Issuu

Crain’s looks back on 40 years in Cleveland Halle, BP and Crain’s Cleveland’s first issue highlight Look Back, a feature celebrating our 40th year. PAGE 39

CRAINSCLEVELAND.COM I JANUARY 20, 2020

SPORTS BUSINESS

Riding high

The USA Triathlon Age Group National Championships were held in Cleveland in 2018 and ’19.

Bob Kain thought David Gilbert — “a young man nobody knew” — was the right person to lead the Greater Cleveland Sports Commission when it relaunched in 2000. Gilbert, Kain said, is “very genuine and personable,” and his love for Cleveland is unmistakable. “You hoped he would be entrepreneurial enough. It was clear he was bright enough,” Kain, the sports commission’s founding chairman, said of Gilbert, then a 32-year-old director of community affairs for the Convention & Visitors Bureau of Greater Cleveland. “But you never knew.” Kain, a former president and co-CEO of IMG, is certain now.

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The sports commission is celebrating its 20th anniversary with another sold-out Greater Cleveland Sports Awards on Wednesday, Jan. 22. The nonprofit will host 11 events that are projected to have an economic impact of almost $20 million this year, bringing its totals for two decades to 203 events and $811 million in impact. Next up are the 2021 NFL draft, 2022 NBA All-Star festivities and 2024

GREATER CLEVELAND SPORTS COMMISSION

The Greater Cleveland Sports Commission celebrates its 20th anniversary with a slew of successes — big and small | BY KEVIN KLEPS

NCAA Women’s Final Four — all of which fall within a five-year stretch, one that includes the 2019 MLB AllStar Game, that is the biggest in the sports commission’s history. “It’s been a pretty phenomenal success story,” said Kain, who chaired the sports commission’s board for its first 10 years. See SPORTS on Page 37

REAL ESTATE

IMG Center owner asks court to OK sale

Prospective buyer of property that’s in foreclosure is redacted in filing BY STAN BULLARD

Downtown Cleveland building owner James Breen is trying an unexpected tactic to get his 16-floor IMG Center out of a Cuyahoga County Common Pleas Court foreclosure proceeding. Attorneys for Breen, who holds the building in a company named after its 1360 E. Ninth St. address, have asked Judge Daniel Gaul to authorize the sale of the property to a new owner in a Jan. 8 court filing.

The court had not acted on the motion by Thursday, Jan. 16, nor had it scheduled a hearing on the matter. The identity of the prospective buyer and the proposed sale price for the building were redacted in Cuyahoga County Court records. A sale is considered by legal experts as the only way to cure a foreclosure proceeding on a securitized mortgage loan that has multiple investors. Rialto Capital Corp., a Miamibased special servicer that handles

troubled loans for lenders, had attorneys file in county court on July 2, 2019, to foreclose after maintaining that Breen’s 1360 E. Ninth defaulted on monthly payments, beginning in February 2019, on a nearly $17 million loan on the property. The loan was secured a year earlier in a refinancing of debts on the property, according to court records. The original loan is referred to as UBSCM2018C9-OH IMG LLC. See IMG CENTER on Page 37

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HEALTH CARE

Akron Children’s Hospital brings services closer to families

Regional growth strategy gives patients access where they are BY LYDIA COUTRÉ

Akron Children’s Hospital has been rapidly growing its network of regional health centers in a commitment to bring care to children and families where they are. Three facilities that opened in 2019 and two more slated for this year will more than double the number of centers the independent hospital operates. And it’s not stopping there. The hospital plans to break ground on another next year and expects a few more after that, said Lisa Aurilio, chief operating officer of Akron Children’s. “One of the things that we know is that it’s really important to us to keep care closer to home for families,” she said. “Whenever someone has an ill child, a child that needs services, it’s stressful enough. And so the expectation of having to travel for those services just is one added stress. So we truly believe it’s important to bring the services 1/7/20 12:12 PM closer to families to help alleviate some of the stress that comes with that.” Last year, Akron Children’s opened health centers in Mansfield, North Canton and Boston Heights. A facility will open in Wooster next month and another will open in Portage County in May. In total, the five facilities represent a $56.3 million investment in ambulatory services, which Aurilio said was a “logical step” in the hospital’s regional strategy. The centers consolidate services that had been scattered throughout different offices in the area. The hos-

Akron Children’s Hospital opened the Mansfield Health Center on South Trimble Road last year. It offers a variety of pediatric services. | AKRON CHILDREN’S HOSPITAL

pital might have had a rehabilitation center on one corner, a primary care center on another and cardiology down the road. The new facilities brought these services into one building, as well as added new services to communities. Akron Children’s isn’t alone in its efforts to meet families near their homes, said Nick Lashutka, president and CEO of the Ohio Children’s Hospital Association. He said the association’s members have made “intentional efforts” to increase ease of access to care, rather than the historical model of getting children to come to the flagship hospital building. He pointed to University Hospitals Rainbow Center for Women & Children, which opened in July 2018, as

another example of children’s hospitals reaching out into the community. A similar facility opened in Dayton last year, he noted. Such “rededication back to the community” is a trend here in Ohio, as well as nationally. In part, he said, it’s a response to consumer feedback, as well as to a growing recognition that providing care in an outpatient setting can be less disruptive for the family and child. “But I think if you’re able to achieve an equivalent or higher outcome, it saves the health care delivery system dollars rather than having them come down to a main inpatient hospital stay,” Lashutka said. See HOSPITAL on Page 6

REAL ESTATE

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Big plans are afoot for MetroHealth’s CCH Development Corp. and NRP Group of Cleveland to build a proposed $15 million mixed-use apartment complex in Cleveland’s Clark-Fulton neighborhood, but CCH is also undertaking a smaller step nearby. CCH acquired a decrepit three-story apartment building dating from 1890 at 3369 W. 30th St. as part of its revitalization efforts, according to Greg Zucca, CCH executive director and MetroHealth’s director of economic and community transformation. NRP is a Cleveland-based apartment developer that has operations nationwide. “The project with NRP has several phases and this is nearby,” Zucca said, although it’s yet to be determined exactly how the quarter-acre of ground underneath the building and its adjoining parking lot will be used after the structure is demolished. MetroHealth already owns a single-story commercial building on West 25th Street that adjoins the apartment parcel. CCH paid $444,000 to an Aurora, Ohio, investor group for the empty apartment building on Dec. 16, according to Cuyahoga County land records. The property sits just two houses and two vacant parcels north of Trowbridge Avenue and the north side of the first phase of the CCH-

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MetroHealth’s CCH Development Corp. purchased an additional property to buttress its neighborhood transformation efforts. | STAN BULLARD

NRP plan for a large vacant parcel that CCH owns between Trowbridge and Woodbridge Avenue that fronts on West 25th Street. The partners won schematic design approval Dec. 20 from the Cleveland City Planning Commission for the four-floor structure that will add 72 units of affordable housing in the neighborhood. Future plans call for market-rate housing as well. Zucca said development of the 3369 W. 30th property “is a long way off,” although removing the building itself is regarded as a step forward. Junior Graham, who lives in a house next to the existing apartment

building’s parking lot, said in an interview that “it’s been a nightmare because people” have been moving in and out of suites every few months and having furnishings piled up outside after tenants were evicted. However, he added that future plans for the site “don’t matter to me.” Ricardo Léon, executive director of the Metro West Community Development Organization, said in a phone interview that the neighborhood group fielded several complaints about the apartments yearly over at least five years. “It’s hard to lose housing in the neighborhood, but not when it’s been a headache with open (building code) violations,” Léon said, and may clear the way for additional real estate development. This is also very different from another transaction CCH did late last year, when it took out a $4.8 million mortgage to acquire the medical office building at 4322 W. 150th St., where it leased the nearly 40,000square-foot building for primary and surgical care from a Costa Mesa, Calif., investor group. Zucca said CCH bought the building to provide MetroHealth financial flexibility with the purchase and to fund significant improvements to the 1971-vintage building. Stan Bullard: sbullard@crain.com, (216) 771-5228, @CrainRltywriter

2 | CRAIN’S CLEVELAND BUSINESS | JANUARY 20, 2020

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TECHNOLOGY

With help of CWRU, local startups strut their stuff at CES BY JAY MILLER

Every January, electronics and high-tech companies from around the world travel to Las Vegas to CES, the trade show formerly known as the Consumer Electronics Show, to promote the latest innovations they will be bringing to the marketplace. This year, 4,000 exhibiting companies debuted more than 20,000 products to 170,000 attendees from Jan. 7-10, the Consumer Technology Association, the event’s sponsor, reported. Apple was there. So were all of the other major device-makers. So were the larger Northeast Ohio product-makers: GE Lighting, Goodyear Tire & Rubber Co. and Moen Inc., among others. But so, too, were Everykey Inc., RooSense LLC and a handful of other small, emerging businesses, taking advantage of Case Western Reserve University’s sponsorship of a booth at CES to get their names and their products in front of the show’s attendees. The booth was in Eureka Park, an area for startups that was a small part of the show, which spread across 11 buildings along the Las Vegas Strip radiating from the Las Vegas Convention and World Trade Center. “Everyone from Walmart to Target to Best Buy and everyone in between is kind of scouring the floor for what’s going to be the new up-and-coming cool technology to sell,” said Chris Wentz, CEO of Everykey, a Cleveland maker of Bluetooth products that replace passwords and can unlock

Hanieh Ghadimi and Chelsea Monty-Bromer, co-founders of Akron-based RooSense, explain the product they are developing to a visitor at this year’s CES show in Las Vegas. | CONTRIBUTED PHOTO

smartphones, computers and online sites. “This is the first year of going to CES where we actually have a shippable product.” Everykey, which Wentz created in 2013 while a student at CWRU, has struggled to bring its idea to market. But now, he said, he’s refocused his approach and the product is ready to go to market. “We’ve taken a little bit more of a B2B enterprise focus,” he explained. “And that was a really exciting part of this show. Ninety-nine percent of the people walking around work for a company and have decision-making power within their company. So there’s a lot of enterprises that we met during CES this year that want to do a pilot with our product. And you know, somebody who has 10,000-plus employees can be some pretty substantial sales for us.” CWRU has sponsored a booth at the show for seven years, said Robert Sopko, director of the university’s LaunchNet program, whose mission is to train entrepreneurs, especially

students and former students like Wentz, on the university’s campus. CWRU took a 32-by-22-foot space — Booth 51548 — at Eureka Park. The school covered the $12,000 cost of the booth and invited a dozen organizations, most being grown by students, faculty or alumni, to share the space. “It was phenomenal. We were busy all the time,” said Sopko. “The engagement was really great. We were even busy on the last day.” Eureka Park was surrounded by 1,200 startup companies from 46 countries. The CWRU booth was close to other universities, as well as booths run by countries such as Israel and the Netherlands. Hanieh Ghadimi and Chelsea Monty-Bromer, co-founders of Akronbased RooSense, attended CES last year to get the lay of the land, but this was their first year exhibiting. Monty-Bromer said their company is about a year away from a salable product, but the trip was still worthwhile. “There are a lot of investors walk-

ing around looking for things to invest in,” she said. “And there are a lot of people who make electronic components who are looking for maybe customers for themselves or partnerships. That’s really what we were looking for: people who can help us with our different pieces that we have to make to get this to market.” Monty-Bromer is an associate professor of chemical engineering at the University of Akron, while Ghadimi is a postdoctoral researcher there. The pair founded the company in late 2017 based on research on biosensors and nanosensors. RooSense is developing a fabric with sensors that can keep athletes wearing clothing made from it from becoming dehydrated. “CES is one of the largest global forums for deal flow, so there is a lot of deals being made between companies big and small,” said Neil Singh, director of technology at Team NEO, the regional economic development nonprofit, who also made the trip to Las Vegas. “Typically, it’s technology companies looking at other innovative companies where it adds value to their portfolio. It’s extremely good exposure for businesses in the technology space.” In addition to Everykey and RooSense, CWRU’s booth was shared by 3D Music, which was showing a prototype of its 3D-printed musical instruments; Ant-X LLC, which helps people create diets that meet their health needs; Axuall Inc., which is developing a digital network for verifying professional and technical credentials;

BioFlightVR, a developer of virtual-reality medical training and education software; Delta Sound Labs, a maker of audio-effects plugins; Everyone Makes Progress Inc., a blockchain-based fitness data analzyzer; Lumen Polymer, a CWRU student effort that has designed an adhesive bandage that removes easily after being treated with ultraviolet light; Repowered Robotics, a student-run startup that’s developing modestly priced robotics components for startups or small companies; and Tauon LLC, which is helping video game developers incorporate voice-activated commands. CWRU’s Interactive Commons, which is developing software applications for augmented and virtual reality using Microsoft HoloLens, and Blockland Cleveland, which has a think tank at CWRU to help the effort to build blockchain technologies in Northeast Ohio, also used the university’s booth. Wentz said the experience was also a good way to get candid feedback. “CES is a good learning experience for us. It really gives us a very honest view of the market every year,” he said. “There’s probably thousands of people that approach us throughout the course of CES, and these are people that know the industry and can kind of like really honestly evaluate us. There’s a lot of kind individuals and brutally honest (opinions), and that’s helpful for us.” Jay Miller: jmiller@crain.com, (216) 771-5362, @millerjh

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Tenerowicz assumes reins from Shaw at law firm’s largest office BakerHostetler, the second-largest law firm in Northeast Ohio, has installed Matthew Tenerowicz as managing partner in its flagship Cleveland office — its largest office — effective Jan. 1. In that role, the 46-year-old Parma native and transactional lawyer takes the local leadership reins from Hewitt Shaw, who’s held the position for the past 15 years and is stepping back from management duties. Crain’s sat down with both attorneys, each of whom have been with the firm for their entire post-law school careers, to talk about the transition as well as their thoughts on the legal business and the trends shaping it today. (The conversation has been edited for length and clarity.) — Jeremy Nobile  What helped Matt surface as a top candidate for the local managing partner post? HS: He’s been here since law school, coming here as a summer associate in 1998, so we know him well. But also, it’s more than being just a really good lawyer. You’ve got to be someone widely and well-respected by colleagues in the office. Even though he’s the managing partner, he works for the other lawyers in the office. They don’t work for him. The people need to respect you and your judgment and commitment, and Matt fits the bill on that. And he’s well-known in the community.  Matt, why is it a job you want to take? MT: Baker has been extremely great to me. And when I saw the opportunity to pursue the managing partner role, it’s because I care about BakerHostetler and our Cleveland office. To the extent I can contribute to the continued growth and success of Baker, I’m very happy to do that. It’s humbling to have been picked, and I know I have some big shoes to fill. But I’ll be working hard to do that.

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 Hewitt, what comes to mind when you think about how the industry has changed through your career, or even just since you became managing partner? HS: This business has evolved just as all businesses have. I just think about how the world has become smaller and technology dominates everything we do, how geography seems to matter less and technology and awareness of issues that go beyond your physical borders are really important. Fortunately for us, we had leadership back in the day, before me, who realized that even though the digital age wasn’t upon them, to add offices outside of Cleveland.  So that was a method for diversifying the business decades ago. HS: Right. That began back in the 1980s, and it was in predictable places like Columbus, the state capitol, and Washington, D.C., the national capitol. And then growth went from there. We now have 14 offices. We’re significantly in New York, Atlanta, the West Coast, the Rocky Mountains. With the strength we had in Cleveland, we became even stronger here because of the footprint we had nationally and the strength we had in other legal markets. That has allowed us to stay with the development over the last 15 years of the world, business, life, all those things as they related to the practice of law. That wasn’t a matter of moving outside of Cleveland, but a matter of taking advantage of the fact that we were so strong outside of Cleveland to make us even stronger in Cleveland.  Does a firm’s geographic, physical presence in particular markets matter much anymore? HS: Even if it’s not as important as it

used to be, it’s still important. A lot of people still want to have their lawyers down the street or in the courthouse down on Lakeside Avenue. We still do a bunch of that, but we do it at a higher and better level because of the resources we have from these other offices and the experiences our Cleveland lawyers get from being collaborative with those.  I know you’re involved in hiring moves across the firm. On the recruiting front, is having this presence in Cleveland ever a selling point to prospective hires? HS: That’s a story unto itself. As for me, I came to Cleveland in the late 1970s for law school. My wife and I got married during school. The plan was to leave the day after graduation — we haven’t gotten around to that quite yet. We didn’t have anything keeping us here, and this was in the wake of the river being on fire and the city being in default. I stayed for the quality of the law firm. And we all know what’s happened to Cleveland since then and even very recently.  You mean the Cleveland renaissance, as it’s often described. How does that aid recruiting? HS: It’s all just made the city a little better. And that’s helped with recruiting, though it’s always been a little bit of a challenge. The other side of the coin is, when we recruit, I may be getting a little corny here, but we have what we like to think of as a Midwestern culture. That’s a very valuable currency in the lateral marketplace.  Matt, what are some goals or priorities for you as you step up as the office managing partner? MT: My No. 1 goal here as I hit the ground running is to remain indispensable to our clients. It sounds cliché, but the value we bring every day to our clients is we are counselors and advisers and we need to prove ourselves on a regular basis. There is a lot of tension and work and sleepless nights to earn that trust. So we don’t just keep up with what’s happening in all the industries we serve, but have to get ahead of them.  What’s an area of law you think the firm has positioned itself in as a leader in recent years, and how did it get there? MT: So 10 years ago, we started investing in data privacy and cybersecurity as a firm, a time when very few firms were doing that. It helps us provide counsel to clients. In 2018, we were engaged in one out of every three data breaches that were reported in the U.S. So that’s a good example.  According to the Crain’s list data, this office has actually shrunk from the peak of 193 lawyers in 2012 to a bit more than 160 today. How do

Tenerowicz

Shaw

you view growth today, and was the reduction by design? HS: We do have 17 summer associates, which is a big group. But I would say those numbers need viewed within the context of the larger firm, where we’ve grown over that same period by probably 150 lawyers across the country. When I started here, we had maybe 15 tax lawyers in Cleveland. We have maybe seven now. We have a good tax practice in D.C. and we don’t necessarily need all those people in Cleveland because we have resources elsewhere to augment the practice. That’s just one example. We won’t add headcount just for the sake of adding headcount. And while we haven’t made the conscious decision to be smaller, we don’t have any trouble getting talent. The only challenge we have is the number of people out there of the quality we’re looking for who are interested in being in Cleveland, Ohio. We have the people we need here to get the job done, for sure.  Are there any other pressures on the business today besides the talent factor, maybe as it relates to fee arrangements and pricing? MT: The pressures for alternative fee arrangements, I think people are still trying to figure that out. There are some clients who pushed more for those from their law firms, and then less as they see the upside and downside to every arrangement. At the end of the day, it might not serve the client relationship best. A client may want a particular arrangement initially, and push that out to all its law firms, but then there’s some realization those might not be best and you refine it. Certainly clients want more predictability in fees, though, as no one wants any surprises at the end of a matter.  What are some things you folks are addressing regarding diversity in your own business? MT: We have our Paul D. White scholarship for incoming summer associates who are diverse (Paul White was the first African American partner elected at Baker). We have a diversity fellowship for diverse attorneys who become associates. And firmwide, we have strong women’s and diversity committees, but we are in the process of hiring a full-time dedicated professional to lead the firm on matters of inclusion and diversity.  What do you think will be your busiest practice this year? MT: Our two largest practice groups are general litigation and general corporate. They’re the largest and most active in terms of total hours. I think that will continue. If I’m looking at individual practice groups, our bankruptcy group, because of their role with PG&E and Fair Finance and the continued role with Madoff. Our bankruptcy lawyers are really busy. Jeremy Nobile: jnobile@crain.com, (216) 771-5362, @JeremyNobile

4 | CRAIN’S CLEVELAND BUSINESS | JANUARY 20, 2020

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TECHNOLOGY

Zilker Technology sets March opening for new office in Northeast Ohio CEO Rob Thomas wants to develop an IT workforce in downtown Cleveland BBY KIM PALMER

Cleveland already has a concentration of experienced IT professionals, according to Rob Thomas, CEO and co-founder of Zilker Technology. What he is interested in now is developing the region’s next generation of tech talent. Zilker, an e-commerce and application development technology company, announced last week that it will open an office in downtown Cleveland in March, though a location has yet to be determined. It will be the company’s fourth office overall and its first in the Midwest. The office will provide managed services for the company’s clients, which include Costco, the Green Bay Packers, Party City, Lindt and DaVita Inc., formerly DaVita HealthCare Partners Inc. Thomas said the Cleveland office also will serve as a center for development, education and mentorship of younger IT talent. “When you are growing quickly, getting talent is the top priority, and our approach to date has been to hire professional talent, which means experienced talent,” Thomas said. “We have been drawing experienced people from many sources, but in order to truly meet our goals to become a $100 million-plus company and best serve the need of our clients, we need to get into the mode of developing talent.” Zilker, founded in 2014 and headquartered in Austin, Texas, has 315 employees. Thomas said revenue last year rose 64% to $47 million. In addition to Austin, it has offices in Belgrade, Serbia and India. Of the company’s 160 employees in the United States, Cleveland already is home to more than a dozen professionals, recruited from a handful of local IT companies and currently working from home offices. “I am the CEO of a company that is based in Austin and I live in the San Francisco Bay area. That epitomizes how Zilker operates,” Thomas said. “Our approach to date is to hire talent where they live.” The decision to put an office in Cleveland was not completely driven by the number of remote workers here, as Zilker has similar numbers of satellite employees in other cities. Thomas said state and local economic development organizations helped narrow the choice to Cleveland over two other locations that were under consideration. Zilker will receive an eight-year, 2.11% Job Creation Tax Credit from the state as part of a JobsOhio program. Greater Cleveland Partnership, the City of Cleveland and Team NEO have committed to help with employee training and will provide other funding assistance that has not yet been made public. Ohio Lt. Gov. Jon Husted, whose office spearheads state efforts to encourage technology innovation, said supporting a company like Zilker is critical to growing the regional economy.

