s/ Mitchell Gendel

    Michell Gendel,

    General Counsel & Corporate Secretary

 cc: Kathryn Jacobson, Senior Staff Accountant

Robert S. Littlepage, Accounting Branch Chief

Carlos Pacho, Senior Assistant Chief Accountant

Scott L. Kauffman, Chairman and Chief Executive Officer

David Doft, Chief Financial Officer

Christine LaPlaca, SVP Accounting and Financial Reporting

Members of the Audit Committee of Board
of Directors of MDC Partners Inc.

Rise Norman (Simpson Thacher & Bartlett
LLP)

Robert
Trinchetto, BDO USA, LLP

EXHIBIT A

Date: August 10, 2017

To: The Files

From: MDC Partners, Inc.

Re: Aggregation of Operating Segments

ASC 280’s objective is to provide
investors with a better understanding of the entity’s performance by utilizing the “management approach,” whereby
external segment reporting is aligned with internal reporting. The application of ASC 280 requires an entity to identify its operating
segments, determine whether it will, and is able, to aggregate any of these operating segments into a reportable segment, and determine
whether there are a sufficient number of reportable segments disclosed.

MDC Partners Inc. (“MDC”, the
“Company”, “we”, “our”, or “us”) is a strategic holding company that operates through
a partner firm network. Each “Partner Firm” within the network operates in the marketing/advertising industry and is
considered an operating segment. The Company’s chief operating decision maker (“CODM”) is its CEO, Scott Kauffman.
The CODM assesses performance utilizing Adjusted EBITDA and Adjusted EBITDA as % of Net Revenue.

ASC 280 requires a public entity to determine
which of those operating segments will be reported in the notes to the financial statements. ASC 280 allows individual operating
segments to be aggregated for reporting purposes if certain criteria are met. Aggregation is optional. An operating segment is
required to be separately reported if it meets certain quantitative thresholds.

Further, we note the following excerpt
from Courtney D. Sachtleben’s remarks before the 2015 AICPA Conference on Current SEC and PCAOB Developments:

….Two or more operating
segments may be aggregated into a single reportable segment when all of the following are true: (1) aggregation is consistent with
the objectives and principles of the standard, (2) the operating segments have similar economic characteristics, and (3) the operating
segments are similar with respect to five qualitative criteria. Reasonable judgement with a thorough understanding of an entity’s
specific facts and circumstances is required in applying these criteria.

For the quarter ended June 30, 2017, based
in part on feedback from the SEC, the Company performed a comprehensive review of its reportable segments to determine if the previous
aggregation of the Company’s operating segments is consistent with the principles detailed in ASC 280.

Based upon the comprehensive review, MDC
has assessed the economic characteristics of each Partner Firm/operating segment and established four reportable segments and an
“all other” category. The four reportable segments are: Global Integrated Agencies, Domestic Creative Agencies, Specialist
Communications Agencies, and Media Services. These segments are aggregated based on MDC’s range of business activities and
the economic environment in which MDC operates, consistent with the principles outlined in ASC 280. MDC believes that four groupings
of agencies show similar quantitative and qualitative characteristics which result in similar future prospects. MDC considered
the following aggregation criteria in ASC 280-10-50-11:

Operating segments often
exhibit similar long-term financial performance if they have similar economic characteristics. For example, similar long-term average
gross margins for two operating segments would be expected if their economic characteristics were similar. Two or more operating
segments may be aggregated into a single operating segment if aggregation is consistent with the objective and basic principles
of this Subtopic, if the segments have similar economic characteristics, and if the segments are similar in all of the following
areas:

 · The nature of products and services

 · The nature of production processes

 · The type or class of customer for their
products and services

 · The methods used to distribute their
products or provide their services

 · The nature of the regulatory environment

The excerpt from ASC 280 above contemplates
similarities on both a quantitative and qualitative basis when determining which operating segments are eligible for aggregation.

The Company first analyzed economic similarities
on a quantitative basis. In doing so, we considered remarks by Nili Shah, Deputy Chief Accountant in the SEC’s Division of
Corporation Finance, at the 2015 AICPA Conference on Current SEC and PCAOB Developments. She highlighted that when evaluating economic
similarity, registrants should understand that there are no bright lines, and significant judgment is required. In addition, the
types of metrics being considered and the acceptable level of differences in those metrics among the segments being evaluated for
aggregation may be different across industries. Ms. Shah also stated the expectation that operating segments will have similar
economic characteristics in the future does not take precedence over the lack of similarity in current and past performance, although
the number of years of past performance is not commented on.

Considering these statements, MDC considered
historical fluctuations in Adjusted EBITDA margins (“Margins”) when evaluating economic similarities on a quantitative
basis. Margins are meaningfully impacted by revenue growth or decline surrounding client wins and losses, while cost correction
moves geared towards target staff cost ratios can bring Margins back in line. The costs at the Partner Firms are similar across
the Company’s network and are significant to the Margins. The principal costs are variable (i.e. people/facilities) and MDC
manages the costs at each Partner Firm in response to changes in performance. MDC recognizes that there may be short term fluctuations
in the individual annual Margins that may be due to a variety of business reasons such as expansion, client wins, client losses,
and resource changes. For example, if an agency loses a significant client, the agency will experience short term Margin pressure
due to the lack of revenue to support current staffing levels. Depending on the specific set of circumstances, that Margin pressure
may be adjusted with either new business wins or rightsizing staff which may take a few months to a few years. This is not unusual
in the Company’s industry and does not change the economics surrounding the business. When considering this potential for
fluctuations of Margins period over period, the Company analyzed what an acceptable level of variation in Margins would be deemed
economically similar.

