VOL. 38, NO. 23
JUNE 5 - 11, 2017
Source Lunch
Akron
Elevation Group president Denny Young has a knack for putting on concerts in unlikely places.
A large piece of the Rubber City’s history is for sale. Page 22
Page 27
SPORTS BUSINESS
CLEVELAND BUSINESS
The List Largest privately held companies Page 25
DEVELOPMENT
Goodyear continues to go big on sports By KEVIN KLEPS kkleps@crain.com @KevinKleps
Goodyear Tire & Rubber Co. is betting a sizable amount, possibly as much as eight figures per year, that a 2½-inch-by-2½-inch patch on the Cleveland Cavaliers’ redesigned jerseys will be a worthwhile investment on a team with as much global appeal as almost any in the NBA. And while the regional ties between the Cavs and the Akron-based tire manufacturer are important, and made for an interesting story when the two organizations announced a jersey patch sponsorship on May 15, the deal goes well beyond the area in which LeBron James was raised. “For Goodyear, this relationship has to be bigger than just two Northeast Ohio companies,” said Seth Klugherz, the company’s director of North American marketing. “And certainly for us, one of the key elements is to continue to build our top-of-the-line awareness for the Goodyear brand.” To do so, the tiremaker often turns to sports, which accounted for 93 of the top 100 live-viewed TV programs of 2015. Klugherz — who said “live sports is DVR-proof” — wouldn’t disclose how much of Goodyear’s $355 million global ad spend in 2016 went to sports, but it had to be a sizable amount, considering the company’s massive presences in such realms as college football and auto racing. During the 2017-18 NBA season, when teams will first start wearing the sponsorship patches on the upper left of their jerseys, Goodyear’s hoops presence will rival its place in the other sports. The deal with the Cavs, according to Crain’s sources and various reports, is for $7 million to $10 million per year, and extends past the three years of the NBA’s pilot program for the jersey ads. SEE GOODYEAR, PAGE 4
Valley begins slow climb back The Youngstown Neighborhood Development Corp. has rehabbed more than 80 homes since its start in 2009. (Shane Wynn for Crain’s)
Since hitting ‘bottom,’ region has diversified its business bases By RACHEL ABBEY McCAFFERTY
A drastic decline
rmccafferty@crain.com @ramccafferty
The populations of both Warren and Youngstown have dropped precipitously since 1990, according to U.S. Census data.
What comes to mind when someone says the Mahoning Valley? The region’s post-industrial downfall? Its shifting political alliances? The rampant opioid epidemic? Those are all valid stories about the region. But, despite what national media coverage might lead you to believe, they’re not the only stories. The region still faces plenty of challenges, but in both Youngstown and Warren, efforts to revitalize the cities at the heart of the Mahoning Valley are underway, led by entrepreneurs opening new businesses and renovating buildings, and by neighborhood development corporations cleaning up blight. It’s taken a long time for the region to even consider rebuilding after its major manufacturing base left. After
Warren 1990: 50,800 2010: 44,000 Youngstown 1990: 95,700 2010: 67,000
“Black Monday” in 1977, when Youngstown Sheet and Tube Co. announced thousands of layoffs, the city of Warren didn’t fall into a depression overnight. It was more “gradual,” said Michael D. Keys, community development director for Warren. “I think at the time, a lot of people said, ‘Oh, it’s going to come back,’ ” Keys said. “And there was sort of that denial, so like, with grief. You know, the 10 stages of grief, the 10 stages of economics. And I think what we’re seeing now is that we’ve reached the bottom a while back, and we’re now on our way up.” Disclosures up front: I was born in
Entire contents © 2017 by Crain Communications Inc.
Ian Beniston and Tiffany Sokol are executive director and housing director of the Youngstown Neighborhood Development Corp.