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“OUR APPROACH TO DATE IS TO HIRE TALENT WHERE THEY LIVE.” ——Rob Thomas, Zilker Technology co-founder and CEO

“There are some jobs that have the potential to have a multiplier effect, and this is the type of company that fits into the category,” Husted said in an interview last week. “More and more companies are willing to engage and create work-based learning experiences. That helps build the company and helps Ohio retain talent.” Bill Koehler, CEO of Team NEO, said Northeast Ohio is perfectly situated for companies like Zilker that are in search of developing tech talent. “You have access to 25-plus higher institutions here and that student pipeline,” Koehler said. “You also have access to a growing presence of younger residents in the downtown area.” When the final site is chosen, the Cleveland office will be staffed immediately with about a dozen employees, including a “site executive” who will run the office and a “minister of culture” who Thomas said will be in charge of office culture and keep Cleveland staffers engaged with the rest of the company’s national and international offices. Thomas said the Cleveland office should grow to more than 50 employees over the eight-year term of the tax credit. Software and web developers continue to be the fastest-growing category of tech jobs in the country. The industry’s unemployment rate is a minuscule 1.3%. Husted said companies like Zilker that are looking to grow and are willing to create relationships with young talent should help keep more college graduates in Ohio. “You cannot build a wall around Ohio. You have to create opportunities that both retain and attract talent,” Husted said. “We are building partnerships between education and business in Ohio with a sense of urgency.” Kim Palmer: kpalmer@crain.com, (216) 771-5384

When you hire Sleggs, Danzinger & Gill, you work directly with Sleggs, Danzinger and Gill. Each client is directly represented at all levels by a principal of the firm with a combined 75 years of experience. No pyramid, no associates, no on-the-job training. Our clients deserve the very best representation, so we structured our firm to allow each client, throughout the entire process, to work directly with Messrs. SLEGGS, DANZINGER and/or GILL. Our philosophy is to work cooperatively with school district and County officials to ensure that our clients pay the lowest possible real property tax obligations. If a fair resolution requires litigation, SLEGGS, DANZINGER & GILL have the depth of trial and appellate experience to handle the most complex valuation issues. Whether the valuation relates to large industrial plants, apartments, shopping centers, warehouses, office buildings, vacant land or any other type of commercial property, the faces above will ensure that you receive the best counsel, legal advice and litigation expertise. Todd W. Sleggs, Esq.

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REAL ESTATE

Westlake firm moves to 15,000-square-foot spot in Ohio City Clear Choice Photo Booth owner says workers ‘were packed in like sardines’ at former location BY STAN BULLARD

Clear Choice Photo Booth, which provides camera kiosks and setups for people to take digital photos of themselves at events, has traded its location in a Westlake office/warehouse building for a 1900-vintage warehouse on a side street in Cleveland’s Ohio City neighborhood. David Hobrath, who owns Clear Choice Photo but takes the title of national sales manager, said the 8-yearold company needed more space to grow but also sought a more central location to attract talent in the future. When a staffer found the two-building complex with about 15,000 square feet of space on the Loopnet real estate listing site, it just clicked for the company. “We were packed in like sardines,” Hobrath said of the company’s nine employees, including himself, who had been squeezed into a 3,000square-foot office-warehouse space. “Now, our office is larger than our warehouse used to be.” Its new office space is on the sec-

ond floor of a warehouse at 2167 W. 41st St., nestled in the corner of a residential area but backing up to the Lorain Avenue commercial district. Originally, the brick building served as a fruit-packing house for a surrounding area that preceded many of the surrounding houses and the city’s zoning code. Transforming the brick and timber buildings that had served for years as workshops and warehouses to creative office space just took stripping out carpet and drop ceilings, Hobrath said. With staffers coming from homes in areas ranging from Euclid and Brecksville, it’s already more convenient, he said, “and with much better food nearby.” The new offices will allow Clear Choice to meet personally with clients more often and to develop a studio with locations that display various photo backdrops it can supply with kiosks the company rents that accommodate iPads or digital SLR cameras. Besides renting the outfits, Hobrath says the company also sells the kiosks to others.

“WE WERE PACKED IN LIKE SARDINES. NOW, OUR OFFICE IS LARGER THAN OUR WAREHOUSE USED TO BE.”

brath wouldn’t identify business clients, but familiar names abound in photo backdrops on the firm’s website. “I will say we have been blessed with —David Hobrath, Clear Choice Photo businesses to work with,” Hobrath said. Clear Choice started as a sideline He estimates there are a half-dozen for Hobrath and his wife, but it grew photobooth suppliers in Northeast so fast the former cellphone sales- Ohio. Records at the Ohio Secretary of man and phone shop owner made it State’s office show more than 40 coma full-time gig. His first locations panies statewide have been formed came from out-of-state relatives who with the phrase in their names. Hobrath said gross sales in 2019 wanted to get into the business, but they later dropped out because of the were $1.6 million, up from $1.2 miltime commitments during evenings lion in 2018. He also has plans to and weekends — prime time for ev- push out in new directions, envisionerything from graduation parties to ing the empty top floor of the taller building as an office for software debusiness celebrations. Now, the company serves custom- velopers as he has bought photoers for social events in 20 states with a booth software technology he plans total of 60 contractors, including 30 to expand. The software provides in Ohio. He said it will serve business doodles or drawings on the photos clients nationally. Most of the growth that clients may have printed or post the past few years has been in provid- on social networking sites. Patrick Dowd, a senior vice presiing photo booths for businesses. Ho-

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Since opening last year, the three Akron Children’s health centers have seen a 26% increase in patient volumes across all areas of care, from primary care to specialty services. Consolidating locations offers convenience for families and has helped caregivers be able to make referrals within the hospital’s network, Aurilio said. For a primary care pediatrician who identifies a child who could benefit from occupational or speech therapy, for instance, it’s now much easier to refer them down the hall rather than across town. “The volume of the patients definitely helps bring in some additional revenue,” Aurilio said. “But also, a lot of times, we establish that relationship with a family in an ambulatory or regional setting. If that child does need surgery, if that child does need to be admitted to a hospital, then they’re

Stan Bullard: sbullard@crain.com, (216) 771-5228, @CrainRltywriter connected to our health system. … They come to Akron Children’s Hospital, our surgery center, and they can get those services in a seamless way.” The outreach to the community falls in line with Akron Children’s longstanding commitment to school health. Its school nursing program provides school nurses and medical assistants to 180 school buildings across 30 school districts in the area, Aurilio said. Lashutka said that in talking to superintendents, school boards and elected officials, one of the first things the association hears is how to work together to do better for kids and meet them where they are. “So I think these health centers are a natural outgrowth of that type of a culture and that type of a philosophy, which is we want the care to be where the kids are,” he said. Lydia Coutré: lcoutre@crain.com, (216) 771-5228, @LydiaCoutre

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dent for Sequoia Realty of Mentor who handled the lease with Clear Choice for the warehouse’s owners, Garfield Heights-based Harsax Inc., said multiple companies were interested in the space. He added he was not surprised the novel business location was occupied five months after the commercial real estate firm bought the property, thanks to the development and business action in Ohio City. Randy Sacks, a senior vice president at family-owned Harsax, said Clear Choice “filled the bill for what we were looking for: a growing company that liked Ohio City.” He said he was not surprised the space was taken by a younger company owner in a media-related field. Cleveland City Councilman Kerry McCormack, whose Ward 3 includes the site, said he hadn’t heard of Clear Choice moving to the neighborhood, but said he considers it “pleasant news, but not a surprise.”

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FROM THE EDITOR

RICH WILLIAMS FOR CRAIN’S CLEVELAND BUSINESS

Celebrating 40 years and embracing the future of Cleveland

EDITORIAL

Plastics T

urns out “The Graduate” was right: The future to a large extent really did end up being about plastics. Case in point: Cuyahoga County’s plastic bag ban, which officially took effect Jan. 1 and is rolling out just slowly enough to be confusing to consumers. The big mover so far has been Pittsburgh-based grocer Giant Eagle, which eliminated plastic bags everywhere but Brooklyn, Cleveland, Independence and North Olmsted — cities that have opted out of the ban. (Cleveland is set to reconsider a ban this summer.) In December, when you probably were busy with other things, the county pushed enforcement of the ban back to July 1. That means that in most retailers’ stores in Cuyahoga County, you’ll have until midsummer to grab a single-use plastic bag when shopping. This does set up a test of human behavior, particularly in the grocery space, given Giant Eagle’s aggressive approach to the ban. Some consumers, no doubt, will reward Giant Eagle for the environmentally friendly strategy, which includes offering one “perk” point in its customer loyalty program for each bag you bring to the store. Others, though, will be more relucTHERE’S MORE tant to adapt to the change POTENTIAL and will favor places still offering the bags. (To their GOVERNMENT ACTION credit, stores in that categoTHAT COULD CHANGE ry, including Heinen’s and are offering remindTHE TRAJECTORY OF THE Target, ers and perks to encourage CUYAHOGA COUNTY BAN. the use of reusable bags.) There’s more potential government action that could change the trajectory of the Cuyahoga County ban, which is aimed at reducing the plastic waste that fills landfills and pollutes Lake Erie. Last month, the Ohio House of Representatives passed a bill preventing local government entities from enacting such bans. From our perspective, that’s another of the state’s many encroachments on home rule, and we hope the Senate, which has yet to consider the measure, doesn’t follow the House’s lead. We’re pleased, too, that Gov. Mike DeWine is on record in opposing state efforts to target local bans.

Bag bans are not any kind of cure-all for addressing profound environmental issues. But they are, as we wrote last April, when the ban was being considered, a “reasonable step that gives citizens a chance to participate in creating a more ecologically sustainable future.” Plastic “is the most prevalent type of marine debris found in the world’s oceans as well as the Great Lakes,” according to promotional material from Cuyahoga Community College for a Jan. 29 presentation, “The Problem with Plastic Pollution,” at the school’s Westshore Campus that will be led by Jill Bartolotta, extension educator with Ohio Sea Grant. The group works with organizations and communities to solve the lake’s most pressing environmental issues. Lake Erie is a precious economic and leisure resource for Northeast Ohio. Reducing its concentration of microplastics is in everyone’s interest.

Here we go again C

leveland Browns fans have been through this before — many, many times. New head coach Kevin Stefanski is the fifth that Browns owners Dee and Haslam have introduced in their tenure. (It’s six if you count Gregg Williams as an interim in 2018.) The news conferences always sound good. The coaches and management say the right things. The owners look confident that this is the one who will, finally, work. As we all know, though, it never does. After a decade in which the Browns have never posted a winning record, it’s awfully hard to keep the faith. But keep the faith we will. We’re pulling — hard — for Stefanski to haul the Browns out of their near-endless period of futility, aided by the greater emphasis on analytics championed by Browns chief strategy officer Paul DePodesta, who has become more influential in the organization. “Information is power,” Stefanski said last week. We hope the Browns leverage all the information they can, first to hire a strong general manager to fill holes in the roster, and then to make the product on the field every Sunday one that’s worthy of the devotion fans give to the team.

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com) Managing Editor: Scott Suttell (ssuttell@crain.com) Contact Crain’s: 216-522-1383 Read Crain’s online: crainscleveland.com

Crain’s Cleveland Business came into existence on March 31, 1980, during a bleak time in Northeast Ohio. Cleveland was still emerging from the fiscal default of 1978. By 1979, Cleveland’s corporate leaders had had enough. The city was broke and the butt of national jokes. If Cleveland was going to survive — and have Elizabeth any chance of one day thriving again — McINTYRE the business community would need to get involved in civic affairs. During the holiday season that year, corporate executives raised $800,000 to finance a private business task force to help Cleveland City Hall straighten out its financial mess. For three months, the task force of nearly 100 corporate leaders studied all aspects of city government and made recommendations to streamline Cleveland’s government bureaucracy, saving more than $40 million per year. The group’s work showed how Cleveland could rebuild itself through public-private partnerships, a model that continues today. It’s fitting, then, that the debut issue of Crain’s Cleveland Business struck an optimistic tone of what may lie ahead: “Rebirth of Cleveland: The problems, the problem solvers, the future.” Northeast Ohio’s business community has clearly changed in many ways since the first pages of Crain’s Cleveland Business rolled off the presses 40 years ago. Industries have grown, some have shrunk and a good many have disappeared. New ones have emerged. Business, civic IT’S FITTING THAT THE and nonprofit leaders have come and gone. And technol- DEBUT ISSUE OF ogy, changing consumer hab- CRAIN’S CLEVELAND its, and political and cultural influences have kept all of us BUSINESS STRUCK AN constantly evolving. OPTIMISTIC TONE OF We at Crain’s Cleveland Business have been fortunate to WHAT MAY LIE AHEAD. chronicle all of these changes in the business community these last 40 years, and we look forward to continuing to tell your stories in the decades ahead. To mark our 40th anniversary, we will take a look back at the people, events and institutions that helped shape Cleveland and the region since 1980, and why they matter today. We will also give you a brief overview of each of the four decades Crain’s Cleveland Business has covered. You can find the first installment of the “Crain’s Cleveland Look Back” feature on page 39 of this edition. In it, we explore Crain’s first decade: The 1980s. Among some of the other topics you’ll learn more about in this weekly 40th anniversary feature will be the rise of Akron’s polymer industry, the impact on Cleveland and the region of I-480’s completion, and the evolution of Cleveland’s Flats neighborhood. Also as part of our anniversary celebration, we will be honoring eight of the top newsmakers over the past 40 years at a Newsmaker Awards program on March 25 at Rocket Mortgage FieldHouse. Look for more information on this special event in the coming weeks and in the March 23 issue of Crain’s, where we will spotlight these movers and shakers. It has been enlightening for us to look back through Crain’s archives to see the triumphs and tragedies Cleveland has experienced in the last four decades. We’re proud of the role we’ve played in providing valuable information about business in Cleveland. It strengthens our resolve to provide you with the first draft of Cleveland’s history every week in these pages.

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Cleveland Business, 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113, or by emailing ClevEdit@crain.com. Please include your complete name and city from which you are writing, and a telephone number for fact-checking purposes.

Sound off: Send a Personal View for the opinion page to emcintyre@crain.com. Please include a telephone number for verification purposes.

8 | CRAIN’S CLEVELAND BUSINESS | January 20, 2020

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OPINION

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PERSONAL VIEW

‘Why Cleveland?’ Entrepreneur found moving here made sense BY TERENCE MCCARRON

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The year 2012 turned out to be pivotal in my life. Without much intention, 2012 became a time of recalibration of my life at a point when things were really good. My career had been thriving for years in the New York City area, my industry (insights) was reinventing around technology and my family welcomed our fourth child. Yet, I felt this persistent drive to change gears. During one of the subsequent discussions with my wife, I shared an idea: I wanted to quit my position running North America for a leading industry tech firm and start my own company. I wanted to do it the right way and really invest in our people. I wanted to make solving problems the whole focus. But we had to figure a way to fund this startup ourselves. My patient wife asked the right question: How can we do this given the financial commitments that came with our nice life in New Jersey? Thirty minutes later, we were staring at a map of the United States. Armed with a list of ideal criteria, we vetted cities against our wants and needs. After some time debating the options, my wife (a born-and-raised Jersey girl) voiced our one true option: We should move to Cleveland. The following months were a whirlwind. We made multiple visits to Cleveland during the cold, snowy winter to look at dozens of houses. Thanks to help from my cousin Bill, who previously made the leap from New Jersey, we found a house we loved and were on our way. The next September — 2013 — OpinionRoute LLC was born to help companies in the insights industry produce better data more efficiently. Cleveland now had its own piece of a multibillion-dollar global sector. Admittedly, my first year wasn’t perfect. I networked aggressively throughout the city over meals and startup gatherings. I told my story many times and grew to expect the disbelief I encountered. “Why would you choose Cleveland?” “We don’t hear stories like yours often.” And my personal favorite, “Is your wife from here?” I learned that our move was so easy for our New Jersey friends to understand but tougher for people here to believe. After more than six years, I am very happy to report that both my company and my family are thriving. In the last 24 months alone, OpinionRoute’s growth continues to be aggressive. Revenue spiked 250% in the past two years, we’ve expanded into Europe and have quickly outgrown our Shaker Heights office. Here are a few of the keys to our rapid growth story in Northeast Ohio:

Cleveland’s talent pool is phenomenal. Our Cleveland-based hires over the years have been dynamic, committed and multidimensional. At the core here, I found a value set and worth ethic that aligns extremely well with OpinionRoute. McCarron is the CEO and founder of OpinionRoute LLC.

Great value

Many financial pressures that entrepreneurs face while bootstrapping a startup are alleviated by the value here. Housing prices and overall affordability of experiencing the city are real benefits vs. the New York City area. As a result, I have been able to bring a new industry to our region while creating new, well-paying jobs without subsisting on a ramen noodle diet.

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Supportive ecosystem While Cleveland is still figuring things out, there are very bright people doing tangible things to encourage entrepreneurship overall. I’ve been exposed to Promise Partners, the JumpI LEARNED THAT OUR Start Startup Scaleup event, and, most reMOVE WAS SO EASY cently, EO Cleveland. FOR OUR NEW JERSEY These networks and organizations can play FRIENDS TO a major role in longterm success for startUNDERSTAND BUT ups. TOUGHER FOR PEOPLE As for my family, what’s not to love HERE TO BELIEVE. about this region? My kids’ lives are enriched because of the diversity, the educational opportunities and the cultural elements available here. We are living in a place that is infused with core values that support family and community. As for my networking efforts, years later people still ask me, “Why Cleveland?” I could take the easy way out and say it was for work. The truth is I believe deeply that Cleveland offers a unique opportunity for entrepreneurs to simultaneously achieve their business and family goals. I believe this so deeply, I moved my family of six here in the middle of winter to prove it.

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Crain’s People on the Move showcases industry achievers and their companies to the business community. For more information, contact Debora Stein at dstein@crain.com • or submit directly to CrainsCleveland.com/people-on-the-move Ask about our 6x and 13x bulk commitments. Advertising Section

PEOPLE ON THE MOVE

WEB TALK Re: Next up for the Browns Browns owner Jimmy Haslam might be a smart guy, but his aptitude for sports is so bad that he would fire Terry Francona for winning 93 games with the Indians and not making the playoffs. — John Vranic

Re: Proposal to change Cleveland City Council This measure’s sponsor, Clevelanders First, is financed by someone who does not live or vote in the city. Clevelanders First also relies on activist members who do not live in the city. At least that’s what their website implies, as it says “Clevelanders First members need only to be a registered voter in Cuyahoga County.” Voters who reside in Cleveland, not the suburbs, should initiate measures like this one, which would cut the size of council and reduce members’ pay. I agree with Crain’s editorial from Jan. 9 that “this just isn’t a serious reform effort.” For that reason, as a Cleveland resident, it gets zero consideration from me. — Michael_Armstrong

Re: McKinley Grand Hotel in Canton to be rebranded as a DoubleTree Good luck on recovering a $21 million investment in this building in downtown Canton. Give it a couple years, and the occupancy rate will be right back down to historic levels. Canton may love the Pro Football Hall of Fame, but the fact is there is nothing drawing anyone to downtown Canton, and this hotel is not going to change that. Visitors will still be going to the Belden Village area for accommodations. This is all very stylish, but other than during the coveted HOF enshrinement week each year, this hotel location is not attractive. — Bud Buxton

Re: Apartment tower planned near City Club Building The tower’s design is not “funky,” as Cleveland Councilman Kerry McCormack, whose Ward 3 includes downtown, told Crain’s when the plan surfaced. It’s downright UGLY and does not fit with the beautiful architecture in Cleveland. It is an eyesore. — Guy JANUARY 20, 2020 | CRAIN’S CLEVELAND BUSINESS | 9

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GIVING BACK Judge Solomon Oliver Jr. helps identify and lift up promising students.

LEGAL AFFAIRS

PAGE 12

THE BOOMER FACTOR

GILLIAN BLEASE/GETTY IMAGES

Law firms face the retirement needs of the largest generation in U.S. history

BBY LEE CHILCOTE

Baby boomers, who are considered the largest generation in U.S. history, are retiring at an average rate of 10,000 per day. With that wave of retirements comes increased demand for retirement planning, elder law, probate and trust law, and business succession planning. Yet fewer attorneys practicing in this area, along with increasingly complicated health care regulations and longer life expectancy, make this a particularly demanding — as well as rewarding — area of legal practice, according to Northeast Ohio attorneys.

“PART OF OUR CHALLENGE IS GETTING INFORMATION OUT TO PEOPLE. THEY DON’T KNOW WHAT THEY DON’T KNOW, SO THEY DON’T KNOW WHAT TO ASK.” ——Laurie Steiner, partner with Solomon, Steiner & Peck and a Certified Elder Law Attorney

“The tendency nowadays is for people to say, ‘I’m just going to go on the internet and I’ll go to XYZ company that produces documents, and with a quick phone call I can get all the legal advice I need or do it myself’ — and it’s just way too complicated,” said Michael Solomon, a partner with Solomon, Steiner & Peck Ltd. whose field of expertise includes estate planning, corporate and business law, tax law and employee benefits. “I don’t think people can do this on their own.”