Further to the remarks from Courtney D.
Sachtleben’s speech before the 2015 AICPA Conference on Current SEC and PCAOB Developments noted above, she added that it
would be helpful to consider similarity from the perspective of a reasonable investor and it is important to consider information
such as industry reports and other analysis by users of the financial statements that may provide evidence of how a reasonable
investor would analyze the business.

Due to the focus on the reasonable investor,
it’s important to understand how an investor utilizes our financials, and segment data specifically, to determine what level
of fluctuation in Margins at the Partner Firm level would impact a reasonable investors analysis of performance.

When evaluating the performance of the
Company, analysts and investors are primarily focused on our consolidated financial results, specifically organic revenue growth,
consolidated Adjusted EBITDA and change in consolidated Margins. Investors understand that like our competitors, we are a holding
company that is managing a portfolio of businesses in one industry, the marketing communications industry. We are all competing
for the same bucket of marketing dollars and each of our agencies may be limited by client conflicts. Investors understand that
a loss at one agency may be offset by a gain at another and that these client shifts do not impact the future growth potential
of the Company. To the extent investors are interested in understanding the drivers of these key performance metrics, their inquiry
is generally along the lines of understanding revenue growth by geography, risks and opportunities associated with large clients,
and performance by client industry vertical.

Geographic revenue growth is one of the
primary additional areas of investor focus. Investors closely track our revenue growth in North America, where we generate roughly
86% of our revenue. Investors also closely track our revenue growth outside of North America to evaluate the success of our strategic
investments to expand our business around the world.

Additionally, geography is the most useful
way to compare our performance to the various other holding companies that compete in the sector. Investors rank the industry according
to organic revenue growth by geography and relative percentage of revenue in various geographies around the world. As an example,
presently there is intense investor focus on organic revenue growth trends in North America, where growth among our competitors
has moderated in recent periods.

Another key area of focus is understanding
risks and opportunities associated with large clients. While the Company does not often disclose the specific names of our largest
customers due to confidentiality agreements, investors are able to monitor industry trade press to come up with a reasonable guess
of their identities. We regularly field incoming queries when there is a CMO change at one of these clients or when the client
is the subject of merger and acquisition activity, both of which could possibly lead to a change in the status of our relationship
with the client. Investors also closely monitor the trade press to track client wins and losses. As an example, when 72andSunny
lost Samsung as a client during 2016, investors were interested in understanding the impact on revenue to the total Company, not
at the agency level.

Performance in client industry verticals
are also a key area of focus. Investors are keenly interested in knowing how much revenue exposure the Company has to industry
verticals that are undergoing significant disruption from technology and emerging competition, as well as what the revenue trends
are in aggregate for clients within those verticals. For example, there is currently intense investor interest in the consumer-packaged
goods (CPG) industry. Retail, financial services and travel are also closely monitored.

When considering the intense focus of the
investor and analyst community on consolidated results, revenue by geography, and performance in client industry verticals, fluctuations
in Margins at the Partner Firm level would not provide worthwhile insight into the results and future prospects of MDC, and therefore
the value of an investor’s investment. As such, we believe a reasonable investor in our industry would tolerate fluctuations
in historical Margins when considering the economic similarities of the Partner Firms within the Company’s network, and would
focus on the future prospects of those agencies as a portfolio. That being said, we believe some level of aggregation below the
consolidated level would be worthwhile and consistent with the objectives and principles of ASC 280. As such, we fully evaluated
both historical performance and future prospects at the Partner Firm level which is discussed in detail in this memorandum.

MDC considered the following excerpt from
ASC 280 (280-10-55-7A):

Paragraph 280-10-50-11 states
that operating segments are considered to be similar if they can be expected to have essentially the same future prospects. Therefore,
the similarity of the economic characteristics should be evaluated based on future prospects and not necessarily on the current
indicators only. In other words, if the segments do not currently have similar gross margins and sales trends but the economic
characteristics and the other five criteria are met and the segments are expected to again have similar long-term average gross
margins and sales trends, the two segments may be aggregated.

In analyzing quantitative similarities
in the context of the “long-term average gross margin” guidance above , the Company used a ten-year period to evaluate
average performance. This timeframe allows for periods of contraction and expansion in an agencies performance and acknowledges
the volatility which is customary in MDC’s industry. As mentioned in Ms Shah’s remarks noted earlier in this memorandum,
historical performance is more heavily weighted in the aggregation analysis than expected future results, therefore the Company
utilized an average of the historical nine-year period plus budgeted results for 2017, incorporating each segment’s future
prospects as part of this analysis. For those agencies which were acquired or formed more recently than nine years, we utilized
the earliest period available as the starting point for the average.

[The Company is
providing to the Staff additional information on a confidential and supplemental basis pursuant
to 17 CFR 200.83 in a separate letter dated today.]

In addition to the quantitative, we also considered the following qualitative characteristics
in our analysis:

 · Direct competition for assignments including
head-to-head situations (examples referenced in Appendix A to this memorandum);

 · Shifting of business between Partner Firms;

 · Competition for the same talent/movement
of talent between Partner Firms;

 · Geographic reach and focus;

 · Nature of service offerings and means
of distribution; and

 · Consistent regulatory/self-regulation
environment.

As further dis