Warren and lived there as a child before my family moved to one of the city’s suburbs about 10 minutes away. I attended a Catholic elementary school, and church, in Warren. I got my start as a reporter at the Tribune Chronicle, first as a writer for its teen page and then as a freelancer throughout college. I’ve spent a lot of money at the Mocha House. That’s why I’ve been confused by the post-election trope that, in an effort to explain why so much of the Mahoning Valley turned away from the Democrats, depicts the region as a wasteland of industrial ruin. That might have been true 30 years ago, but for those of us who missed the region’s manufacturing heyday and instead compare the Mahoning Valley to what it was one or even two decades ago, the difference is striking. It’s true that population in Warren and Youngstown has fallen drastically over the years, but both cities have diversified their business bases in the decades since major manufacturing devastated the region. In April 2017, the last time period for which the U.S. Bureau of Labor Statistics has data, the Youngstown-Warren-Boardman area had preliminary job numbers of 222,400 for non-farm employment. Most of those — about 46,500 — were in trade, transportation and utilities, closely followed by 43,800 in education and health services. SEE MAHONING, PAGE 21
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Group has high-level hopes for Midtown By JAY MILLER jmiller@crain.com @millerjh
Thirty-five years ago, Midtown pioneers Morton Mandel, chairman of Premier Industrial Corp., an automotive and electronic parts supplier, and Thomas Roulston, president of the Roulston & Co. financial firm, decided it was time spruce up the ragged industrial district between downtown Cleveland and University Circle that was home to their businesses. So with other nearby businesses, they created and funded a nonprofit corporation, Midtown Corridor Inc., to clean up trash-strewn vacant lots, plants some flowers and rid Prospect Avenue of its prostitutes. By 1997, the cleanup was well underway and businesses like Applied Industrial Technologies Inc. and State Novelty Co. had moved in. But it was still not a neighborhood. Crain’s Cleveland Business reporter Stan Bullard described it at the time as “an industrial park surrounded by some of the city’s poorest residential neighborhoods.� In the two decades since, however, Midtown’s business base has grown, spurred by biotech spinoffs of University Circle’s health and medical institutions, and the conversion of older, lower-rent downtown office buildings into apartments is making Midtown more attractive for service businesses and nonprofits. And the organization that Mandel
“I think what we are talking about is pulling elements of downtown east and elements of University Circle west and creating this unique stew in the middle.� — Jeff Epstein, executive director of MidTown Cleveland
and Roulston founded, now called MidTown Cleveland Inc., believes the district is ready to become a real neighborhood with stores and apartments for a generation that wants to live near where they work. The group recently implemented a new strategic plan to lay the groundwork for achieving that vision. “We’re trying to be a little more thoughtful about all the various pieces so it’s not just a collection of businesses that people come and go to during the day,� said Lloyd Bell, board chairman of MidTown Cleveland. “There’s a burgeoning residential part of Midtown and, obviously, with new business attraction, it’s a totally different place than it was a couple year ago.� Beyond wanting to oversee orderly new development, a key new goal of the organization is to connect Midtown to the neighborhoods around it — Hough, Fairfax and Central — and work to create employment opportunities for people in those neighborhoods. “I think what we are talking about is pulling elements of downtown east and elements of University Circle
west and creating this unique stew in the middle,� said Jeff Epstein, who became executive director of MidTown Cleveland in March of last year. “That’s where we’re going, and we’re really excited about trying to weave all these disparate parts together into a vibrant neighborhood.� Although executing the vision of Midtown Epstein talks about is challenging, the district has some advantages. Not only is it between the two largest employment centers in the region — downtown Cleveland and University Circle — but it is a part of the Health-Tech Corridor (HTC), one of several of former Gov. Ted Strickland’s “hubs of opportunity and innovation� around the state. Larger than Midtown, the HTC runs from Cleveland State University in downtown on the west and the medical centers of University Circle on the east. But by being within the corridor, health and medical projects within Midtown are eligible for special state development grants and loans that spur development. Created in 2010, the corridor status attracted Streetsboro’s Geis Cos., which that
year began the first phase of Midtown Tech Park. Epstein said the district has seen $147 million in real estate development between 2008 and 2015. Epstein also believes the HealthLine bus rapid transit, which has been running since 2008 and offers future Midtown residents easy commutes to downtown or University Circle, will help his group knit together a neighborhood. “Everybody sees the development, but people still see (Midtown) as a pass-through,� said Epstein, who had been the executive director of HTC. “When you ask people to envision the future of what they want this place to be, there was almost an inability to do it. We said to ourselves, the ingredients of a neighborhood are here. They just need to be pulled together.� The redevelopment downtown, with older, lower-rent office buildings being converted into apartments, Epstein said, will continue to be an important spur for Midtown’s transformation, which has 17 current and proposed development projects on the books that represent $140 million in investment. Several projects are under development that will help to diversify Midtown. They include the conversion of two 1950s-era office buildings, at 2828 and 3101 Euclid Ave., into apartments; a new Dave’s Market at East 59th Street and Chester Avenue that will replace an older store on Payne Avenue; and, perhaps, a new hotel, likely branded Tru by
Hilton at East 70th Street and Euclid Avenue. Perhaps the most significant recent redevelopment in the district has been the move of the headquarters of Dealer Tire LLC, a tire distributor, into the long-vacant Victory Center at East 71st Street and Euclid. Dealer Tire moved 450 employees into the building earlier this year, with an additional 100 employees likely to be added. With more job growth on the horizon, MidTown Cleveland is committed to helping employers hire from the surrounding neighborhoods. “Jobs are growing and we still have massive unemployment around us,� Epstein said. “We’ve started looking at creative models, and we’re encouraging businesses and nonprofits to hire locally, and we’re pairing up with workforce organizations to help with that.� Epstein said he is looking at a successful program at University Hospitals as one model. Barney Taxel, owner of the Taxel Image Group, a photographic business that has been in the district for decades, is happy to see the redevelopment, though he noted the idea of the district that includes Euclid Avenue becoming a place to live and not just to work is really just coming full circle. “There always has been residential in this area,� he said. He added, “We had Millionaires’ Row,� recalling the string of mansions along Euclid that included the home of John D. Rockefeller at the corner of Euclid and East 40th Street.