“Part of our challenge is getting information out to people. They don’t know what they don’t know, so they don’t know what to ask,” said Laurie Steiner, also a partner with Solomon, Steiner & Peck and a Certified Elder Law Attorney who holds free monthly seminars on elder law topics. “We like to say it takes a team to raise a senior these days,” she added. See BOOMERS on Page 14

10 | CRAIN’S CLEVELAND BUSINESS | January 20, 2020

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ADVISER

DOJ steps up antitrust enforcement BY MATHEW RIDINGS AND JENNIFER ROACH

It may be tempting in a moment of quiet reflection to look back at 2019 and think, “Good riddance!” For corporate compliance and ethics, however, 2019 was a banner year. A full 15 years after the United States Sentencing Guidelines first introduced incentives for organizations to implement effective compliance and ethics programs, the U.S. Department of Justice Criminal Division published a final version of its “Evaluation of Corporate Compliance Programs” guidance document. A few months later, the Justice Department’s Antitrust Division published its own guidance specific to antitrust compliance programs. Although in most respects the guidance offered by the Justice Department should not be surprising to compliance professionals, a new year provides an opportunity to take stock of your organization’s compliance program and ensure it's all that it should be. “Evaluation of Corporate Compliance Programs” is designed to guide prosecutors in determining whether a company has an adequate and effective compliance program. Although its official use is limited to situations involving an organization that has engaged in potentially criminal conduct and it should not be mistaken for a best-practices guide, the guidance nevertheless has the potential to offer a useful benchmark for assessing a program. The minimum benchmark, according to the guidance, is that a compliance program must be well-designed and applied in good faith, and it must work in practice. A well-designed program must address actual organizational risks. The organization must scrutinize and identify its unique risks and then apply its resources accordingly. It must have policies and procedures that are thoughtful and applied in practice. Its training must be risk-based; a one-size-fits-all approach is not adequate. A well-designed program will also include a confidential reporting and investigation process, as well as risk-based screening of third parties. These critical pieces cannot be part of a mere paper program. The compliance and ethics program must be sincerely adopted by the organization’s senior and middle management, which includes ensuring the compliance function is sufficiently staffed and funded and that the organization’s employees (including senior management) are evaluated according to whether they have met compliance goals. A compliance program that's implemented in good faith is sufficiently independent from management that it can effectively detect and prevent misconduct. Many well-designed compliance programs have failed because they were not effectively implemented. Lastly, an effective compliance program must work in practice. This means the program must always be in a continuous state of improvement. It must be tested, analyzed and modified as needed. Improvement also means conducting competent and thorough investigations and remediating any defects revealed by an investigation. Because the guidance is intended

Ridings and Roach are partners at Thompson Hine LLP. to serve a defined purpose, it's important not to read too much into these specifics; instead, they should be viewed as part of an overall as-

sessment of whether an organization’s program is designed to effect meaningful ethical change within the organization and is producing that change in practice. To incentivize organizations to behave more ethically, the Justice Department is taking a carrot-and-stick approach. The compliance program guidance is the carrot, and the Procurement Collusion Strike Force (PCSF) is the stick. The PCSF, announced in November 2019, is leading a national effort to increase antitrust violation detection and enforcement in connection with federal, state and local govern-

ment procurement projects. The strike force is a multi-agency partnership consisting of prosecutors from the Justice Department’s Antitrust Division and 13 United States Attorneys’ Offices, including the Southern District of Ohio, investigators from the FBI, the Department of Defense Office of Inspector General, the U.S. Postal Service Office of Inspector General and other partner Offices of Inspector General. As part of the PCSF’s enforcement efforts, attorneys from the Justice Department, along with agents from the FBI and Offices of Inspector General, will train government procurement

officials and contracting officers on antitrust risks and detection. It will then investigate and prosecute the antitrust violations it discovers. The formation of the strike force will likely lead to increased government investigations and prosecutions. The events of 2019 send a clear signal that the government expects all organizations, large or small, to take compliance and ethics issues seriously. A wise New Year’s resolution for your organization should be to re-evaluate the effectiveness of your compliance efforts and make improvements where necessary.

At Porter Wright, we believe in dynamic legal counsel. In this ever-changing world, we stay agile, work smart and reach further to deliver inspired outcomes.

JANUARY 20, 2020 | CRAIN’S CLEVELAND BUSINESS | 11

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FOCUS | LEGAL AFFAIRS

This judge mentors tomorrow’s lawyers

Judge Solomon Oliver Jr. helps identify and lift up promising students BY MARY VANAC

CMBF’s pipeline

As a young man, U.S. District Court Judge Solomon Oliver Jr. chose law over teaching political science to university students. But today, the judge has a hand in educating tomorrow’s lawyers, especially those from Cleveland and East Cleveland schools. The Cleveland Metropolitan Bar Foundation is honoring Judge Oliver with its 2020 Richard W. Pogue Award for Excellence in Community Leadership and Engagement on Feb. 8 at its 15th annual Rock the Foundation gala. The judge is involved in several of the foundation’s “pipeline programs” (see sidebar) designed to connect students to mentors, resources and practical experiences that can help them achieve their law education and career goals. “Judge Oliver is widely respected by so many professionals in our community, for both his impeccable reputation on the bench and also his service as a world-class mentor,” said Pat Krebs, a partner at Taft Stettinius & Hollister in Cleveland who is president of the foundation. “His work for our organization and this community has been truly outstanding.” Oliver said he doesn’t recall exactly when he decided to become a lawyer. He was born in Bessemer, Ala., in 1947, when segregation was in force. An African American couple like his parents would not have been allowed to join their white friends at the lunch counter at McLellan’s, the five-anddime store in downtown Bessemer. Like Cleveland, Bessemer was a steel town. African Americans did many of the hardest jobs in the steel

The Cleveland Metropolitan Bar Foundation runs three programs to draw Cleveland and East Cleveland high school and college students into the pipeline of law educations and jobs.

“JUDGE OLIVER IS WIDELY RESPECTED BY SO MANY PROFESSIONALS IN OUR COMMUNITY, FOR BOTH HIS IMPECCABLE REPUTATION ON THE BENCH AND ALSO HIS SERVICE AS A WORLDCLASS MENTOR.”

The Louis Stokes Scholars Program enables college students interested in careers in the law to participate in paid summer legal internships with Cleveland courts, law firms and legal nonprofits. The Stephanie Tubbs Jones Summer Legal Academy introduces high school students to the legal profession through hands-on experiences.

— Pat Krebs, partner at Taft Stettinius & Hollister ands president of the Cleveland Metropolitan Bar Foundation

The 3Rs Program — Rights, Realities and Responsibilities — connects lawyers, judges, law students and paralegals with 11thgrade high school students in Cleveland and East Cleveland schools through a series of lessons designed to foster an understanding and appreciation of the U.S. Constitution and law. SOURCE: CLEVELAND METROPOLITAN BAR FOUNDATION

mills and often were passed over for easier, “white man jobs,” according to Deborah E. McDowell, author of “Leaving Pipe Shop.” “Short for the U.S. Pipe and Foundry, Pipe Shop gave our neighborhood its name and the men of Bessemer menial employment while the steel industry hung on, paying a barely livable wage,” McDowell wrote. Oliver’s father was a steelworker who experienced this racial discrimination “up until changes came about

Judge Solomon Oliver Jr.

because of civil rights laws,” the judge said. Because his father started working at an early age, he retired from

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the steel mill after 30 years, finished high school and became a Baptist preacher. “My mother finished high school and could have, based on how smart she was, done any number of outstanding professional things, had the times been right,” Oliver said. Instead, she worked at home, raising 10 children and teaching them how to read and write. The judge and his nine siblings learned their values from their parents. “Treating people fairly, a sense of self-worth and trying to do something that would make a contribution to society beyond ourselves — all those things came from them,” he said. While the civil rights movement gained steam and yielded laws designed to bar segregation in public places and protect rights, the young judge-in-the-making encountered pervasive racial discrimination. “I grew up in the ’50s and ’60s, and society was segregated from top to bottom,” Oliver recalled. “During that time, there was no job I could have if there was a white person who wanted that job.” When he was 16 years old, the young Oliver realized how important lawyers could be to society. “I was traveling with two church deacons to a national church convention,” he recounted. “We stopped at a gas station in Georgia on our route to the Florida convention. When I was using the restroom, I was attacked by a young person who worked at that gas station.” His traveling companions told him that the proprietor of the gas station had thought they were sent south by then-U.S. Attorney General Robert Kennedy, who was fighting to integrate public transportation, schools

and other facilities. “If Robert Kennedy could put such fear into those Southern gentlemen, perhaps law was a career that I might pursue,” Oliver remembers thinking. “I wanted to do something ‘important’ to society but also to our people, African Americans.” The Olivers wanted all their children to attend college. Solomon Jr. started out at Miles College, an historically black commuter college near Birmingham. During the 1960s, black colleges like Miles developed exchange programs with mainstream universities to help the integration process. After attending a summer program at Harvard University, Oliver was recruited by a dean of the College of Wooster, which was trying to diversify its student body. Majoring in philosophy and political science at Wooster “was a very positive experience,” Oliver said. “The education I got prepared me to do well in law school and in all the jobs and tasks I’ve had since.” After graduating from the College of Wooster in 1969, he earned a juris doctor from New York University School of Law and a master’s in political science from Case Western Reserve University before returning to Wooster to teach political science. Oliver also served the college as a trustee, alumni association president and in other ways over the years. “It was the first place where I had sustained interaction with people from different backgrounds, including other races and nationalities,” he said. Three years later, Oliver faced a fork in the road: finish a Ph.D. to become a tenured political science professor or become a lawyer. “It was a hard choice,” he said, accepting a clerkship for William H. Hastie, the U.S. circuit judge for the Third Circuit Court of Appeals in 1975 to bridge the gap between law school and his other graduate work. Judge Hastie also was an educator, public official and civil rights advocate. He was the first African American to serve as governor of the U.S. Virgin Islands and as a federal and federal appellate judge, according to the Federal Judicial Center. In 1976, Oliver took a job as an assistant U.S. attorney in the Northern District of Ohio, where he was chief of the Civil Division from 1978 to 1982, chief of the Appellate Division in 1982 and special assistant U.S. attorney from 1982 to 1985. See OLIVER on Page 14

ADVISER

Top 10 best practices for avoiding litigation BY JESSICA LOPEZ

Civil litigation is a billion-dollar industry. Despite litigation transaction costs consuming an increasing percentage of corporate revenue, litigation avoidance is a topic too seldom considered by companies. That is a mistake. The true avoidance concept focuses on changing internal procedures and practices before or immediately after a dispute arises in an effort to avoid litigation altogether. Litigation avoidance should be a central component of every company’s yearly review for the following reasons:  Unnecessary Distractions + Reduced Productivity = Lost Profits. Litigation is a costly distraction for both employers and employees. In Ohio, the average complex civil case on a non-expedited track can last anywhere from 12-36 months (appeal excluded). The detrimental results to a company can be seen and felt in its corresponding reduction in revenue, profitability and productivity.  Risk management: Avoiding litigation is the best way to manage potential risk, particularly the risks associated with trying a case to a jury. Many complex disputes take weeks to try. Jurors tend to be unsophisticated, sometimes losing interest after

only a few days. You may have the best defense, but if a jury isn’t listening, it won’t matter. Here’s a list of the top 10 best practices for litigation avoidance.

todians, and providing instructions for preserving such information. The attorney-client privilege is also established early to protect this investigation process. Such early claim investigation often leads to better positioning if and when a claim is filed, or early settlement.

1. Implement and promote immediate report- Lopez is an ing procedures. The op- attorney in the portunity for litigation Akron office of 3. What employees say avoidance is often missed Roetzel & and do matters. Though it because companies do not Andress LPA. may not be their intent, implement any formal reemployees may create and porting procedure, ultiimpute potential liability mately resulting in employees trying to “fix” the problem before to the company through their words management learns of it. When they and conduct. Social settings, includdo this, employees may put damag- ing customer entertainment, are a ing statements in writing. Early, breeding ground for this issue. Enprompt reporting is particularly im- sure that employees understand portant given that many insurance these risks. Employees should also policies are now claims-made. If an understand that text messages are employee becomes aware of a poten- discoverable, even if deleted, and tial claim during the policy period, there is no right to privacy on combut fails to notify management in suf- pany-issued devices. ficient time to report the claim to the carrier, otherwise-available coverage 4. Function as a team. The right hand needs to know what the left may be denied. hand is doing, so contradictory docu2. Implement and adhere to early ments are not created on behalf of claim investigation. Early claim in- the single entity. A united front oppovestigation is the core to successful site business partners is crucial. This litigation avoidance. When legal gets is often difficult to do in the age of involved early in the dispute, a hold technology, where immediate renotice is almost always issued, iden- sponses are expected. Running crititifying relevant documents and cus- cal responses past management is a

best practice to begin implementing now. 5. Do not assume responsibilities in excess of job duties. Employees need to be taught that acting outside the scope of their job duties is another way to create potential liability for the company. This is particularly concerning for companies that engage specialized professionals, such as engineers, who are held to a higher standard of care. 6. Know the standard contract documents (but don’t act like a lawyer). Key employees need to know what is (and is not) included in the company’s standard agreements. Otherwise, employees may act to create additional entity liability. Employees should never amend the standard contract language, engage in contract interpretation or attempt to terminate the contract without getting management and legal involved. 7. Objectivity is key. Maintaining objectivity is vital in a company’s attempt to resolve a dispute short of litigation. Remind employees that it is a business problem, not a personal one. Understand objectively your adversary’s position before declaring war. 8. Analyze past business disputes. Companies should employ a peri-

odic retrospective review of prior disputes. If companies continue to see the same type of claims, they can better identify areas of improvement, including contractual risk shifting (No. 9) and insurance coverage (No. 10). 9. Contractually shift risks. Where possible, standard contract documents should be refreshed annually to include risk-shifting provisions, such as indemnification, release and disclaimer terms. Venue and choice of law provisions are often critical in any lawsuit. Where appropriate, cure, alternative dispute resolution and prevailing party attorneys’ fees provisions should also be considered. 10. Insurance. General commercial liability and directors-and-officers coverage are often both necessary to protect against insurable liability. For higher risks, umbrella policies should be considered. Companies should update their risk profiles annually to understand better what type of coverage is most important. While some lawsuits may be inevitable, properly managing disputes before or immediately after a claim is filed is key to litigation avoidance. If a dispute does ripen, adhere to these principles to optimize your company’s ability to achieve the best possible resolution.

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FOCUS | LEGAL AFFAIRS

OLIVER

From Page 12

In 1982, he became a law professor at Cleveland-Marshall College of Law. While there, Oliver wrote on topics including civil rights and municipal liability for police conduct, and served as associate dean for three years. On March 9, 1994, President Bill Clinton nominated Oliver to a seat on the United States District Court for the Northern District of Ohio. “I can’t say that I always wanted to be a judge or that I spent most of my career thinking that was possible,” said Oliver, who has earned a reputation for dignity, respect and fairness on the federal bench. He served as chief judge from 2010 to 2017 and is currently overseeing how Cleveland carries out its 2015 consent decree with the federal government to change Cleveland Division of Police policies that the Justice Department said promote excessive force. Oliver has won many awards during his professional career, but the Cleveland Metropolitan Bar Foundation award honors his extracurricular contributions to high school and college students who are interested in law careers. “Judge Oliver has been engaged in a number of programs for the bar association, but where his greatest passion lies is in our pipeline program, which builds the connection

from high school through law school and into the legal profession,” said Rebecca Ruppert McMahon, CEO of the foundation. The judge’s work with students often takes place in his courtroom, which he opens for mock trials, tours and informal counseling sessions. “This is giving kids experience that they would not have otherwise,” Krebs said. “To see a judge take the time to provide that kind of handson experience is transformative. He’s done that for more than a decade now.” The bar foundation is beginning to witness the fruits of that effort. “We are starting to see kids we helped with our 3Rs Program, Louis Stokes Scholars Program and Stephanie Tubbs Jones Summer Legal Academy Program become practicing attorneys,” Krebs said. “It’s fantastic.” One of those attorneys is Jzinae Jackson, an employment and labor attorney with Zashin & Rich in Cleveland. “I believe the first time I met Judge Oliver was when I was participating in Stephanie Tubbs Jones Summer Academy,” Jackson said. “I can’t remember if we visited his courtroom or he visited us, but he told us to work hard, be prepared, pay attention to the details. “That inspired me to become a great attorney,” she said. Contact Mary Vanac: clbfreelancer@crain.com

BOOMERS

From Page 10

One common misconception is that having a will means that when someone dies, their estate will avoid probate court, but that’s not necessarily true. Steiner noted that having a good lawyer can help you avoid costly mistakes. Among the challenges is that while people are living longer, they’re not necessarily living healthier. That means that, because of their longevity, baby boomers are more likely than previous generations to face difficult issues such as how to pay for long-term care, how to avoid outliving their assets and how to obtain Medicaid benefits without spending down all of their assets. One potential bright spot for boomers is that changes in federal estate tax law have simplified the planning process. The 2017 tax reform law raised the estate tax exemption to $11.18 million per person and $23.36 million per married couple for 2018. Many firms now offer estate plans to their clients for a fixed fee, which alleviates the uncertainty of a lawyer’s hourly rate. Katherine Wensink, a lawyer with the estate planning group at McDonald Hopkins, said that while estate plans are more streamlined these days, there’s still a need to revisit them at regular intervals. “You have this set of individuals, they could be boomers or whoever, who have spent their whole life fo-

cused on building a business or taking care of their family,” she said. “It’s not that they don’t have (an estate plan) or that it’s not a good fit. It’s more like they set it and forget it.” Another difficulty is that those in the boomer generation may have to worry about their own estate plans while simultaneously arranging a nursing home or long-term care for their parents. Some boomers may even still be supporting children in college. “We call them the sandwich generation,” Wensink said. Susan Racey, a partner at Tucker Ellis LLP who focuses on estate and business succession planning, probate and trust administration, charitable giving, taxation, guardianships and equine law, pointed out that the shortage of lawyers has made this a particularly vexing issue. “What’s made it hard in our area is that as the population of people who need services has grown significantly, the number of attorneys practicing in this area has dramatically decreased,” she said. “This has not been a popular area in which to practice over the last 10, 20, 30 years. Now, there’s just not the number of lawyers needed to do the level of sophistication that boomers need.” Racey, who refers to her area as being “in crisis,” recently visited Case Western Reserve University law school with her colleague Erica McGregor to recruit students. “We went and spoke to Case’s Wills and Trusts class for the purpose of saying, ‘If you’re looking for an area of practice where you’ll have job certainty,

you’ll want to get into this practice area,’ ” she said. To address rising demand, both Solomon and Steiner said their firm has added additional staff in the past few years, including both lawyers and paralegals. They’re also taking advantage of technology to keep costs down and serve as many clients as possible. Steiner said it’s important for the children of baby boomers to stay current on their parents’ needs. “A lot of times, when the kids are out of town, they come back and say, ‘Holy cow, Mom doesn’t remember anything anymore,’ ” she said, observing that issues of mental competency can come into play. “We have a lot of estate planning driven by children, not by parents.” Racey said that lawyers can play an important role by acting as family advisers and smoothing the transition from one generation to the next. “Sometimes we have meetings with the entire family, and say, ‘How do we help the family put processes in order?’ ” she said. Fortunately, McGregor said, baby boomers are less secretive than their parents’ generation, who grew up during the Great Depression. “Each generation is becoming more in tune to the importance of this,” she noted. “Boomers are more open to sharing information with their children, making sure when something happens it’s much more seamless.” Contact Lee Chilcote clbfreelancer@crain.com

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president’s Letter

President’s letter

Strong market disruption?

Developing, executing buyside strategy

aCG Cleveland: another year of opportunity BY JOHN W. GRABNER

Managing risks during an acquisition

Private equity website best practices

Managing expectations

Secrets to M&A success

Best practices for sourcing deals

Preparing your family office for M&A

The role of insurance

Preparing your business for sale

Neutralize deal killers

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Blockchain and M&A

The value of IP

Minority recapitalizations

Considerations for the next recession

Merging after an acquisition

Tax issues during a sale

Distinguish yourself to win more deals

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Risks, benefits of a rollover

Navigating the inevitable recession

Robust valuations — for now

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friend of mine who owned a manufacturing company with about 185 people approached me last year with thoughts of selling his company. He had spent his entire life focused on growing the company, so had no idea what to do when it came time to sell it. As you can imagine, there was a personal attachment, so getting the Grabner best advice was very important. Through ACG I was able to introduce him to:

● An

accounting firm that provided tax guidance and other advice surrounding the transaction ● A law firm that specialized in mergers and acquisitions ● An investment banking firm who could provide introductions to potential buyers ● A private equity firm with a focus in making acquisitions in his industry ● An insurance brokerage firm proficient in representation and warranty insurance products ● A commercial banker who could assist with the monetary aspects of the transaction ● A wealth management professional to develop a plan for himself and this family After selecting his team, a successful sale of his company was completed, which accomplished all the objectives he set forth when he made the decision. I don’t think I could have been nearly as helpful if it weren’t for my experience and involvement with ACG. My point is that ACG, the Association for Corporate Growth, is a network of 14,500 professionals and business leaders involved in middlemarket mergers and acquisitions.

With each year, ACG, and in particular the Cleveland chapter, improves by listening to its members and the business community. This year we have focused on three initiatives: YACG (Young ACG): Growing our membership to one of the largest in all of ACG. YACG is a platform for young professionals to develop their network and learn through the valuable event content. If you are in the early stages of your career, this is a place to get involved.

