Markets

MDC Paid $1.4M for Attention Partners; Deal Illustrates Tax Strategy

By Jim Edwards

Updated on: November 24, 2009 / 5:55 PM EST / MoneyWatch

MDC Partners (MDCA) paid $1.4 million to acquire Attention Partners, a social media PR agency, in an acquisition MDC made in September without disclosing financials, according to a 10-Q filing with the SEC. The buy made a lot of headlines in the blogosphere, but BNET argued that this deal was smaller than the hype surrounding it because the price was not significant enough to trigger a legal disclosure requirement.

Turns out BNET was right: The deal is roughly equivalent to just 1 percent of MDC's revenues.

The deal gave MDC 51 percent of Attention, and MDC added about $3.6 million in intangible and goodwill assets to its balance sheet. The agreement is described on page 9 of the 10-Q. Arguably, the most crucial line is the final one. It says, simply:

The intangibles and goodwill are tax deductible.

Cynics out there might conclude that one reason MDC is an acquisitive beast (that plans to become even more acquisitive) is to reduce its tax bill. MDC has paid only $487,000 in cash taxes in 2009, on revenues of $396 million for the year. It marked a total tax expense against those revenues of $3.3 million for the same period, about 1 percent of revenues. Doft added:

We structure our acquisitions to be as tax efficient as possible.

In addition to the $1.4 million in actual cash spent on Attention, MDC also marked up another $3.5 million in goodwill on the buy.

Correction: This item originally stated that goodwill can be amortized and is tax deductible. That's not the case. Goodwill is no longer amortized. However, its value is reduced over time as the present value of intangible assets is reduced or impaired, and those non-cash expenses are deducted from the income statement before tax. Image by Flickr user happyeclair, CC.