Partnering: ACG Cleveland is strengthening its brand by part-

nering with other associations and organizations in Northeast Ohio. As a member of ACG Cleveland, you not only get to network with our 500-plus members, some events have been expanded to include other prominent groups as well.

DealSource: DealSource, in only its second year, is a must-attend event exclusive for investment banking firms and private equity firms and is part of our Deal Maker Awards day. If you are in business, either professional services or industry, ACG is an association you should join and participate. You and your business will benefit from meeting some of the amazing people and organizations by being a member of this transformative and growing association. John W. Grabner is president of ACG Cleveland and business development leader vice president at Hylant. For more information about ACG Cleveland, visit www. ACGcleveland.org.

aBoUt aCG ACG is a global organization focused on driving middle-market growth. Its 14,500 members include professionals from private equity firms, corporations and lenders that invest in middle-market companies, as well as experts from law, accounting, investment banking and other firms that provide advisory services. Founded in 1954, ACG is a global organization with 59 chapters. Learn more at www.acg.org. ACG Cleveland serves professionals in Northeast Ohio and has 500 members. For more information, visit www.ACGcleveland.org.

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will cracks in the foundation disrupt a strong market? A closer look at trends, expectations in M&A By ALBERT D. MELCHIORRE AnD DAnIEL M. BOWMAn

n 2019, we saw trends and results very similar to 2018. Average deal size and EV/EBITDA multiples remain high across industries and geographies, with median multiples in North America reaching doubledigits. While the value of transactions appears to be leveling, it continues to be a good time to be a seller. There Melchiorre is a supply and demand imbalance, as an increasing number of companies are looking to use M&A to bolster growth and eliminate competition. This has caused valuations and multiples to remain high, even as total transaction volume decreases. The number of buyers in the market has increased due to the large amount of capital available to be deployed. Debt financing costs remain low as the Federal Reserve has decided to lower interest rates in order to drive further business investments. Additionally, the amount of equity capital available remains near record numbers across both private equity and corporate balance sheets. According to Pitchbook

and S&P Capital IQ, U.S. private equity firms currently have more than $690 billion in cash available, and nonfinancial companies in the S&P 500 have over $1.5 trillion of cash on their balance sheets. The economy is on a solid footing, but we have started to see mixed signals in a few areas. First, the prolonged trade war is starting to impact business to a greater degree. The direct impact on businesses with crossBowman border operations and relationships is obvious, but we have also started to see a negative indirect impact as the uncertainty has led to more caution across peripheral players. Crossborder M&A activity with China has fallen to the lowest level in a decade after reaching highs in 2016 to 2018. Additionally, while bankruptcy filings are still low, according to the American Bankruptcy Institute, we have seen the first upward trend (3.2%) in 10 years on a trailing 12-month basis. This has led to an increase in distressed transactions in the market. In looking at transaction activity on a geographic basis, we have seen local activity trending in the opposite direction of total global activity.

According to S&P Capital IQ, the number of M&A transactions globally has decreased around 8.5% on a twelve-month basis, while the number has increased modestly in the U.S. and Northeast Ohio markets, 0.7% and 2%, respectively. Additionally, while average deal size has increased globally and nationally by 10.2% and 8.9%, deal sizes have decreased in the

local market by 1%. On a forward-looking basis, political uncertainty in the U.S. looms as the trade war continues, and a changing political landscape could significantly change the M&A market. Potential tax increases after the general election may entice business owners to consider a sale sooner than they would have in a stable environment.

Potential changes to the White House and Congress may also adversely impact the level of investment from foreign entities. Additionally, overall uncertainty may lead buyers to prioritize transactions in more stable industries and geographies. Despite these uncertainties, we expect the M&A market to remain strong in the coming year. Potential buyers have capital to expend and are fighting for a finite number of sellers. Competition is high across industries, and buyers are willing to pay high multiples to grow their businesses and participate in the overall economic growth in the U.S. Overall, we expect 2020 to be another great year for sellers. Al Melchiorre is president and founder of MelCap Partners and Dan Bowman is senior associate at MelCap Partners. Contact them at 330-239-1990 or at al@melcap.com.

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5 questions for developing, executing an effective buyside strategy BY JAMES IRWIN

will succeed only through blind luck.

uccessful acquisitions do not happen without thought, planning and execution. Careful consideration of ﬁve key questions can help acquirers conduct buyside campaigns that deliver the intended results.

Why are we pursuing acquisitions, and what do we want to achieve? The decision to pursue acquisitions can result from a build-up of excess cash, an offensive desire to grow and gain market share, a defensive need to protect the core business and markets, or any number of company-specific issues. Whatever the reason, the strategic rationale must be clear, and the criteria for what is being sought must be carefully determined. To define the specific criteria and strategic gaps to be pursued for fulfillment, owners and executive teams must methodically consider the specific products, services, technologies, markets, customers and geographies being sought and the financial profile that is expected, including revenue size and profitability metrics. An acquisition fix.pdf 11:55 search without clearly1defi11/4/19 ned objectives

With objectives defined, how do we identify and develop actionable options?

Successful acquirers develop a discrete and manageable list of target companies with attributes that potentially fulfill the strategic goals of the organization. Considerable effort must be invested to generate, research, refine Irwin and consultatively prioritize this list of targets. The vetted list needs to be sufficiently large so that the likelihood of finding an interested seller is high, while not providing so many targets that the strategic merits are only distantly aligned. Acquisition targeting is not about quantity, but rather quality. Once the target list is determined, outreach to each identified company can begin with the goal of creating an active dialogue with each target’s key decision-makers and positioning the interested party as the “buyer of choice.” This process takes time, and it is not uncommon for multiple approaches over AM weeks/months/years to be required be-

fore a seller is ready to engage with a buyer. Sellers may only respond to initial advances in a guarded manner due to competitive worries. Building rapport with a target is paramount to success, as barriers must be reduced to extract sufﬁcient information to determine whether additional time should be invested to further pursue each target.

Just because we’ve found an actionable target ready to engage in sale discussions, are the deal terms proper? Finding an actionable target is wonderful, but the true strategic fit and specific transaction deal terms will dictate success or failure in the long run. Time, money and organizational resources must be committed to thoroughly assess the target and accurately make this determination. While most buyers focus primarily on valuation and minimizing purchase price, this is only one component of longterm success. Effective due diligence must be performed by a committed team of subject matter experts accurately assessing alignment against organizational objectives, business operations and cultural fit, versus providing a “rubber-

stamp approval” simply to move a target forward. Utilizing diligence ﬁndings to support negotiation of a market-based purchase agreement provides protection that value is not “lost” through the ﬁnal transaction terms.

Are we ready for integration upon deal closing?

The outcome of integration determines the absolute success or failure of any given transaction. Successful integration processes ensure that organizational alignment occurs, cultures are meshed, synergies are achieved and operational excellence continues. Integration objectives are typically best achieved through a thoughtful and interactive idea exchange between both buyer and seller. Best practices can be shared among organizations in a collaborative style that builds mutual trust versus a heavy-handed “we do it this way, and only this way” approach.

Was the acquisition ultimately successful?

Upon reaching the one-year anniversary of each acquisition, a thorough postmortem regarding the transaction must be completed with intellectual honesty and fact-based data. Is the deal achiev-

ing its intended goals? Is it performing consistent with the forecast performance at time of acquisition? Were expected synergies achieved? What surprises emerged? If starting over on this target, what would be done differently in the evaluation and negotiation phase? The answers to these questions provide a road map of best practices for future acquisitions. Considering and utilizing these five key questions will establish a company as a best-in-class acquirer with successful buyside search, acquisition and integration as recognized core competencies. Involving strategic advisers early in the process with experience in the successful execution of M&A programs can be extremely beneficial for companies embarking upon these pursuits for the very first time or lacking a deep corporate development department. In particular, buyside-focused M&A advisory professionals provide leverage, velocity and continuity for a sustainable acquisition outreach program. James Irwin is managing director at Citizens Capital Markets Inc. Contact him at james.m.irwin@citizensbank.com.

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A deft acquisition plan involves identifying and managing risks BY NEIL J. WHITFORD

ary Cohn, who recently served as the director of the National Economic Council, issued the following caution: “If you don’t invest in risk management, it doesn’t matter what business you’re in, it’s a risky business.” The same can be said of mergers and acquisitions. The surest way to stumble with M&A is to fail to identify and manage the related risks. An acquisition entails business, operating, financial, tax and legal risks. Business risks may include overvaluation/overpayment for the target company and potential postclosing customer losses. There may be operational risks, including a failure to achieve anticipated synergies or difficulties with the business integration. Financial risks may include deficient financial records and processes at the target company, inventory valuation issues and the potential incurrence of excessive debt to finance the deal. Depending on the structure of the transaction, there also may be material tax risks, such as the target company’s failure to file tax returns, invalid tax elections or noncompliance with state and local tax laws. A business acquisition also raises a host of legal issues. One of the biggest M&A legal risks is noncompliance by the target company with applicable laws. There may be noncompliance with employment laws — such as nondiscrimination laws and wage and hour regulations — environmental laws, anti-corruption or statutes like the Foreign Corrupt Practices Act or cybersecurity and privacy regulations. If the target business includes international operations, the risks relating to legal noncompliance will likely be greater. Other laws may impact the transaction itself and require special notices, filings or approvals, such as a filing under the Hart-Scott-Rodino Act, environmental notice requirements, or notification or payment obligations triggered by recent or anticipated post-closing workforce reductions. A second area of M&A legal risk relates to historical or pending litigation. For example, does the target business have a history of employment-related claims, or has it had any material disputes with key customers, suppliers or other business partners? Has anyone asserted a claim of intellectual property infringement against the target? Do any products sold by the target pose a high risk of product liability claims? Another potential risk relates to the target company’s material contracts, which generally are assumed by the buyer as part of the deal. Those contracts may contain commercially unreasonable terms or require third-party consents in order to complete the transaction. The contracts may impede the buyer’s plans to integrate the target into another business, or may restrict the buyer from engaging in certain business lines

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after the closing. The best way to identify material M&A risks is through a thorough due diligence review of the target. Due diligence is the buyer’s Whitford investigation of the target’s business, ﬁnancial, tax and legal affairs. Due diligence helps the buyer to identify material risks and liabilities and

to reveal any impediments to, or hidden costs of, the transaction. Depending on the nature of the acquisition, due diligence may include a deep-dive review of certain risks, such as a quality of earnings analysis by an accounting ﬁrm, a customer/market study, an environmental audit, a detailed review of the company’s employee beneﬁt plans and background checks on key personnel. A buyer has the ability to miti-

gate M&A legal risk through the transaction’s structure. Sometimes, the structure of a deal is dictated by tax-related considerations, regulatory requirements or by material contracts to which the target is subject. However, if there is ﬂexibility as to transaction structure, the buyer can signiﬁcantly decrease its exposure by purchasing the assets of the business rather than purchasing the stock

or other equity interests of the target company. An asset purchase, unlike an equity purchase, allows the buyer to assume only certain liabilities that are speciﬁcally identiﬁed in the purchase agreement, such as stated balance sheet liabilities and post-closing performance obligations under listed contracts, while leaving behind all of the target’s other liabilities. CONTINUED ON NEXT PAGE

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private equity website best practices

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Another way to decrease M&A risk is through the terms of the purchase or merger agreement. Representations, warranties and covenants made by the seller(s) in that agreement, together with the related indemnification provisions, generally offer a buyer the ability to recoup a portion of the purchase price if the target business proves to be not “as advertised.” An increasingly common way for a buyer to decrease M&A risk is through a representation and warranty insurance policy, which supplements the protection given to the buyer under the purchase agreement. Essentially, the insurer stands behind most of the representations and warranties being made by the seller(s), subject to a policy limit and a retention amount/ deductible. In today’s market, I often see a policy limit equal to 10% of the target’s enterprise value and a retention amount equal to 1% of the enterprise value. If a buyer assembles an experienced deal team and develops and executes on a thoughtful acquisition plan, it can greatly reduce its M&A risk. Neil J. Whitford is a partner in the Corporate and Capital Markets practice group at Calfee, Halter & Griswold LLP and is co-leader of Calfee’s Mergers & Acquisitions team. He can be reached at 216-622-8422 or nwhitford@calfee.com.

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ore than 8,000 companies are already backed by private equity, while $1.7 trillion sits on the sidelines, making for fierce competition for quality deals among private equity firms. If you want to identify the winners in this battle, look to those that are implementing strategic marketing initiatives, including these website best practices. Winners differentiate. For example, ABC Capital is a private equity firm that partners with management to accelerate growth at middle-market manufacturing and distribution com-

panies. Sound familiar? Too many websites describe firms this way. Winning firms, however, relay their value proposition with a clearly deKostka fined, differentiated position. They do it by tightening their target market focus or branding their growth methodologies. It ain’t bragging if true. Too often, private equity firms simply issue a news release announcing an exit and then deposit any reference to it in their website’s “former portfolio company” section. Winners do more. Their web-

sites celebrate stories on how capital infusions changed company trajectories, and they complement these with examples of how their expertise accelerated the benefits of the capital. Champions go further and provide video testimonials from management. Capitalize on marketing automation. Winners rely on tools like Hubspot, SharpSpring and Marketo to automate marketing tasks, such as distributing emails and social media content, enabling them to stay top of mind with prospects and deal sources. These tools also centralize digital analytics so firms can determine which online campaigns are effective.

Optimize for search. These tactics only matter if prospects can find a firm’s website. Winners leverage key search terms, like “growth equity,” into backend coding and frontend content to heighten search engine attention. One litmus test for judging which private equity firms will generate quality deal flow is their website, as winners demonstrate a command for strategy. For a free website assessment, visit roopco.com/web-analysis. Brad Kostka is president of Roop & Co. Contact him at 216-902-3800 or bkostka@roopco.com.

Managing expectations in a high valuation environment By MATT ROBERTS

ccording to a recent Pitchbook report, buyout multiples remain above 12x EBITDA on a median basis in the U.S., with the report suggesting that we may be in a new norm. While overall multiples have been high, it’s important to understand that some deals will warrant a high valuation while others may not and how industry, market and company-specific dynamics affect value. An owner’s expectations are best set when there is a well-defined plan in place.

That plan starts with the owner understanding what their business is worth, as well as working with a wealth advisor to define what a post-transaction fiRoberts nancial life might look like. If a sale occurs, the wealth advisor can help to determine if the proceeds from the sale can support the owner’s retirement goals. When determining the value of the business, an owner should look internally at: the quality of finan-

cial reports and processes; the current state of operations; constraints in the business; customer dynamics; financial performance and management; and employee capabilities. Some external factors to consider when valuing a business are cyclicality risk, ongoing capital expenditure needs, overall growth potential of the industry, public market multiples, recent relevant M&A transactions multiples, attractiveness to outside investors and willingness of banks to lend into the space. Once a seller has an understanding of their business’ value today, it’s impor-

tant for an owner to consider whether or not they sell now or if they need to take time to improve certain aspects of the business that will increase value at a later point. By doing so, an owner can cut through the noise currently in the market and understand an appropriate valuation range for their business and how to go about maximizing that value. Matt Roberts is vice president of Copper Run. Contact him at 440-787-4694 or mroberts@ copperruncap.com.

TMA Ohio Chapter announces 2019 Lifetime Achievement Award winner!

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Seven secrets to M&A success BY BRANDON FREDERICKS AND RANDY MISCH

he Quality of Earnings component of the due diligence process is often overlooked, but that oversight could cost you money — or worse, the deal. So, where is the value in QofE? What makes a QofE “best in class”? Here are seven ways to explain the beneﬁts of the QofE process. 1. It’s a QofE, not an audit. Where a traditional audit focuses on balances and prior transactions, a QofE is fo-

cused on the economic earning power on a go-forward basis to maximize the dollar.

low focus on how the earnings are being realized and whether they are in line with accepted practices.

2. Defining “quality” in QofE. Not all earnings are created Fredericks equal. Identifying those opportunities that will generate the most signiﬁcant return well after the deal is closed should always be the target.

4. Working capital is worth a look. Although it is sometimes overlooked (or not part of the scope), best-in-practice QofE rules would highly encourage scrutiny of the working capital.

3. Laser focus on earning capabilities. Sound expertise will al-

5. Keen eye on adjustments. Any deal is bound to have adjustments

Misch

Best practices for sourcing deals BY KELLIE WORK

ith the amount of dry powder out there and the number of private equity ﬁrms increasing, the questions facing private equity professionals are: How do you differentiate your ﬁrm, how do you make sure you are in front of the right people at the right time, and how does this translate into a solid deal sourcing strategy? Before discussing best practices, the

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most important starting point is to deﬁne what differentiates your ﬁrm. What makes it unique and stand out? When you walk away from a meeting, what key Work element should stick with the individual and give them a reason to think of you for a future opportunity? Once you have your differentiator, there are several best practices that

can help with sourcing. First, delivery of your message should be done at multiple levels and channels including newsletters, email blasts, social media campaigns, phone calls and the most effective way — in-person meetings. These meetings can be at industry conferences, ACG events or direct calling in target markets. They are the best way to build a personal connection, convey interest, explain your investment criteria and differentiator.

— due diligence, buyer, seller and pro forma adjustments. Allowing the QofE team to evaluate this independently can bring some peace of mind to a sometimes confusing and complex process. 6. Robust risk evaluation. Professionals with a sound understanding of ﬁnancial statements and the risk they present to their respective companies, their stakeholders and their industries can bring a value-added layer to QofE. 7. Custom-built procedures. The advantage of QofE is that no two QofE are alike. The goal is to assess whether the specialized procedures would proNext, use your network. The people around you can be an important asset for sourcing or securing meetings. Don’t be afraid to reach out and ask for help, especially if your contact has an established relationship with the company. Deals can come from almost anywhere, so letting your full network know what you’re looking for can help. Lastly, follow up. One important practice that is often missed is the follow up. Just because you have had a meeting with someone, you still need to follow up to reinforce the discussion. Everyone is inundated with new ideas

vide the needed level of value for the deal to close. Experienced M&A teams take pride in learning of the needs and issues of every deal and can help facilitate an unmatched value proposition. Brandon Fredericks, CPA, is senior manager at Apple Growth Partners. Contact him at 216-674-3737 or bfredericks@applegrowth.com. Randy Misch, CPA, is Cleveland managing partner and principal at Apple Growth Partners. Contact him at 216-674-3754 or rmisch@ applegrowth.com.

and other ﬁrms trying to convey their message. If you aren’t consistently in front of your network, you will be out of sight and out of mind. With all of the competition, it’s important to employ a sourcing strategy that includes these elements as well as being creative, ﬂexible and persistent. Don’t forget to have fun, in whatever method you choose. See you out there. Kellie Work is vice president of business development at CapitalWorks LLC. Contact her at kwork@capitalworks.net.

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Is your family office prepared to compete to win the M&A game? BY CHRISTAL CONTINI AND KATHERINE WENSINK

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t continues to be a seller’s market with respect to merger and acquisition activity in most industries, which means it is not unusual for multiple buyers to compete to acquire a selling company. This can put unprepared family ofﬁces interested in purchasing a business on the losing end of a competitive bid process. To win these bids, family ofﬁces should seek to capitalize on their unique position in the marketplace by highlighting how they are different from other potential buyer groups such as private equity or strategic buyers that seek to fold the target business into an existing business within the same or similar industry. As one can imagine, the purchase price is typically the main consideration when a seller evaluates multiple bids from potential buyers, but many sellers also focus on factors such as speed to close and the buyer’s culture.

Compete on price

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Given the competitive M&A landscape, sellers often run a competitive bid process through an investment banker to maximize the value received by sellers at the closing of a sale transaction. A competitive purchase price is almost always the barrier to enter a subsequent round of the bid process. Offering the highest purchase price will usually lead to exclusive negotiation rights to acquire the business and hopefully a closing on the purchase of the business. Family offices should be prepared to “pay to play” and offer a purchase price that is competitive with private equity and strategic buyers. Since a family office often has multiple investments through various investment vehicles, it potentially allows a purchased business a longer timeframe within which to achieve success. Family offices should evaluate any new acquisitions in the context of its current portfolio and the projected time it will take to make any newly acquired business successful. It may be the case that initial losses from a newly acquired business could offset the gains of other investments.

Demonstrate speed to close

An M&A strategy within the family office allows for diversity in the portfolio and encourages various family members to be involved. However, it is important that M&A activity is conducted in a thoughtful manner that aligns with the family’s goals, but also with a commitment to speed. Just as a private equity fund carefully determines its acquisitions, the same must occur within the family office. Strong leadership within the family office is important when developing an overall plan for acquisitions. This plan can include setting up an investment committee of involved fam-

ily members to facilitate quick and standardized methods to responding to acquisition opportunities and putting together a consistent team of advisors such as an attorContini ney, wealth manager, accountant and insurance broker so that the family ofﬁce can quickly seek professional guidance. Putting these processes in place could allow a Wensink family ofﬁce to be more nimble in its decision making as compared to larger competitors in private equity or the bureaucracy that is often seen with a strategic buyer.

Focus on your culture

Oftentimes, the wealth held in a family office was originally generated by one or more closely held businesses. This may result in a family office having multiple generations of family members involved in the business with different skillsets. Family offices can focus on their diverse professional cultures when describing the expertise of their team and demonstrate a clear succession plan. It is not unusual for the owners of a target company to remain with the business after the closing or have their own daughters and sons running integral pieces of the target company. A family office environment may be attractive to selling owners because they see a cultural fit where they can still have that feeling of working for the success of a family enterprise. A family office will not have the same pressure as a private equity fund to sell the business again within three to seven years to achieve a return for their investors. Owners and second generation leadership can feel more confident that the business will have time to grow in a more stable leadership environment. A family office seeking to win the M&A game, however, should not lose sight of its ultimate purpose. It should seek to integrate the M&A goals with the larger goal of transitioning leadership in the management of wealth generated by the family office to the next generation. As the family diversifies into different businesses, younger family members can devote their time and expertise to develop any newly acquired business and gain key skills that will enable them to continue to grow and manage the wealth of the family. Christal Contini is a member and cochair of the Mergers and Acquisitions Practice Group at McDonald Hopkins LLC. Contact her at 216-430-2020 or ccontini@mcdonaldhopkins.com. Katherine Wensink is a member in the Tax & Benefits Department at McDonald Hopkins LLC. Contact her at 216-348-5729 or kwensink@ mcdonaldhopkins.com.

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Insurance a key player in driving desired deal outcome BY KYLE ANTHONY

nsurance is like a solid defensive game plan. It’s needed to win championships, but can often receive the least amount of attention unless something goes wrong. What if you could change the narrative and leverage insurance to drive results on behalf of your private equity team? It would require a clear game plan with the ability to demonstrate a proven track record that not only protects against risk — but predictably manages an ongoing process on behalf of both your fund and portfolio companies. 1. The best diligence goes beyond risk to identify and quantify value creation opportunity. Solid deal decisions require a clear understanding of the risks surrounding insurance, human capital and compliance. With comprehensive diligence, insurance and risk management teams bring clarity to complexities and risks of an investment by developing a comprehensive, datadriven, actionable assessment. Superior deal outcomes are achieved when opportunities to create value are identiﬁed pre-close. This critical ﬁrst step requires turning a spotlight on underper-

forming insurance and total reward strategies. Quantifying the potential outcome of correcting these underperforming strategies provides the financial Anthony sponsor and portfolio company an opportunity to prioritize initiatives and create a targeted end state – or financial aspiration for the future. Risk management and human capital teams support both financial sponsor and portfolio company alignment. For example, Oswald recently worked on behalf of a portfolio company to help identify cost savings opportunities, potential compliance deficiencies and opportunities for the company’s 401(k) plan without adding cost. Based on 401(k)data requested, including fee disclosures and the current investment line-up, Oswald projected a $50,000 fee reduction on the current $15 million plan. The portfolio company’s process and time investment was minimal. Fee disclosures from all parties were secured, and a comprehensive benchmarking analysis on fees was developed. Through this approach, the portfolio company closed compliance gaps, increased employee engagement with the

beneﬁt and secured a $50,000 reduction in plan cost without changing vendors. 2. Put a spotlight on the business and identify potential pathways to improve. Driving operational value creation may require creative or disruptive approaches to the risk and human capital management strategy. A comprehensive evaluation should examine a long-term proforma to illustrate a complete spectrum of strategies. From discrete, incremental program changes to a more radical program overhaul, an effective strategic plan allows companies to fully evaluate potential opportunities without disregarding them due to historical bias or barriers to execution. Insurance providers can help provide companies with greater choice and control to select from various prescriptive pathways. 3. Stay laser-focused on key initiatives. New and emerging risks along with a tight labor market and multi-generational workforce make it pretty easy to get distracted and overwhelmed in today’s complex business environment.

Key initiatives enhance the leadership team’s ability to remain focused on the risk management and human capital initiatives that matter most. It takes a unique approach to drive operational value while enabling the leadership team to remain focused on running the business. We recently worked with a middle-market portfolio company that had been acquired, with plans to grow quickly. The company was struggling to manage its existing human resource information, time and attendance oversight, growing FLSA concerns and complex payroll structure. The chief human resource ofﬁcer knew the company likely would face issues from both an operational and compliance standpoint due to the expansion. We assessed the company’s current systems and helped identify an opportunity to migrate to an updated platform solution that ultimately helped the portfolio company reduce its human resource information system budget by more than $400,000. 4. Integrate action plans and monitor processes for effective execution. A recent study conducted by Maine Point, a leading operations consultancy,

found a majority of executives in the industry are worried about the execution of private equity-driven roadmaps and action plans. Insurance and risk management teams can help support day-to-day execution and monitor key performance indicators such as Total Cost of Risk and Total Compensation and Reward as a percentage of total revenue. Successful outcomes across risk management and human capital key initiatives can be predictably achieved when the leadership teams (1) establish a tactical plan that identifies the timetable and responsibilities of various stakeholders and (2) define a series of data points that will be used to track progress and success. 5. Identify opportunity, drive results and maximize value. From identification of liabilities and gaps to resolving compliance concerns and driving results, insurance and risk management teams can help private equity funds drive significant enterprise value and achieve superior operational results. Kyle Anthony is director of the Strategic Accounts Group at Oswald Companies. Contact him at kanthony@ oswaldcompanies.com.

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Sell-side strategies: preparing your business for sale

GROWTH MARKETING FOR PRIVATE EQUITY

BY STEVE C. SWANN

here are a myriad of diligence issues that can adversely impact purchase price and sometimes kill the deal. While there is no absolute on completely avoiding these issues, there are several areas owners should consider as they evaluate selling their business.

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PORTFOLIO COMPANY GROWTH

1. Sell-side representatives. Most business owners are far from experts at selling a company. Build a strong transaction team, which may include a banker, an attorney and tax professionals to help navigate the sale process and generate the highest possible return on the transaction. 2. Accounting v. economic earnings. GAAP earnings from audited ﬁnancial statements don’t accurately represent economic earnings. Look back at least three years to develop a normalized picture of earnings while also considering other potential accrual versus cash earnings adjustments.

DEAL SOURCING

3. Depth of management team. If there is not much depth in the management team, build a capable, diverse team to ensure the transition and future success of the business.

LEARN MORE AT WWW.ROOPCO.COM/PE

TMA Ohio Chapter announces 2019 Turnaround/Transaction of the Year winners!

4. Customer and products. Concentrations of revenue and proﬁt with a small number of customers or products can negatively affect valuation. Diversify your customer base and consider

We are proud of the achievements of these TMA members and celebrate their specific accomplishments with this year’s award. To the winners, thank you for your hard work and contributions in the turnaround field. Turnaround Management-Transaction.indd 1

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5. Vendors. As with customers, you’ll want to reduce concentrations of material or Swann services with one vendor or sole-sourced product sourcing and diversify. 6. Excess net working capital. Excess NWC can be difﬁcult to argue for additional purchase price. Start by improving receivable collections, managing down inventories and maximizing vendor payment terms at least 12 months prior to the sale. Then the seller can convert excess NWC into cash ahead of the sale. 7. Tax issues. Tax professionals can help identify potential exposures ahead of the deal and properly posture issues with buyers. Examples include valuation of net operating loss, accelerated tax-basis depreciation, inappropriate deductions/expenses and verifying income and tax compliance practices. Ideally, sellers should begin to address and mitigate these common diligence issues years in advance of going to market. Steve C. Swann, CPA/ABV, CFE, is a partner of Transaction Advisory Services at Bober Markey Fedorovich. Contact him at 330-255-2417 or sswann@bmfcpa.com.

Neutralize deal killers through early planning BY MICHAEL W. SCHAUER

The Ohio Chapter of the Turnaround Management Association congratulates the winners of the 2019 Turnaround/ Transactions of the Year Award (pictured from left to right with the chapter president): Sheldon Stone (Amherst Partners), Stacey Alatis (AloStar), Dan DeMarco (TMA Ohio Chapter President), Brian Phillips (Amherst Partners) and James Morden (Amherst Partners). Not pictured: Don Luciani (Amherst Partners)

expanding into new product offerings.

veryday errors and oversights can turn into deal killers when subjected to the pressure and timeline of a closing. Identifying and mitigating deal killers requires early planning and objective evaluation of a company’s value proposition. The earlier this review occurs, the better. Deal killers often reside in the very things that make a company appealing to a buyer. A seller’s familiarity with the target allows her or him to value different components of the business, from customer goodwill to branding. Careful early analysis of the components of a company’s value narrows the hiding places for potential deal killers and allows for more efficient review and subsequent mitigation efforts when problems are found. If the seller attributes value to revenue and profitability, the buyer will want to review the target’s top vendors and customers and contracts with them. If the seller attributes significant value to intellectual property, the buyer will want to understand what efforts the seller has taken to protect that intellectual property, such as non-disclosure agreements, pat-

ents, limiting access to trade secrets and employee invention assignments. Gathering and reviewing these materials early on (or identifying their abSchauer sence) allows a seller to evaluate and remedy any gaps without the pressure of due diligence and closing. Buyers expect the sellers to justify a company’s value and will focus on the seller’s evidence of that value, as well as industry-speciﬁc concerns such as government regulation and data security. Sellers of closely held companies frequently overlook deal killers, sometimes due to a lack of objectivity and sometimes because they don’t see the need to engage professionals in the early stages of the sale. Those behaviors lead to unnecessary expense and allow deal killers to escape detection. Avoid these costs and deal killers through early planning and objective discussion. Michael W. Schauer is an associate at Schneider Smeltz Spieth Bell LLP. Contact him at mschauer@sssb-law. com.

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Cybersecurity assessment an essential part of due diligence BY MICHAEL D. MAKOFSKY

hether you are a buyer or a seller, due diligence is a critical part of any M&A transaction. Among other things, due diligence can uncover risks and vulnerabilities. Of all the potential issues associated with a business, cybersecurity must now be considered one of the most important. Cyberattacks, data breaches and other malicious hacks have become more prevalent and more sophisticated. Such Makofsky invasions can be very expensive to work through or could cripple a business. Further, threats and vulnerabilities can remain undetected for a long period of time. An acquiring entity may not discover the issue until after the closing. By then, the damage may be catastrophic. That’s why it is crucial to conduct a thorough cybersecurity assessment during due diligence.

‘‘

●

What are the operational needs and expenses going forward?

with a successful transaction.

Through proper due diligence, buyers can identify and understand the state of a company’s cybersecurity, assess risks in advance and take proactive measures to help

Michael D. Makofsky is principal at McCarthy, Lebit, Crystal & Liffman Co. LPA. Contact him at 216-696-1422 or mdm@ mccarthylebit.com.

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Through proper due diligence, buyers can identify and understand the state of a company’s cybersecurity, assess risks in advance and take proactive measures to help with a successful transaction.

‘‘

Buyers should develop a cybersecurity checklist for potential targets. This should include not only an analysis of current status, but also of integration — how to meld two different systems into one company-wide network without risking safety. Such a checklist can include the following: Take an inventory of all desktops, laptops and other devices as well as applications such as email and other software. ● Conduct a cybersecurity audit of systems to determine the current state of cybersecurity and to identify potential vulnerabilities. Third-party cybersecurity ﬁrms have the software and experience to properly assess the situation. ● Does the company utilize cybersecurity software? Is the software updated consistently? ● What is the company’s data recovery plan in the event of an attack? ● How does a target’s cybersecurity protocols align, or not align, with the buyer? ● What are the main security considerations for integration? ● What strategic initiatives need to be implemented to support a smooth integration?

Tempe, AZ

Gonvarri MS Baja California Phoenix, AZ & Tijuana, Mexico

has been acquired by

a portfolio company of

Huron/Sandusky, OH

has been acquired by Pittsburgh, PA Denver, CO

has been acquired by

a portfolio company of Lexington, MA

Shelby, OH

McAllen, TX

Valley View, OH

has acquired certain operating assets of

has been acquired by

has sold a signiﬁcant equity interest to

Detroit, MI

Sandusky, OH

New York, NY

Medina, OH

has been acquired by

Shefﬁeld Lake, OH

Beachwood, OH El Paso, TX

●

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MEMBER OF

2019 Awards

GLOBALSCOPE

55 independent M&A firms. 1 global family.

Services: 1684 Medina Road, Suite 102 Medina, OH 44256 www.melcap.com (330) 239-1990 al@melcap.com

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Securities offered through M&A Securities Groups, Inc. | Member FINRA / SIPC. MelCap and MAS are not affiliated entities.

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The intersection of blockchain and M&A Smart contracts expedite, simplify deal closing BY GREG WATKINS AND TED MOTHERAL

&A closings don’t always go as planned, and in some cases can be considered coordinated chaos. Parties often work around the clock in hopes of meeting the infamous wire deadline, typically resolving ﬁnal issues on the day of closing. Once handled in an archaic “roundtable” fashion, and sometimes still, the closing process lags behind technological advances. In a sense, closings remain roundtable, except the table is electronic and extends over lines of communication. However, even closings that use electronic means still require a verbal or written conﬁrmation to release funds which, for some reason, seems outdated. As roundtable closings evolved to telecommunicated closings, the current method will also evolve. Deal closings

will eventually be streamlined through the use of smart contracts. A smart contract is similar to a written contract; each party has its set Watkins of obligations, except with smart contracts, the obligations are written in computer code. Smart contracts utilize blockchain technology — a decentralized ledger — and are self-executing, thereby eliminating the need for any additional conﬁrmation to wire funds. Applying smart contracts to realworld practice would allow parties to codify the series of closing conditions. Each party would indicate its satisfaction of each condition unilaterally, without the need for individualized communication to the other party. Once all closing conditions are satisﬁed, the smart contract would

self-execute and immediately wire funds to the receiving parties. Blockchain technology continues to gain momentum, and Motheral its applications are being recognized in various industries. The above example, although simpliﬁed, shows that blockchain technology has a place in M&A as well and likely all across the legal industry. Greg Watkins is an attorney at Walter | Haverfield who focuses his practice on corporate transactions and blockchain technology. He can be reached at 216-928-2917 or at gwatkins@walterhav.com. Ted Motheral is a partner at Walter | Haverfield. Contact him at 216-9282967 or tmotheral@walterhav.com.

Congratulations to all 2020 ACG Cleveland Deal Maker Award honorees! Calfee, Halter & Griswold LLP congratulates our clients Edgewater Capital Partners, MobilityWorks and MRI Software on being named 2020 ACG Cleveland Deal Maker Award recipients. Calfee’s Corporate and Capital Markets practice is one of the largest and most prolific in Ohio, handling a significant number of complex and sophisticated transactions for clients around the country and globally. Doing deals isn’t just our clients’ business, it’s ours. Together we are driving success in the middle market in Northeast Ohio and beyond.

Calfee’s Corporate and Capital Markets Practice Contacts Jennifer L. Vergilii | jvergilii@calfee.com | 216.622.8568 Thomas M. Welsh | twelsh@calfee.com | 216.622.8529 CALFEE.COM | 888.CALFEE1 | INFO@CALFEE.COM ©2020 Calfee, Halter & Griswold LLP. All Rights Reserved. 1405 East Sixth Street, Cleveland, OH 44114

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What is your intellectual property worth? Chances are you don’t know BY JAY MOROSCAK

ou only have to look at the changes at the top of our stock indexes — including Apple’s recent trillion-dollar market valuation — to see there’s been a seismic shift in the reasons why one company is worth more than others. The 10 largest companies by market capitalization are now dominated by technology ﬁrms. Intangible assets, such as intellectual property, have replaced tangible assets as the major source of corporate value. Today, more than 84% — or $19 trillion — of the S&P 500’s market cap is represented by intangible assets. Yet most businesses have a difﬁcult time quantifying the value of their IP or that of potential mergers

and acquisitions targets. This makes IP difﬁcult to protect and affects value in M&A transactions. Aon and the Ponemon Institute’s Moroscak 2017 Global Cyber Risk Transfer Report highlights a serious gap between companies’ efforts to insure cyber assets versus physical ones. Companies surveyed devoted four times as much budget to insuring physical assets as they did to cyber assets. That insurance gap is particularly striking given the average potential loss to information assets ($979 million) compared to property, plant and equipment ($770 million), according to the report. At the same time, companies surveyed indicated

they felt it was more likely they’d experience a loss to information assets than to their physical ones. Companies that fail to properly value their IP face serious and punitive difﬁculties when they are confronted with a patent or trademark lawsuit or embark on a takeover deal. While many companies ﬁnd it confusing to put a price tag on their IP, there are tools that can help. Companies that measure the value of their IP portfolios accurately will be better positioned to protect those assets and will realize the maximum return from their innovation efforts. Jay Moroscak is a senior vice president in the Cleveland office of Aon. He can be reached at 216-272-2155 or jay.moroscak@aon.com.

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As advisors, we understand that finding the right opportunity is critical to portfolio companies and private equity firms when expanding geographically, adding a product line or increasing market share. Clark Schaefer Hackett is skilled at maximizing the value and minimizing the risk of an acquisition through quality of earnings analysis, tax due diligence and tax structuring consultation. From the initial investment and growth of the portfolio through the divestiture of an investment, our experienced, full service private equity and transaction advisory services team is dedicated to serving the unique needs of middle market private equity funds.

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Taking chips off the table

CRITICAL INSIGHT MEETS TRUSTED RESULTS. WHERE

Minority recapitalization an ideal bet for some business owners BY BROOKE HRADISKY

T Avoid surprises. Our national experts provide thorough buy and sell-side due diligence and quality of earnings assessments so you can make informed transaction decisions.

Mark B. Bober, CPA/ABV, CFF, CVA mbober@bmfcpa.com

Steve C. Swann, CPA/ABV, CFE sswann@bmfcpa.com

he vast majority of a typical private business owner’s wealth is tied up in one signiﬁcant asset — her business. A considerable exit in the future may allow the business owner to experience a meaningful liquidity event and implement a comprehensive estate plan. However, all businesses are susceptible to an unpredictable catastrophic event (internal or external) that could put a business sale at risk. As such, we implore business owners to ask themselves — or even better, their wealth managers — should you be holding nearly all your eggs in one basket? Would your wealth manager do it in your stock

market portfolio? If not, how is your private company stock any different? A minority recapitalization is one solution that allows Hradisky owners to “take some chips off the table” while maintaining both ownership and operating control. In a minority recapitalization, debt and equity capital is used to fund a significant distribution to the owner. Typically, 10% to 40% of the business is transferred as part of attracting junior capital. The investor taking a minority equity position will most likely be a financial or family office sponsor in conjunction with a senior commercial lender. Of course, the value of the business owner’s remaining equity ownership post-transaction depends on the company’s financial metrics (future

revenue and profitability, long-term debt), growth capital needs and percent ownership retained. The most apparent benefits include: creating liquidity and diversification of assets; retention of operational control and majority ownership; benefit and discipline of having a partner to help with strategic decisions; and the opportunity to deliver and have follow-on transaction options. Looking at one’s public stock portfolio in conjunction with private stock is often overlooked — and minority recapitalizations are often ignored when considering transaction options to be vetted as an alternative to no action or to a full sell-side transaction. Brooke Hradisky is a vice president at Carleton McKenna & Co. Contact her at 216-523-1962 or bah@carletonmckenna.com.

M&A considerations for the next recession

F Strategy. Valuation. Risk. Aon helps clients protect and create value from their organization’s most important asset – intellectual property. Contact us today to learn how we use proprietary data, analytics and technology to provide a comprehensive approach to intellectual property strategy, valuation and risk. Jay Moroscak | 216.272.2155 | jay.moroscak@aon.com or visit aon.com/intellectualproperty

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aced with the reality of the compressed holiday season and the unlikelihood of signing a letter of intent or even ﬁnding an M&A transaction that would have generated interest before the end of 2019, many of my clients’ thoughts shifted toward 2020 and the effect an economic downturn may have on a small to medium-sized business owner’s ability Humphrey to sell or purchase in the M&A market. In the past and particularly with regard to the last recession, the high multiples of the pre-downturn economy gave way to signiﬁcantly lower multiples driven by more expensive or less-available capital as the downturn took hold. The cycle of lower multiples and less available capital served to drive the small- to mid-sized companies out of the M&A marketplace or caused such smaller players to become targets rather than acquirers. As we look ahead, an expected continuation of the availability of capital fueled by the lessons of a robust capital market seemingly disconnected from economic and political vagaries suggest that the impact of an upcoming recession on the M&A market may not be so dramatic. Recent past recessions caused in large measure by perceived abuses in the banking industry resulted in a dra-

‘‘

The upcoming recession, however, will be received more as the expected cyclical downturn of a healthy, running economy than evidence of fundamental flaws in a failing economic structure.

‘‘

BY ROBERT M. HUMPHREY

matic impact on availability of capital as banks came under attack from everyone, from the borrowing public to numerous regulatory enforcement groups. The upcoming recession, however, will be received more as the expected cyclical downturn of a healthy, running economy than evidence of fundamental flaws in a failing economic structure. Hopefully, this more tempered approach will allow the M&A market to find support at higher activity levels than were experienced in prior recessions. As always, the best prepared buyers and sellers will find the most M&A success in any recession and should be encouraged to seek the advice of experts in planning in 2020. Robert M. Humphrey is a shareholder at Roetzel & Andress LPA. Contact him at 216-615-4830 or rhumphrey@ralaw.com.

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A thoughtful approach to merging after an acquisition BY TONY PAPARELLA

nowing how to successfully integrate an acquisition can be learned from the inside or out. When a business is built on helping clients integrate new member companies, it can be easy to spot potential trouble. But, when that growing business needs to manage its own acquisitional integration, it becomes personal. In both cases, beware the overly simplistic timeline. After a deal, companies aiming for the operational, strategic and financial benefits of sharing infrastructure are often so Paparella intent on merging services and employees, they often fail to establish realistic timetables for their system integrations. Most transactions include a transitional service agreement, so the seller can temporarily provide infrastructure support, such as accounting, IT, and human resources after the transaction closes. But the timetable of TSAs is often miscalculated, leading to unexpected expenses of “renting” administrative systems after due dates or dropped balls on quality transitions. Hospital and health system mergers and acquisitions can be particularly troublesome when a complex array of active and legacy clinical, administrative and financial data needs to be transitioned to a different system. If the conditions of an M&A TSA miss the details and miscalculate timing, what happens next can be frustrating, including unmet expectations, costly deadline extensions and sullied reputations. That’s the outside wisdom of a service provider well-versed in managing legacy data. The insider view of an acquirer is more personal, meaning it focuses on people and culture and, much like legacy data transitions, cannot be rushed. The addition of a significant employee population requires careful planning to achieve the benefits of new talent, better teaming and expanded capabilities. In our case, a significant investment of private equity created the opportunity for two fast acquisitions to help realize our visions of growth and innovation. The employees who joined us came from successful companies and brought new energy and priorities to the old regime – offering a welcome shift in culture. By trumpeting the

Crains-ACG P015_P035_CL_20200120.indd section-2020-Final.indd29 15

changes and celebrating the new, expanded offerings throughout the organization, we built a shared sense of pride that permeated the entire staff. The lesson to listen openly and evaluate the power of people, capabilities and culture

has been a lesson we learned more than any in 2019, thanks to our new colleagues. Tony Paparella is founder and chairman at MediQuant. Contact him at tonyp@mediquant.com.

Our reach is growing. CHICAGO | Arthur Mertes Arthur.Mertes@TuckerEllis.com 312.256.9407

CLEVELAND | Jayne Juvan Jayne.Juvan@TuckerEllis.com 216.696.5677

LOS ANGELES | Kristen Baracy Kristen.Baracy@TuckerEllis.com 213.430.3603

From our Cleveland roots, we have grown our corporate, securities, and M&A practices and expanded our bench strength to bolster our national footprint. With service out of Cleveland, Chicago, and Los Angeles, whether you are completing a complex transaction, raising capital, or managing day-to-day activities, we have the expertise and practical advice to help you exploit business opportunities. TuckerEllis.com

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Sell-side diligence – tax issues to consider during a sale

usiness owners spend countless hours building their businesses. When it comes to selling their businesses, however, owners often overlook the importance of due diligence work and preparation. Ignoring or de-emphasizing tax due diligence can result in signiﬁcant transaction erosion, or worse: failed transactions, lost time and distraction from normal business operations. Sellside due diligence prepares sellers for negotiating the highest price possible with buyers and helps to avoid common pitfalls that can impact a deal. The beneﬁts of tax due diligence and advanced preparation before a sale include: Optimal transaction value Exposure of transaction risks and potential liability ● Opportunity to assess oversights in advance of entertaining buyers ● Increased negotiation power ● Enhanced control and credibility throughout the transaction cycle ● Higher probability of closing the transaction ● ●

‘‘

Although it is important to focus on all aspects of tax — including federal, state income, franchise and gross receipts, sales and use, employment Boergert and property tax—and unclaimed property funds, there are certain aspects that could create risk for sellers and opportunity for buyers.

sellers should ensure they know the particulars.

Tax attributes

Sales and use tax

Analyzing the tax attributes of a business through the sell-side process can be valuable to a seller when it poses a potential beneﬁt to the transaction. Attributes such as net operating loss carryovers, business credit carryovers, minimum tax credits and capital losses should be considered.

Employment tax

Employment tax can be a risk for sellers. Tax authorities are focused on misclassification of employees as independent contractors and could impose tax penalties or interest if a misclassification is found. The classification of workers as independent contractors depends on the circumstances of each situation;

The landscape of sales and use tax changed overnight when the U.S. Supreme Court rendered a close 5-4 decision in South Dakota v. Wayfair, overturning the physical presence standard for the sales and use tax nexus that had been in place for 26 years.

Sales and use tax has become an increasingly complicated area where pitfalls can occur. The landscape of sales and use tax changed overnight when the U.S. Supreme Court rendered a close 5-4 decision in South Dakota v. Wayfair, overturning the physical presence standard for the sales and use tax nexus that had been in place for 26 years. Almost every state has enacted legislation due to the Wayfair case. In the wake of the Wayfair decision, businesses need to understand how to navigate the new world of state online sales taxation and its economic nexus thresholds. These thresholds create a collection and ﬁling responsibility for businesses, thus causing potential tax

exposure (if not collected) they may not have anticipated. Understanding the changes in state legislation is important, but even more important for sellers is determining how the decision will impact their business and what steps their company should take. Sellside tax due diligence is the ﬁrst step.

Income tax

Even before the dust has settled for the sales tax implications of Wayfair, states are expanding the interpretation of Wayfair to relate to income tax. Although economic nexus standards relating to income, franchise and gross receipts tax have existed in some states and are a growing trend, Wayfair has accelerated the enactment of such legislation in states where no such rule existed. This trend is expected to expand as states continue to look for money.

‘‘

BY KERI BOERGERT

Pennsylvania, Hawaii, Massachusetts and Texas have enacted or proposed rules that will impose an economic nexus threshold for corporate net income tax purposes. Failure to ﬁle in the required states would pose risks to buyers that they may not want to deal with or may want reimbursement for under the terms of the transaction. As business owners assess opportunities to sell, tax exposure risk and its impact on a sale should be a critical area of concern and assessment. Working to correct potential areas of concern prior to buyers becoming involved can minimize risk and maximize the value of a business for the seller. Keri Boergert is a principal at Clark Schaefer Hackett. Contact her at kboergert@cshco.com

Risk Management & Human Capital Strategies From an Investor Mindset

Risk Management Employee Benefits Corporate Aggregation Retirement Plan Services Representations and Warranties Insurance

OswaldCompanies.com/PrivateEquity

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855.4OSWALD

Driving Operational Value From Diligence to Divestiture

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Set yourself apart to win more deals BY STEWART KOHL

ooing the owners of successful businesses is a big ingredient in any successful buyout recipe, and it’s more important than ever in what’s a stunningly competitive and pricey market. Pitchbook recently reported that purchase price multiples hit a staggering 12.9x in 2019, as low interest rates and other factors goose the market for high-quality companies. Naturally, an investor must be willing and able to pay up to win competitive races for great companies. But that’s not always what wins the race. While all prospective buyers may be offered a similar deal price, the seller will choose the company that has the best track record for closing a deal quickly and bringing to the table the right knowledge and team to accelerate growth. Quality investors spend the diligence period developing a rapport with the company management team, demonstrating industry experience and knowledge, explaining its resources and laying out a clear plan that includes an aggressive add-on strategy. These attributes demonstrate the ability to stand out as a buyer in this crowded and competitive field. Here at Riverside, we’ve made more than 600 investments — averaging about 50 a year — and we’ve learned a lot along the way. Here are some tips: Be a partner. Respect what made the company an attractive opportunity by encouraging the seller to reinvest alongside you and, when appropriate, even retaining management or board positions. They know the company exceptionally well, and aligning interests is often a powerful catalyst for growth. Bring more than money. This is a big surprise to many people, but competitive processes can be won without being the highest bidder. Demonstrate to the seller that you have a clear plan for making the company bigger and better — and the resources to execute that plan. This provides assurance that the company is in good hands, while offering the seller what we call the “second bite of the apple” when they benefit from the growth of the company during the hold period. This second bite can be even bigger and sweeter than the first when we accomplish our shared goals.

apply deep industry knowledge and talent to get the best results. Earning the experience needed to build a successful track record means Kohl developing extensive understanding, networks and capabilities in speciﬁc industries. Focus on

how your experience aligns with the goals of the seller. Prepare. A comprehensive plan explaining your short- and long-term goals – and the strategies and tactics you intend to employ to achieve them – will go a long way to impressing a choosy seller. It also makes great business sense. Integrating a growth plan into your due diligence process is not only

wise from an investment perspective, it’s also a great way to showcase all the tools and capabilities you can offer the seller’s company. This is by no means a comprehensive list, but these are a handful of ways that one can stand out in today’s hypercompetitive market. It’s also notable that these are examples of good investing

101. That’s no accident – the best outcomes usually happen when we align interests with the companies in which we invest. It’s a great habit and one the best assets demand. Stewart Kohl is co-CEO of The Riverside Co. Contact him at 216-344-1040 or info@ riversidecompany.com.

The team that gets your deal done! If your family office is seeking to purchase a business, every deal involves complex issues. Our highly accomplished M&A team has executed hundreds of acquisitions and divestitures from start to finish. Talk to us about our extensive experience working with families to diversify their portfolio of companies. Let us help you through every stage of the process to get your deal done.

Patrick Berry

Co-Chair

Christal Contini

Co-Chair

Christopher Hawley Brian Jereb

Michael Riley

Michael Antovski

David Kall

Roger Shumaker

Todd Baumgartner Jeffrey Consolo

Bernard Karr

Kelsey Smith

Jason Klein

Frank Wardega

Richard Cooper

Nicole Kline

Carl Grassi

Michael Meaney

Katherine Wensink Michael Witzke

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Amy Wojnarwsky

Show your experience. Saying you can do something and pointing to org charts and ofﬁces is one thing. Get references and demonstrate what you’ve done with powerful case studies and compelling numbers that prove you can accomplish your goals. Specialize. Growing any company is complex and challenging. Doing so without expertise in the pertinent industry makes it even harder. Focus on investing in sectors where you can

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Be mindful of benefits and risks when considering a rollover

Translating purchase price to takeaway cash at closing BY PETER SHELTON AND MITCHELL GECHT

greeing on the purchase price for your business is an important ﬁrst step in any sale process. However, it is crucial to understand the distinction between base purchase price and the amount of cash you ultimately take home. Thoughtful consideration of the following terms in middle-market transactions can prevent unwelcome surprises: (1) cash-free/debt-free; (2) earn-outs; (3) rollover investments; (4) working capital adjustments and (5) escrows. “Cash-free/debt-free” means the seller pays off indebtedness at or prior to closing, but keeps (or gets paid for) cash and cash equivalents. Earn-outs can be used to bridge the gap in perceived business value, but they can be tricky in their drafting and application. As a seller, ensure that payment is triggered on topline earnings, rather than proﬁts which can be manipulated. Also, set forth clear ground rules for operation and measurement of the business during the earn-out term to ensure a fair chance to hit target numbers. Rollover investments are common, particularly with private equity buyers.

They limit the amount of cash proceeds at closing, but offer a tax deferral and the opportunity to participate in future upside in the business. Shelton In most transactions, purchase price is adjusted upward or downward based on the amount of working capital at closing relative to a target amount. Establishing the right working capital target is critical. Whether based on a trailing 12-month or six-month analysis, or some other adjusted approach, be sure to account for seasonality and other trends that impact the business. The working capital adjustment should ensure a fair deal for both sides, not a manipulation of purchase price. Escrows funded out of the purchase price are used to ensure seller obligations for any working capital adjustment in favor of the purchaser and any purchaser indemniﬁcation claims for breaches of representations and warranties. An amount (typically, 10% of the working capital target amount) is held in escrow and released upon ﬁnal determination of working capital, and an additional

amount (typically 10% to 20% of the purchase price) is held in escrow for a 12-18 month period to satisfy indemnification claims. Gecht However, Representation and Warranty Insurance, a popular product in middle-market transactions, will materially reduce the amount of purchase price held in escrow for indemnification claims. In RWI deals, the parties often split the deductible under the insurance policy, which results in an indemnification escrow equal to .5% to .75% of the purchase price. Consider these items early in the sale process, and you will avoid surprises at closing. Peter Shelton is a partner with Benesch’s Corporate & Securities and Private Equaity Practice Groups. Contact him at 216-3634169 or pshelton@beneschlaw. com. Mitchell Gecht is an associate in Benesch’s Corporate & Securities and Private Equity Practice Groups. Contact him at 216-363-4631 or mgecht@ beneschlaw.com.

THE LEGAL TEAM THAT

GETS YOUR DEAL DONE

Amanda A. Barreto

James M. Gianfagna

Joseph P. Gibbons

Gregory C. Johnson

Kenneth J. Laino

Michael W. Schauer

Aanchal Sharma

James D. Vail

BY DOMINIC A. DIPUCCIO

ollovers continue to be common in private M&A transactions, particularly those involving financial buyers. The term “rollover” generally refers to the event in which a seller receives buyer equity as a portion of the seller’s total sale consideration. According to some studies, approximately two-thirds of private equity fund buyers in M&A transactions last year required sellers to “rollover” a portion of their deal consideration. More than 80% of such transactions involved rollovers, whether required or not. In most cases, seller rollover amounts represented 10% to 25% of total seller consideration. There are many buyer and seller benefits to rollovers. Securing “skin in the game” from rollover sellers who stay on with the target company as key managers is a major driver of rollover requirements for buyers. Providing additional financing support, closing valuation gaps and providing additional negotiating leverage further entice buyers to include this deal term. Providing additional upside and tax deferral benefits are principal inducements for sellers. When presented with offers that include rollovers, sellers and their counsel need to be mindful of the risks associated with rollovers to assess the entire transaction. The following general considerations should be taken into account to evaluate properly the rollover’s risks and rewards: ●

Rollover equity should be pari-passu

with, or equal to, buyer investor equity. Sellers should resist any offers of junior securities. ● Minority equity holder protections DiPuccio should be bargained for and obtained, such as preemptive rights, tag-along rights, information rights, registration rights, board seats or observation rights. Vesting requirements should never be a condition to rollover equity. ● Sellers should review and evaluate all information that is material to their investment decision in the rollover equity. This information includes buyer’s capitalization and resources (paying particular attention to debt terms and leverage), prior acquisition history, business plan, growth strategy, projections and exit strategy. ● Ancillary terms relating to rollover equity buybacks on employment termination or other events, and restrictive covenants (such as noncompetes and non-solicitation clauses) should be understood and acceptable. ● Rollover sellers should understand and be comfortable with their ongoing roles and authority with the buyer moving forward, as well as the terms of their employment. In short, rollovers are here to stay. But sellers and their counsel need to do their homework to evaluate them properly. Dominic A. DiPuccio is chair of Taft’s M&A Group. Contact him at 216-706-3830 or ddipuccio@ taftlaw.com.

MEET OUR BUSINESS AND CORPORATE TEAM 1375 E. Ninth Street, Suite 900 Cleveland, OH 44114 216.696.4200 | www.SSSB-Law.com

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winners are forged in the fire of economic duress M&A advice to boards for navigating the inevitable recession By CHRISTOPHER J. HEWITT and JaynE E. JUVan

he psychology of buying and selling companies is much like that of buying and selling individual stocks. Notwithstanding the old adage of “buy low, sell high,” most investors do exactly the opposite. When markets are frothy and exuberance is high, the “fear of missing out” leads investors to buy when stocks are overvalued. Conversely, in the depths of a recession or at a market low, investors often let fear drive their decision-making and begin selling. The same is often true when corporate boards consider acquisitions and divestitures — the fear of failure and legal liability can drive poor decision-making and cause boards to miss out on golden opportunities.

Corporate law supports informed risk-taking It is not unusual for boards of companies — whether they are private or

public – to make decisions that are contrary to those that will fuel growth or become paralyzed during these uncertain times. Many times, they Hewitt become reluctant to make any kind of acquisition or divestiture when the market declines out of fear that their decisions will be scrutinized and second-guessed with the benefit of hindsight. Boards are often concerned about the liability exposure they may face if they make a decision that appears aggressive and fails to accomplish the intended result. Of course, no one can time the market, and it is foolish to try. It’s difficult to predict whether a particular market high is the final one before a true bear market occurs. The market can literally have hundreds of new market highs between the end of the last bear market and the beginning of the next one. Fortunately, both Delaware and Ohio

corporate law recognize these truths and accommodate risk-taking. The essence of the corporate governance paradigm is that boards of directors are not liJuvan able for bad decisions made in good faith on an informed basis without conflicts of interest. At a high level, directors owe fiduciary duties to a corporation, namely the duties of care and loyalty. The duty of care requires the board to act in an informed manner after considering all reasonably available information. The duty of loyalty requires the board to act in the best interests of the company and its shareholders, not in any individual director’s own interest. If the board meets both of these duties, directors have business judgment rule protection. This means that a court will not, in fact, second-guess the decision the board made. Directors are also eligible for indemnification and advancement of expenses in certain

instances, and directors and officers insurance backstops these obligations. Obviously, any acquisition should make sense and should be conducted in a disciplined manner. This concept is true in any market. Once a board determines it intends to make an acquisition, however, its members should not then worry about potential liability even if the acquisition is premature or ultimately fails.

Shrewd boards capitalize on others’ weaknesses in economic downturns

Clearly, near- and long-term market and economic expectations will influence the price a buyer is willing to pay for an asset. But there are as many quality buying opportunities, if not more, during a recession as during economic expansion. Boards should embrace economic downturns as the perfect time to buy new companies, not as the time to pull back. The most common lament that we hear in today’s mergers and acquisitions environment is that companies are priced too dearly, owners have

unrealistic expectations on price and multiples, and there is too much competition for the good deals that are out there. Private equity and strategic buyers, family offices and independent sponsors have trillions of dollars of capital to spend on transactions, and everyone is looking for proprietary deals to avoid this competition and try to lower prices. When the market eventually softens — and it will — those buyers with the intestinal fortitude to buy in a declining market will see less competition and better pricing. Think of Mr. Potter and George Bailey battling for the hearts and minds of the citizens of Bedford Falls during the Great Depression in “It’s a Wonderful Life,” when there was a run on the banks. Mr. Potter offered to buy out the shareholders of Bailey Bros. Building and Loan at 50 cents on the dollar, and Mr. Bailey used his own personal honeymoon money to pay 100%. As he did so, he told the crowd, “Potter isn’t selling. Potter is buying. And why? Because we’re CONTiNuED ON NExT PagE

Investment banking and financial advisory for the global middle market Michael E. Gibbons

216.920.6624 mgibbons@bglco.com

Andrew K. Petryk 216.920.6613 apetryk@bglco.com

Effram E. Kaplan

216.920.6634 ekaplan@bglco.com

Anthony D. Delfre 216.920.6615 adelfre@bglco.com

Securities transactions are conducted through Brown, Gibbons, Lang & Company Securities, Inc., an affiliate of Brown Gibbons Lang & Company LLC and a registered broker-dealer and member of FINRA and SIPC.

Crains-ACG section-2020-Final.indd P015_P035_CL_20200120.indd 33 19

1/14/2020 1/14/20 3:50:26 2:51 PM PM

CORPORATE

S20 January 20, 2020

SPONSORED CONTENT

GROWTH&M&A VA LU AT I O N T R E N DS

Trends in valuation EBITDA Multiples

BY ANDREW K. PETRYK

2019 in review

Lawyers with one mission: to advance yours. Our M&A team gets your deal done and done right.

VA LU AT I O N TRE N D S EB IT DA Mu lt iples

S T R AT EG IC B UYE R S

1 2.0 x 1 0.0 x 8 .0x 6 .0x 4 .0x 2 .0x 0 .0x

Taftlaw.com

2 00 32 01 4

2 01 5

2 01 6

<$2 50 M

7 .8x

9 .2x

7 .4x

$ 25 0-$ 49 9M

8 .5x

1 0.1 x

1 1.4 x

$ 50 0M +

9 .3x

9 .8x

1 0.3 x

Source: S&P Leveraged Commentary & Data

CapitalWorks Connects in Northeast Ohio CapitalWorks enjoyed another successful year in 2019 with two platform acquisitions from our fourth fund and the sale of a portfolio company from our third, all located in Northeast Ohio. With each acquisition, we connect company owners and managers with our extensive network of industry partners who assist us in building and improving middle market businesses. Our team looks forward to connecting with more owners and management teams in 2020. The below represents our 2019 transactions.

Acquired May 2019

Acquired June 2019

Contact Kellie Work at kwork@capitalworks.net capitalworks.net

We acquire lower middle-market niche manufacturing, value-added distribution and business services companies east of the Rockies and provide them the capital, support and freedom to grow.

Crains-ACG section-2020-Final.indd P015_P035_CL_20200120.indd 34 20

9 .4x

By the numbers Valuations sustained at elevated levels throughout 2019. Strategic buyer multiples across industries and deal-size spectrums remained within a tight band, with a reported average EBITDA multiple of 9.9x in November for all transactions. Size premiums were evidenced in ﬁnancial buyer transactions, with a reported EBITDA multiple of 9.6x for enterprise values between $100 to $250 million, which compares to 6.2x for enterprise values from $10 to $25 million. The lending market continues to support deals with accommodative ﬁnancing, and the pool of available capital continues to swell, as aggressive nonbank lenders compete for additional market share from traditional lenders. In the broader middle market (EBITDA of $50 million or less), total leverage (total debt to EBITDA) rose to 5.4x in November, a near decade-high. Total

1 2.0 x 1 0.0 x 8 .0x 6 .0x 4 .0x 2 .0x 0 .0x

2 00 32 01 4

2 01 5

2 01 6

2 01 7

2 01 8

Nov-1 9

<$2 50 M

7 .8x

9 .2x

7 .4x

7 .2x

8 .5x

1 0.1 x

$ 25 0-$ 49 9M

8 .5x

1 0.1 x

1 1.4 x

1 1.2 x

9 .1x

1 0.8 x

$ 50 0M +

9 .3x

9 .8x

1 0.3 x

9 .6x

1 0.3 x

9 .4x

SOURCE: S & P Leveraged Commentary & Data

Source: S&P Leveraged Commentary & Data

Sou

FINANCIAL B UYERS FINANCIAL BUYERS 1 2.0 x 1 0.0 x 8 .0x 6 .0x 4 .0x 2 .0x 0 .0x

2 00 32 01 4

2 01 5

2 01 6

2 01 7

2 01 8

Nov-19

$ 10 -$ 2 5M

5 .5x

5 .9x

5 .8x

6 .3x

5 .9x

6 .2x

$ 25 -$ 5 0M

6 .2x

6 .6x

6 .4x

6 .6x

6 .9x

$ 50 -$ 1 00 M

6 .7x

7 .8x

7 .2x

8 .2x

8 .9x

7 .5x

$ 10 0-$ 25 0M

7 .3x

9 .0x

8 .9x

9 .1x

8 .8x

9 .6x

SOURCE: GF DATA®

Source: GF DATA®

leverage in the lower middle market (deﬁned as enterprise values of $500 million or less) averaged 4.9x through November, the second highest reading since 2008. Credit market forces, notably capital ﬂowing into direct lending and the growing dominance of alternative lenders, should provide the appetite and momentum necessary to sustain leverage at or near current levels.

2020 outlook Industry sentiment around deal making in 2020 will likely be characterized as cautiously optimistic. The economy, tariffs and presidential election are top of mind here at home. Additionally, global issues and tensions complicate the picture with their potential to impede capital markets in the form of higher volatility, increased cost of capital and reduced liquidity.

In uncertain times, larger companies equate to safety; this was evidenced in 2019 by higher multiples garnered for larger transactions. And as is typical of this stage of the longlegged cycle, buyers are looking for recession-resilient businesses with demonstrable growth, market leadership, critical mass and high barriers to entry. Valuations continued to hold late into 2019 and early 2020, so timing is favorable for sellers seeking liquidity events. Considerable capital and strong buyer and lender appetites exist to sustain an attractive M&A market for the foreseeable future. Andrew K. Petryk is a managing director and leads the Industrials practice at Brown Gibbons Lang & Co. Contact him at 216-920-6613 or apetryk@bglco.com.

Sold August 2019 to Kinderhook Industries

Celebrating Two Decades

1 0.3 x

FIN

Valuation Trends — EBITDA Multiples

STRATEGIC BUYERS

A strong sellers’ market persisted in 2019, with valuation multiples rising to peak levels. Competition for high-quality deals intensiﬁed for both growth-seeking buyers and lenders supporting transactions. The near frenzy-fueled purchase price multiple expansion was underpinned by deal scarcity and the need to deploy capital. Acquisition-driven Petryk growth remains a primary lever in value creation and is keeping M&A multiples for healthy companies strong. Corporate buyers are currently sitting on more than $1.5 trillion in idle cash and face mounting pressure from shareholders to complete transactions to deliver above-market organic growth. Private equity sponsors increasingly are expected to accelerate the velocity of capital investment while also generating market-leading returns in a highly competitive market. Adding to the complexity and competition is an expanding pool ofNov-1 investors, among 2 01 7 2 01 8 9 them family ofﬁces and independent 7 .2x 8 .5x both1 0.1 x proven to sponsors, which have 1be 1.2formidable x 9 .1xplayers.1 0.8 x 9 .6x

STRATEG IC B UYERS

CONTINUED FROM PREVIOUS PAGE

panicking and he’s not. … He’s picking up some bargains.” Those who keep their wits about them should proﬁt handsomely when the market recovers.

This time is not different

As with most other bull markets, especially one that has gone on for over a decade, it seems like this time it is different. There is no reason it

cannot go on forever. But the economy is ultimately driven by human behavior – the Federal Reserve and Treasury can’t bail us out of everything, and eventually there will be another downturn. The catalyst for the turning point is likely to be different from prior recessions, but a recession is inevitable. Now is the time, when the market is at an alltime high, to be especially careful as a buyer. When the market turns,

boards should view it as a good buying opportunity and have the courage to move forward with their acquisition strategies. Christopher J. Hewitt and Jayne E. Juvan are partners at Tucker Ellis. Contact him at 216-6962691 or christopher.hewitt@ tuckerellis.com. Contact her at 216-696-5677 or jayne.juvan@ tuckerellis.com.

1/14/2020 1/14/20 3:50:43 2:52 PM PM

Corporate

SPONSORED CONTENT CONTENT SPONSORED

January January20, 20, 2020 2020 S21

Growth&M&a

Northeast ohio’s leading deal makers to be honored ACG Cleveland, Northeast Ohio’s leading organization for merger and acquisition and corporate growth professionals, will recognize the winners of its 24th Annual Deal Maker Awards at 5:30 p.m. Thursday, January 23, 2020, at the Hilton Cleveland Downtown. The Deal Maker Awards are a tribute to Northeast Ohio’s preeminent corporate deal makers for their accomplishments in using acquisitions, divestitures, financings and other transactions to fuel sustainable growth. The 2020 winners are:

Corporate pUBliC CateGory Parker-Hannifin, a Mayfield Heightsbased global leader in motion and control technologies.

Corporate priVate CateGory MobilityWorks, a Richfield-based national chain of wheelchair accessible van providers.

BUyoUt firM Edgewater Capital Partners, an Independence-based private equity firm investing in lower, middle-market performance materials businesses.

woMeN iN traNsaCtioNs award Lisa Kunkle, PolyOne Corp.

eMerGiNG teChNoloGy MRI Software, a Solon-based provider of real estate software.

To register to attend the Deal Maker Awards, visit www.ACGcleveland.org.

Expand your networks with ACG

rom professional development and educational events, to content lunches, yoga retreats and beer n’ learns, ACG Cleveland offers a myriad of ways for individuals to network and learn through its Women in Transactions and Young ACG Cleveland chapter groups.

young aCG Cleveland

As the largest young professional

Crains-ACG section-2020-Final.indd P015_P035_CL_20200120.indd 35 21

eXeCUtiVe offiCers President John Grabner, Hylant Group Past President Dale Vernon, Bernstein President Elect Thomas Welsh, Calfee, Halter & Griswold LLP Executive Vice President, Governance Peter Shelton, Benesch Executive Vice President, Innovation Rebecca White, Kenan Advantage Group Inc. Executive Vice President, Annual Events Jonathan Ives, SCG Partners Executive Vice President, Programs Cheryl Strom, The Riverside Co. Executive Vice President, Brand Matthew Roberts, Copper Run Chapter Executive M. Joan McCarthy, MJM Services

Board of direCtors

women in transactions

This networking group is composed of women who are active contributors to the deal transaction process, including private equity investors, strategic acquirers, lenders, investment bankers, consultants, transaction attorneys and accountants. This group’s mission is to contribute to the growth in Northeast Ohio middle-market organizations by providing the tools, resources and networks to support female deal makers. WiT aims to bring innovative and educational content that will help women advance their careers and foster leadership opportunities. Networking events are carefully curated and planned to accommodate the interests and schedules of female deal makers. Previous events have included golf clinics, poker night, skeet shooting, wine and canvas, glass blowing, spa days, dressing for success, theater nights and female leader speeches. Both male and female colleagues are invited to support and participate in WiT events. Events are open to any M&A professional, but ACG members receive significant discounts on registration.

ACG Cleveland 2019-20 Officers and Board of Directors

cohort across 59 global ACG chapters, Young ACG Cleveland connects young deal making professionals with peers across all mergers and acquisitions services and roles, including private equity, corporate development, banking, accounting, insurance, wealth management and consulting. Networking and educational opportunities that YACG Cleveland has hosted include: Educational lunch or beer ’n learns: Often providing continuing education for credentialed professionals, these events are hosted at either local member deal making firms or the trendiest watering holes. Host firms educate on topical M&A subjects and open the floor for Q&A sessions. Social networking events: Hosting between two to four social events per year, from informal happy hours to speed networking, these events connect young professionals with the

larger ACG community. These evening events typically attract about 40 to 50 attendees. Special events: Typically once per month, special events include speakers such as business or community executives or a panel discussion. Attendees at Young ACG events primarily consist of ACG members ages 35 years and younger, as well as non-ACG member young professionals. ACG members older than age 35 are welcome and encouraged to attend Young ACG events. Unique among all of the young professional cohorts across ACG, YACG Cleveland has its own governing committee consisting of a chair, events committee and a membership committee. This group meets quarterly to decide on programming and conduct outreach to potential members. In addition to the benefits of ACG membership, Young ACG Cleveland

benefits include: ● Discounts on ACG programming of up to 60% of member rates. ● Access to Middle Market Growth Magazine and ACG JobSource databank. ● Local and national networking opportunities. ● Unique programming crafted by peers. ● Mentorship with strategic pairing with an ACG Cleveland member. ● Improved annual reviews by demonstrating your involvement within the deal community. For information on WiT and Young ACG Cleveland events and membership, visit acgcleveland.org/Cleveland or email admin@acgcleveland.org. Follow the LinkedIn groups at WiT Cleveland and Young ACG Cleveland, and on Twitter @WiTCLE and @YACG_Cleveland.

Charles Aquino, Citizens Capital Markets Tricia Balser, CIBC Mark Brandt, Pease & Associates John Doolos, KeyBanc Capital Markets Michael Ferkovic, BDO USA LLP Bryan Fialkowski, JP Morgan Chase Beth Haas, Cyprium Investment Partners LLC Joseph Hatina, Jones Day Mark Heinrich, Plante & Moran Brian Kelly, PwC Matthew Kolman, Deloitte & Touche LLP John Kramer, RPM International Inc. Brian Leonard, Edgewater Capital Partners Thomas Libeg, Grant Thornton LLP Mindy Marsden, Bober, Markey, Fedorovich and Co. Martin McCormick, FNB Mezzanine Jay Moroscak, Aon Risk Solutions Wes Perry, ADP Jim Rice, Ernst & Young LLP Jeff Schwab, Oswald Companies William Watkins, Harris Williams

1/14/2020 1/14/20 3:50:57 2:52 PM PM

AKRON FINANCE

Goodyear wants more than financial return from venture fund Tiremaker sees the $100 million fund as part of R&D efforts and a way to find new technologies BBY DAN SHINGLER

Akron's Goodyear Tire & Rubber Co. is hoping for more than a traditional return on investment with its new $100 million venture capital fund, Goodyear Ventures. In fact, the company considers the investment to be part of its R&D efforts. That’s probably made most apparent by the fact that Goodyear put a former chemical engineer, rather than a financial person, at the helm: Erin Spring, Goodyear’s director of new ventures, will oversee the fund. Spring has the master’s of business administration you might expect a fund manager to have, but her past job titles at Goodyear include manager of customer-centered innovation and chief engineer of applied physical metrology. If that doesn’t tell you the new effort is aimed at gaining access to new technologies, Spring makes it clear. “The majority is for strategic purposes. It’s more about investing in new technology that will provide new solutions to current and future customers,” Spring said in a recent interview, when asked about the fund’s goals and objectives. “We invest in R&D every year, and we see this as no different. It’s another way for us to invest in building out new products and solutions.” That’s not to say the company doesn’t want to make a profit from its new fund at the same time. Spring said that only after doing its due diligence will Goodyear make investments it thinks will bring it a positive return — just like any other venture capital firm. But when the venture capitalist is

Goodyear, whose Akron headquarters is seen here, hopes its new Goodyear Ventures fund will help it foster technology innovations by connecting the company to new partnerships. | CONTRIBUTED PHOTO

Goodyear, one of the world’s largest tire and rubber companies with 64,000 employees and annual sales of more than $15 billion, there are likely many potential partnerSpring ship opportunities with both target companies and co-investors. Access to technology that may mean little to most financial investors could have huge value for Goodyear. The company intends to look worldwide for such opportunities, Spring said, but will start at home.

“As a global organization, we’re always looking globally at potential partnerships. For Goodyear Ventures, in the first year we’ll focus in the U.S. and then we’ll look to expand into other regions,” Spring said. Though she declined to set limits on the size of an investment the company might make, Spring said that, like most venture funds, Goodyear will most often take a minority stake in the companies in which it invests. But it won’t limit itself to that, she noted. “As we look at different opportunities and assess them and how they fit with Goodyear Ventures, we’ll make that decision,” she said. The entire effort is part of Goodyear’s strategic plan to be a major player in what it calls the mobility

market, which includes not only electric vehicles and self-driving cars and trucks now under development, but also materials used to make vehicles more sustainable, connectivity technologies being applied to vehicles, new types of mass transport and the infrastructure needed to support the new technologies. The company will even look at “personal and ‘rideshare’ aircraft and systems that reduce congestion and save time,” according to Goodyear Ventures’ website. Little wonder then that the company chose to unveil its new fund at the recent CES tech trade show in Las Vegas, rather than at a big tire or automotive event. Goodyear wants to be at the forefront of new technology, Spring said. By investing in outside startups, the company figures it can partner in and foster the development of new technologies instead of having to compete with them down the road. This is not a new world for Goodyear. The company was quick to begin developing tires for autonomous vehicles years ago and unveiled tires with new sensor technology in 2016. It’s also partnered with other companies and research entities such as the University of Michigan’s MCity testing facility for automated vehicle technology. “We’re focusing on those themes that are shaping the next generation of mobility,” Spring stated. The company has committed to invest at least $100 million through Goodyear Ventures over the next 10 years, she said. While that sounds like a lot — and it certainly would be a big fund if al-

most any other local entity unveiled it — $100 million is really not a huge chunk of change or a particularly risky commitment for Goodyear. Consider that the company spent $424 million on R&D in 2018, according to its most recent annual financial statements. But the $100 million may be the best investment the company can make toward its future, because it opens Goodyear up to a world of innovation outside its doors that too many companies ignore at their peril, said one investment banker. “Large companies inherently tend to look inward, but what Goodyear seems to be trying to do with Goodyear Ventures is to look outward. It sounds like a smart way for Goodyear to gain access to and invest in new technologies,” said Mark Filippell, a longtime Northeast Ohio investment banker and managing director of Western Reserve Partners in Cleveland. As for other participants, Goodyear Ventures will remain in-house only — meaning it won’t allow outside investors to put money into Goodyear Ventures, but Spring said the fund likely will invest in concert with other venture capital firms. It is also open to co-investing with others, Spring added, and the company hopes that small companies and their backers seek it as a partner. Or, she suggested, Goodyear may funnel deals to other venture capitalists if a target company doesn’t match up with the technologies Goodyear is pursuing or otherwise represent a good partnership opportunity. Dan Shingler: dshingler@crain.com, (216) 771-5290, @DanShingler

NONPROFITS

Social platform startup connects local nonprofits, volunteers GiveGauge’s efforts so far have been in Summit, Stark counties, but it’s eyeing national clients BBY KAREN FARKAS

When Joe Mazur was president and CEO of the International Soap Box Derby, he was frustrated by the lack of a good system to find volunteers for the organization’s big annual event or to connect volunteers with the organization. So he created one. Mazur and his wife, Debbie, developed GiveGauge, a social platform to increase awareness of local nonprofits, match people with volunteer opportunities and involve schools and businesses. “There’s a big void out there,” said Mazur, who is president and CEO of the Cuyahoga Valley Scenic Railroad. “Nonprofits know they want to engage the community. Companies want more activities. Schools require service hours. There are a lot of volunteer platforms out there, but many needs of nonprofits, schools and companies are not being met.” Mazur and his wife, a psychologist with the Highland Local School District in Medina County, spent three years developing the site, which launched in April 2019.

Currently, more than 30 nonprofits, seven companies and one school district are actively using the site. More than 1,000 volunteers have registered. Mazur Most of those using GiveGauge are located in Summit or Stark counties, but Mazur is leveraging contacts across the country from his work with the Soap Box Derby and as Midwest vice president for SMG, which manages arenas, theaters and convention centers. Organizations in Lucas County, Rochester, N.Y., and the Culpeper Chamber of Commerce in Virginia are signing up, Mazur said. He has spoken to officials at First Tee’s national headquarters. Here’s what GiveGauge says are some of the benefits of joining: ``Volunteers can register by creating a profile, which can be private or public, that includes their skills and interests. Once on the site, they can find volunteer opportunities and

track their donated time. They can also add volunteer hours at organizations and businesses not on the site. That gives students and other volunteers one place where others can see a reliable and verified log of their donated time. ``Nonprofits can list their events, reach potential volunteers and track their hours. ``Companies can find volunteer opportunities for employees and monitor volunteer hours. ``Schools can connect students who need service hours to volunteer opportunities and monitor hours. Volunteers can register for free, but others pay an annual subscription fee. Nonprofits are charged based on their annual budget, which ranges from $360 to $2,400 a year. Schools are charged a flat rate of $1,200 a year. Companies are charged based on the number of employees, ranging from $250 to $2,500 a year. All who use the site can set volunteer-hour goals that are shown on a gauge, with an arrow that tracks progress throughout the month or year. Many of the opportunities and volunteers on the site so far are connect-

ed to the Akron Civic Theatre. Autumn Mignon Rowles, volunteer coordinator for the theater, said she decided to join GiveGauge because it is much more user-friendly and has a better impact than the site the theater previously used to connect with volunteers. “It definitely empowers the volunteers to take ownership of their amazing accomplishments,” she said. “For the most part, it has been very smooth sailing.” She said the Mazurs changed the site for all nonprofits based on some of her suggestions, including adding a calendar feature to show events by date and display volunteer opportunities in order by day and date, instead of when a nonprofit inputs them on the site. “They have been super accommodating with us,” she added. The theater has attracted a few new volunteers and is working with current volunteers to get them to register on GiveGauge and sign up for events, Rowles said. “We have 60% to 75% of volunteers who just randomly show up and do not sign up online,” she noted.

While those interested in volunteering for the theater register on its website, Mazur’s goal is to have nonprofits redirect potential volunteers directly to GiveGauge’s website. The International Soap Box Derby and the Downtown Akron Partnership’s new Urban Corps program have done that. Mazur and his wife, who live in Peninsula, continue to work full-time but spend all their free time on GiveGauge, he said. They hired Kelly Vesey, a University of Akron graduate who worked as an intern for Mazur at the Soap Box Derby, as GiveGauge’s full-time employee. Mazur would not reveal what he has invested in the business, but said expenses have exceeded revenue and his goal this year is to break even or see a small profit. He said he is not currently interested in seeking funding or investors. “Every investor eats into ownership percentage,” Mazur said. “But if someone has the same passion as we do for this and wants to invest, I might consider it.” Contact Karen Farkas: clbfreelancer@crain.com

36 | CRAIN’S CLEVELAND BUSINESS | January 20, 2020

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CRAIN’S CLEVELAND BUSINESS

SPORTS

“IN ANY OTHER PLACE, IT WOULD BE A JOB AND NOT A PASSION. I FEEL VERY FORTUNATE THAT I DO SOMETHING I’M PASSIONATE ABOUT.”

From Page 1

‘A passion’ for Cleveland Gilbert, who hadn’t worked in sports prior to being recruited by Kain, figured he might be in the job for five years. The sports commission’s president and CEO realized, though, that his love for his native Northeast Ohio trumped the bigger and better jobs that might have been available — and have been offered — elsewhere. “In any other place, it would be a job and not a passion,” the Cleveland Heights High School product said. “I feel very fortunate that I do something I’m passionate about.” It helped that he added the president and CEO titles of Destination Cleveland, the region’s convention and visitors bureau, in 2011. The added responsibility fed Gilbert’s desire to “stay challenged,” and the sports commission’s entrepreneurial focus keeps things interesting. “We’re still looking for someone who doesn’t like him,” said Doug Neary, a Calfee, Halter & Griswold chairman who has led the sports commission’s board since 2019.

Strength in numbers With a staff of 14 full-timers, two part-timers and a handful of interns, Cleveland has one of the largest sports commissions in the nation. It also has one of the most productive in terms of events managed and estimated impact. The staff deserves much of the credit for that, Gilbert said. The same goes for the board, which has a four-person executive committee and a 73-person board that features plenty of heavy hitters in local business circles. There’s also a 40-person associate board comprising young professionals on three-year terms. And the roles aren’t ceremonial. Corporations usually make a donation of at least four figures, plus buy a table at the sports awards, for a

GREATER CLEVELAND SPORTS COMMISSION

——David Gilbert, Greater Cleveland Sports Commission president and CEO

spot on the board. Their volunteer work, because of their influence and desire to help, is critical to the organization’s success. Gilbert said interacting with Kain the large board is “the most important part” of his job. “If we are not very deliberate about how we engage board members as individuals, we lose a huge opportunity for how we advance the organization,” the sports commission president and CEO said. “That has to do with every single part of the organization, from business development to managing events and making them better, to funding the organization.”

IMG CENTER

From Page 1

A receiver, Paul Downey, a partner at Cambridge Capital of Beachwood, was appointed by the court last year and authorized to offer the building for sale. Brokerage firms have been meeting with Downey to try to secure a potential listing to sell the building. Receivers may offer the buildings for sale as an alternative to traditional sheriff’s sales under Ohio law. A qualified bidder might short-circuit the public offering route. In a phone interview, Downey declined to identify the prospective bidder or say how much they offered for the property. In emails responding to calls from Crain’s Cleveland Business, Breen also declined to identify the prospective buyer or the bid amount. He did not respond directly as to whether he is an investor along with the potential buyer. “We are really excited to be bringing a new buyer into Cleveland for the IMG (Center),” Breen wrote. “All the parties are really looking forward to seeing this through the finish line. Just like all of our building sales, we carefully vet potential buyers to insure our long-term tenants have a great new owner!! We are truly grateful to the new buyer for all their efforts to date, as well as all of the people who have helped us along the way.”

CoStar says IMG Center, which could soon have a new owner, is 100% leased. | DAVID KORDALSKI/CRAIN’S CLEVELAND BUSINESS

K&D Group of Willoughby is regarded as the most likely buyer of an older office building such as IMG Center, which might be partially converted to apartments, as K&D has converted five downtown buildings to residential rentals and has substantial office holdings downtown. However, CEO Doug Price said in an interview that K&D is not pursuing the property. “We looked at it several years ago and passed,” he said. Downey declined to disclose the

More on the way According to its 2017 tax return, the sports commission received a combined 83% of its $3 million in revenues from contributions and grants ($776,048 from state grants and $429,429 in other contributions), and program service revenue (including $680,154 from the sports awards and $507,140 from sports events). The organization’s impact, even if economic projections for events can be far from scientific, has gone well beyond the hopes when Kain was asked to launch it and the staff consisted of Gilbert and one other employee. “I actually think they have exceeded what we started in terms of vision,” said Kain, who retired from IMG in 2006 and lives in Palm building’s occupancy level, but said he believes it has a strong rent roll with quality tenants. CoStar, the online real estate data service, reports the building as 100% Breen leased, but with 35,000 square feet available, meaning a tenant may still be paying on the lease after relocating elsewhere. IMG Center contains almost 270,000 square feet of office space. Downtown office vacancy stood at 20% at the end of 2019, according to the Newmark Knight Frank real estate brokerage’s most recent survey of the multitenant office market. Breen heads an investor group that has owned IMG Center since 1990. While most downtown office building owners are apartment magnates such as K&D and Millennia Cos. or out-of-town investor groups, Breen is the sole veteran of the city’s office brokerage ranks to have grasped such a property among the city’s skyscrapers. The building benefited from the wave of office-to-apartment conversions over the past decade, which cleared the way for the 2018 refinance of the property. Stan Bullard: sbullard@crain.com, (216) 771-5228, @CrainRltywriter

Springs, Calif. “When we started, Cleveland’s national reputation was hardly great.” That’s changed, especially in the events industry, Gilbert said. The success of the 2016 Republican National Convention, combined with the Cavs’ championship and the Indians’ World Series appearance that same year, helped, and Cleveland’s run of big events shows no signs of slowing. Gilbert said Northeast Ohio is “close” to landing a major international event that has yet to take place in the U.S. The sports commission has been pursuing it for more than two years, and the event, which Gilbert said he couldn’t name yet, would be “far bigger” than the International Children’s Games that Cleveland hosted in 2004. In the next couple weeks, the sports commission will submit more than 60 bids for the latest four-year cycle of NCAA championship events. Those bids comprise 20 sports and will cover the 2022-26 school years. The organization is hopeful of bringing back the NCAA Division I men’s basketball tournament (four rounds of 64 games and a pair of rounds of 32 contests will be held at Rocket Mortgage FieldHouse in March), as well as the Division I Wrestling Championships, which made a three-day stop at Cleveland’s NBA arena in 2018. The sports commission has set what Gilbert calls a “lofty goal” of landing at least 10 events in that four-year cycle. Cleveland was selected for eight in the 2018-22 NCAA cycle. It’s all part of what the sports commission CEO said is “a never-ending cycle of what’s next.”

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Making Cleveland ‘better’ The checklist doesn’t always have to include the best and brightest. The 2020 calendar, for instance, features the USA Jump Rope Nationals, whose impact (an estimated $1.3 million) exceeds its national recognition. Smaller events, such as the NCAA Division II Wrestling Championships, which were held at the Wolstein Center in 2019, give the sports commission’s staffers and volunteers a chance to “go out of their way to make those athletes and their families feel special,” said Neary, the organization’s board chairman. “When they put on special events, they integrate them in the city,” the Calfee chairman added. Athletes participate in clinics and gatherings that promote their sport and encourage development, and major events are utilized as a chance to advance community issues and engage with those who might not be able to secure or afford tickets to all-star contests. “For us, it’s about opportunities to use what we do to make Cleveland better,” Gilbert said. The organization relies heavily on the support of Northeast Ohio’s leaders and corporate community. That, like the love for his hometown, is something the sports commission’s CEO plans to always acknowledge. “The second you lose that appreciation, you can never be fully effective as a leader,” Gilbert said. Kevin Kleps: kkleps@crain.com, (216) 771-5256, @KevinKleps

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PEOPLE ON THE MOVE To place your listing, visit www.crainscleveland.com/peopleon-the-move or for more information, please call Debora Stein at (917) 226-5470 or email dstein@crain.com. ACCOUNTING

HEALTH CARE

Apple Growth Partners

UnitedHealthcare

Apple Growth Partners (AGP), award-winning accounting and business advisory firm, proudly announces the addition of A’Shira Nelson, CPA, to the Cleveland office as a tax manager. Nelson comes to AGP with a robust background in accounting, with nearly a decade of experience in audit, tax, and public accounting roles. She is the manager of “Savvy Girl Money,” a social media community, with 10,000 Instagram followers and 1,500 YouTube subscribers, focused on helping women reach financial goals.

Neal Grode was recently named UnitedHealthcare’s Executive Director in northern Ohio for its commercial line of business. Neal will focus on creating a consistent, affordable experience for UnitedHealthcare’s customers, providers and broker partners, increasing employee satisfaction, and improving the health of those who live in Northern Ohio. Prior to this role, Neal managed customer relationships in Cincinnati and Dayton with UnitedHealthcare as the Director of Account Management. Neal has also worked at Mercer, Assured Partners, Nielsen and OKI Systems, and held roles in human resources, marketing research, and sales and account management. Neal received a master’s degree in industrialorganization psychology from Xavier University.

ENGINEERING & CONSULTING Tec Inc. Engineering and Design Terrence (Terry) Kilbourne became CEO assuming the new role on January 2. He founded the firm in 1983, starting as an electrical engineering and lighting design firm. During his leadership tenure, the Eastlake, Ohio based company has grown to three regional offices, and 30 employees. He’s been influential in fostering a culture of business development and prioritizing client experience. While serving as the firm’s President, he provided oversight of Tec’s business development strategy and daily operations. As CEO, Kilbourne has executive level oversight over the firm’s three offices in Eastlake, Columbus, and Pittsburgh. He’ll continue the firm’s vision, mentor incoming leaders, foster relationships, and direct broader initiatives. ENGINEERING & CONSULTING Tec Inc. Engineering and Design Adam Kilbourne, FSMPS, CPSM, formerly Executive Vice President of Business and Administration, has been with Tec Inc. since 1999 when he started as Information Technology Manager for the firm. Kilbourne played a pivotal role in the firm’s marketing and business operations and served as the Director of Marketing for 15 years. In 2018, he was promoted to an executive leadership position and was promoted last year to Executive Vice President serving alongside Timothy Pool, PE, RCDD, who remains as Executive Vice President leading Engineering. Kilbourne is an active member of Society for Marketing Professional Services and achieved the designation of Fellow from the organization in 2016. He currently leads the firm’s administrative and business operations.

HEALTH CARE The MetroHealth Foundation Craig Richmond, CPA, has joined the Board of Directors of The MetroHealth Foundation, which raises philanthropic support for The MetroHealth System. Craig joined MetroHealth in 2010 and serves as Executive Vice President and Chief Financial Officer. He leads the health system’s financial operations and is responsible for system services which include supply chain, information technology, enterprise data analytics and business intelligence, and the enterprise program management office.

INVESTMENT FIRM

LAW

NONPROFITS

Taft Stettinius & Hollister LLP

Benesch

Taft is pleased to announce that Daniel Bryan is elected to the firm’s partnership. Daniel practices in the area of complex commercial litigation, class-action defense, intellectual property disputes and data-privacy matters, including crisis management and breach response. He has extensive experience across a variety of industries in both Ohio and New York courts, in private arbitrations, and in business negotiations outside of the courtroom. His J.D. is from Columbia University.

Michael J. Meyer has been named Partner at Benesch. He is a litigator who represents companies in several industries, including consumer manufacturing, energy, lending, real estate, private equity, and technology in lawsuits regarding complex contract disputes, commercial leases, consumer protection claims, and trade secret protection.

Jewish Community Board of Akron

LAW Taft Stettinius & Hollister LLP Taft is pleased to announce that Christopher L. Tazzi is elected to the firm’s partnership. He counsels investment funds, managers and developers in connection with the financing, development, operation, acquisition and disposition of multifamily, retail and mixed-use projects. He also counsels municipalities, redevelopment commissions and financial institutions regarding environmentally contaminated properties. His B.S. is from Cornell University, and his J.D. is from Notre Dame Law School.

LAW Benesch Jonathon Korinko has been named Partner at Benesch. He focuses his practice on representing and counseling clients in all aspects of construction law. Jonathon prosecutes and defends claims involving contractual breaches, deficient design, defective work, schedule disputes, and liens and bonds in federal and state courts throughout the country as well as before various arbitration tribunals. LAW Benesch Kathryn Kramer Gaydos has been named Partner at Benesch. Her practice focuses on the representation of corporate landlords in commercial retail leasing transactions. She has experience negotiating commercial retail leases with national, regional, and local tenants, which have ranged in size from anchor tenants, to restaurants, to small shop retailers. LAW

LAW Benesch Kathleen M. Vlasek has been named Partner at Benesch. She focuses her practice on commercial, retail, office, and industrial leasing transactions. She has experience drafting, negotiating, and reviewing retail leases, amendments, and other related documents on behalf of retail landlords with tenants of all sizes, including grocery stores and other anchors, restaurants, and outparcels.

Benesch Kristen-Elise F. DePizzo has been named Partner at Benesch. Her practice focuses on preparing cases for trial, which enables her to assist clients in resolving complex commercial disputes in various breach of contract, employment, and other litigation matters. She also has extensive experience in defending against regulatory investigations and conducting internal investigations, including employment and merger contexts. NONPROFITS

North Coast Angel Fund We are pleased to announce that Leen Ajlouni has joined North Coast Angel Fund as an Investment Associate. In this role, Leen will engage on deal flow management, due diligence, and portfolio company tracking/support. Previously, Leen served as a Business Analyst with BioMotiv. Leen is a Smith College graduate with a degree in engineering.

38 | CRAIN’S CLEVELAND BUSINESS | January 20, 2020

Key Private Bank LAW Benesch Adam Primm has been named Partner at Benesch. He maintains a growing labor and employment practice that includes representing public and private sector employers in all areas of employment and labor relations, as well as related employment litigation before federal and state administrative agencies and in trial courts in over 20 states.

Recovery Resources is pleased to announce that Renée Holcomb Hardwick, M.B.A, CWS, will serve as the new board chair effective January 1, 2020. Holcomb Hardwick, who is a senior vice president and senior relationship manager at Key Private Bank, has served as a Recovery Resources’ Board member since 2006.

Lesley Hoover, CFRE, has joined the Jewish Community Board of Akron (JCBA) as its new chief development officer. Lesley has a track record of increasing philanthropic support throughout her 18 years of nonprofit fundraising experience. She will use that expertise to design and execute a diversified fundraising plan to support the philanthropic needs of the JCBA, Shaw JCC of Akron and The Lippman School, and more generally, the Schultz Campus for Jewish Life. NONPROFITS Community West Foundation Martin J. Uhle was named President & CEO of Community West Foundation succeeding David T. Dombrowiak who retired from the position after 21 years. Marty has been on the Foundation’s Board of Directors since 2009 serving in many capacities. He previously served as the Superintendent & CEO of the Cleveland Lutheran High School Association. Marty holds a Masters of Business Administration from Baldwin Wallace University and a Bachelors of Arts in Business from Wittenberg University.

REAL ESTATE Paran Management Company Ltd. Paran Management Company Ltd. is proud to announce Paula Hennessey Accordino as director of marketing communications. Bringing a wealth of experience in development and brand communications, Paula will lead marketing and investor relations for Paran’s real estate portfolio, which includes historic boutique hotels Glidden House and Martin House, four multi-family properties and 22 shopping centers. Paula will also direct communications for the company’s Shaker Square and Forest Park projects. SERVICES Koinonia Howard Pincham joins Koinonia as the agency provider’s inaugural Chief Information Officer. Pincham will oversee technological growth and innovation initiatives. He will transform the information technology systems and services within the organization and will work to enhance the provider’s service offerings. Pincham aims to enhance services for both the adults with intellectual and development disabilities that it serves, and also the vital staff that deliver care to those individuals.

CRAIN’S CLEVELAND LOOK BACK | 1980S  IN THEIR OWN WORDS “My contribution was to empower the private sector and all the people of the city to take their destiny in their own hands.” — Cleveland Mayor George Voinovich, 1980-1989

“We gave it our best.” — Joseph E. Cole, publisher of the Cleveland Press, in the Press’ final edition in 1982

“Without a doubt, the Jacobses’ arrival with the Ratners marked the beginning of new market development in Cleveland.” — Richard Shatten, executive director of Cleveland Tomorrow, 1982-1993

“The creation of more jobs is still the greatest challenge facing Cleveland.” — E. Mandell de Windt, chairman and CEO of Eaton Corp., 1969-1986

“Cleveland was not on anyone’s list as places they wanted to go. But once we got them here to actually see what we were doing and wanted to do, they got caught up in the magic of it.” — Ruth Ratner Miller, former Tower City Center president, 1982-1996

Cleveland emerges as the comeback city, but will it last?

crainscleveland.com

Publisher/editor Elizabeth McIntyre (216) 771-5358 or emcintyre@crain.com Group publisher Mary Kramer (313) 446-0399 or mkramer@crain.com Managing editor Scott Suttell (216) 771-5227 or ssuttell@crain.com Sections editor Michael von Glahn (216) 771-5359 or mvonglahn@crain.com Creative director David Kordalski (216) 771-5169 or dkordalski@crain.com Web editor Damon Sims (216) 771-5279 or dasims@crain.com Associate editor/Akron Sue Walton (330) 802-4615 or swalton@crain.com Assistant editor Kevin Kleps (216) 771-5256 or kkleps@crain.com Senior data editor Chuck Soder (216) 771-5374 or csoder@crain.com Editorial researcher William Lucey (216) 771-5243 or wlucey@crain.com Cartoonist Rich Williams

As 1980 ushers in a new decade, Cleveland struggles to find its post-default footing while recession pummels the local economy. It’s in that environment that Crain’s Cleveland Business publishes its first issue on March 31, 1980, with a promise from editor Fred Freeman to “tell the news that’s been missing in other publications.” In its early years, Crain’s reports extensively on the region’s lows — plant closings, layoffs and unemployment. But by the end of the decade, the publication is regularly chronicling Cleveland’s comeback, from new construction on Public Square to a downtown retail revival. — Elizabeth McIntyre

 THE HISTORY The decade begins with negotiations between Cleveland Mayor George Voinovich and six banks that hold $10.5 million in city debt. In 1982, iconic Cleveland institutions fall: Halle Bros. department store and the Cleveland Press. That same year, the Cuyahoga and Williamson buildings on Public Square are razed to make room for Standard Oil’s $200 million headquarters tower. By 1987, British Petroleum buys the 45% of Standard Oil it didn’t already own. In 1983, the Gund brothers buy the Cleveland Cavaliers for $20 million. And in 1986, Cleveland lands the Rock and Roll Hall of Fame after a groundswell of support and a pledge of $65 million in public funding. Forest City secures $59 million in private financing for The Avenue at Tower City Center shopping complex. Developer Jeff Jacobs reveals plans for Nautica, a restaurant/office/retail complex in the Flats. The Cleveland Browns captivate the city, but suffer heartbreaks fans know today as Red Right 88, The Drive and The Fumble. North Coast Harbor opens on Lake Erie’s shore. After 87 years, Firestone Tire & Rubber Co. leaves Akron for Chicago, and some 450 jobs are lost. The Jacobs brothers invest big in downtown Cleveland, opening the Galleria shopping mall in 1987 and breaking ground in 1988 on the 57-story Society Center and 400-room Marriott hotel. The curtain also rises on the restored Ohio, State and Palace theaters in Playhouse Square. The decade ends with Michael White, a one-time city councilman and state senator, beating City Council president George Forbes to become Cleveland’s mayor.

REPORTERS

Stan Bullard, senior reporter, Real estate/ construction. (216) 771-5228 or sbullard@crain.com Jay Miller, Government. (216) 771-5362 or jmiller@crain.com Rachel Abbey McCafferty, Manufacturing/energy/ education. (216) 771-5379 or rmccafferty@crain.com Jeremy Nobile, Finance/legal/beer/cannabis. (216) 771-5255 or jnobile@crain.com Kim Palmer, Government. (216) 771-5384 or kpalmer@crain.com Dan Shingler, Energy/steel/auto/Akron. (216) 771-5290 or dshingler@crain.com Lydia Coutré, Health care/nonprofits. (216) 771-5479 or lcoutre@crain.com ADVERTISING

In 1989, BP America retired the familiar red, white and blue “Sohio” signs throughout the region in favor of BP green and gold. | CRAIN’S FILE

 WHY IT MATTERS TODAY Imagine you’re standing in Public Square 40 years ago. Just east of the majestic Civil War Soldier and Sailors monument stands the 17-story Williamson Building, the tallest building in the city when it was built in 1900. To the west of the monument is One Public Square, a 12-story edifice completed in 1913. And when you face the southeast corner of St. Clair Avenue and Ontario Street, you find the Engineers Building, flanked by the Society Corp. Building and, across Ontario Street, the Old Stone Church. Open your eyes 10 years later, and here’s what Public Square looks like: The second (and soon to be third) tallest Cleveland skyscraper — the BP Building, a.k.a. 200 Public Square — has replaced the Williamson Building. The Engi-

neers Building gives way to what will soon be the top skyscraper in town: the Society Center (later known as the Key Tower). The building boom of the 1980s reshaped downtown Cleveland. Public Square, however, has a huge gap on its northwest quadrant to this day. In 1990, One Public Square and 33 Public Square were demolished to make way for the proposed Ameritrust Center, which never materialized. The site, now known as the “super block” in the Warehouse District on the west quadrant between West St. Clair and Superior avenues, is rumored to be the site of the new headquarters of Sherwin-Williams. Will Crain’s in 2060 look back 40 years and see that the venerable Cleveland-based global paint and coatings maker remained in Northeast Ohio, filling the gap on Public Square?

THE WEEK DRIVEN TO SUCCEED: The Serpentini Auto Group, already one of Ohio’s largest Chevrolet dealership organizations, just got bigger. Founder and president Bob Serpentini and partner Ken Ganley acquired three Pat O’Brien Chevrolet dealerships in Medina, Westlake and Willoughby. The purchase gives Serpentini a total of six Chevy dealerships in Northeast Ohio, including existing operations in Strongsville, Orrville and Tallmadge. Serpentini expects to hire up to 65 people at the acquired dealerships. KEEP GROWING: MRI Software, a Solon-based provider of real estate software and services, received “substantial” investments that will help fuel continued growth. The company did not disclose the size of the investments. One comes from funds man-

The Solon headquarters of MRI Software. The software company has more than doubled employment in the last three years. | CRAIN’S FILE PHOTO

aged by Harvest Partners LP, a private equity firm based in New York, which joins existing investors GI Partners of San Francisco and TA Associates of Boston as institutional shareholders

in MRI. Meanwhile, MRI said TA Associates is making a new investment in the business. MRI in the last three years has more than doubled employment to 1,450.

ON THE MEND: Dan Gilbert is “doing very well” and getting back to business, said Quicken Loans CEO Jay Farner. Speaking Jan. 15 at a Detroit event, Farner said the Quicken Loans Gilbert chairman and owner of the Cavaliers is becoming more engaged in the business and civic affairs. Since suffering a stroke last May and being released from the hospital a few weeks later, Gilbert has largely been out of the public spotlight. Farner said Gilbert is “very focused on continuing to make progress. We’ve seen him at the office. We’ve been talking more and more about all the exciting things that are happening in our business.”

Local sales manager Megan Norman, (216) 771-5182 or mnorman@crain.com Events manager Erin Bechler, (216) 771-5388 or ebechler@crain.com Integrated marketing manager Michelle Sustar, (216) 771-5371 or msustar@crain.com Managing editor custom/special projects Amy Ann Stoessel (216) 771-5155 or astoessel@crain.com Associate publisher Lisa Rudy Director of advertising sales Scott Carlson Senior account executive John Petty Account executives Laura Kulber Mintz, Loren Breen People on the Move manager Debora Stein, (917) 226-5470, dstein@crain.com Pre-press and digital production Craig L. Mackey Office coordinator Karen Friedman Media services manager Nicole Spell Billing YahNica Crawford Credit Thomas Hanovich CUSTOMER SERVICE

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Crain’s Cleveland Business is published by Crain Communications Inc. Chairman Keith E. Crain Vice chairman Mary Kay Crain President KC Crain Senior executive VP Chris Crain Secretary Lexie Crain Armstrong Chief Financial Officer Robert Recchia G.D. Crain Jr., Founder (1885-1973) Mrs. G.D. Crain Jr., Chairman (1911-1996) Editorial & Business Offices 700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 (216) 522-1383 Volume 41, Number 2 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for the first issue in January, July and September, the last issue in May and the fourth issue in November, at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2020 by Crain Communications Inc. Periodicals postage paid at Cleveland, OH, and at additional mailing offices. Price per copy: $2.00. Postmaster: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, MI 48207-2912. 1 (877) 824-9373. Subscriptions: In Ohio: 1 year - $64, 2 year - $110. Outside Ohio: 1 year - $110, 2 year - $195. Single copy, $2.00. Allow 4 weeks for change of address. For subscription information and delivery concerns send correspondence to Audience Development Department, Crain’s Cleveland Business, 1155 Gratiot Avenue, Detroit, MI, 48207-9911, or email to customerservice@crainscleveland.com, or call (877) 824-9373 (in the U.S. and Canada) or (313) 446-0450 (all other locations), or fax (313) 446-6777.

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