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Bar association has new leader, same challenges By JEREMY NOBILE jnobile@crain.com @JeremyNobile
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The Cleveland Metropolitan Bar Association’s new president steps into the role at the lawyer-supporting nonprofit at a time when the group is in the midst of refreshing its identity. But if its plans come to fruition, the group will be increasingly beneficial to the Northeast Ohio legal market. Darrell Clay, a partner and litigator with Cleveland’s Walter | Haverfield and a 20-year member of the CMBA, officially became president for the group’s 2017-18 year on Friday, June 2. He takes on the CMBA’s overall strategic plan adopted last May and intends to “double down” on it. That means shaping the group so it’s of the most use to lawyers while further supporting diversity in the overall legal market. Those efforts also should help with membership growth, which has been a challenge for the group. The CMBA has about 5,200 members today, which is a sizable dip from the approximately 5,500 members logged at roughly this time last year. “Certainly there’s a desire to see membership growth, but not for the sake of counting numbers on paper,” Clay said. “We don’t want people to join out of obligation. Forty or 50 years ago, it was understood you’d be a member of your local bar. But at a time when many law school graduates are setting up shop themselves, or working for a smaller firm, we realize there’s a true dollar cost to being a member. If we aren’t delivering real value, it’s easy for someone to say they can’t justify that.” Indeed, lawyers in the Cleveland market today increasingly are hanging their own shingles over joining a large firm. Much of that is simply a factor of the legal industry at-large: firms of all sizes are seeing greater challenges with profitability in the wake of the last economic recession that sapped life out of corporate legal budgets. That, in turn, is leading to a softer market for lawyers
while simultaneously making competition for the best attorneys and law school grads even tighter. “Darrell really is the best of the best, and we are thrilled he’s coming in at a Clay time when we are moving into the second year of our strategic plan, where we’ll execute on all these great plans we have,” said CMBA executive director Rebecca Ruppert McMahon. “It’s not just about growing membership, but strengthening the members we do have.” Bar associations like the CMBA are largely referral networks. That benefit certainly isn’t going away — in fact, the plan is to better improve how that system works. There’s a “more robust offering” for lawyers as part of that referral service and for the public in general in the works, McMahon said. Yet, Clay said there’s a desire to evolve the group in some ways, such as providing additional services and training for entrepreneurially minded lawyers going solo and grooming future leaders. One of the CMBA and Clay’s top focuses will be the development of a leadership academy that kicks off in September. The 10-month program — being launched in conjunction with Business Volunteers Unlimited and the Cleveland Leadership Center — has newer lawyers in mind and will focus on everything from proper attorney-client relationships to how to establish a strong working dynamic with in-house counsels. “That’s the type of thing we think makes us a little different from your grandmother or grandfather’s bar association,” Clay said. Of course, the new CMBA president has a chance to further his own agenda in addition to taking on the goals of the wider organization. For Clay, a program he’s particularly excited for comes next April 11 on the 50th anni-
versary of the Civil Rights Act of 1968, otherwise known as the Fair Housing Act (it also coincides with the 150th anniversary of the 14th amendment). The CMBA will host a summit on the meaning and impact of the law with renowned Cleveland civil rights lawyer Avery Friedman. Improving diversity in the legal market has been an ongoing mission for the CMBA as well. A June 2016 diversity and inclusion study by the CMBA surveyed 424 legal groups (including 318 law firms) across Northeast Ohio. The study found that of all equity and non-equity partners in the market, only 4% were attorneys of color. Meanwhile, just 8% of all associates were minorities. And female minorities composed less than 1% of all partners and just 4.6% of all associates. Because of this kind of spread, the CMBA spearheaded the Cleveland Legal Inclusion 2020 Collective Action Plan last year, acting as a convener between legal groups in the market and calling on them to commit to improving diversity in their institutions. A major goal of that was the creation of a legal inclusion director — a position, housed at the CMBA, designed to focus specifically on recruiting diverse attorneys here. The CMBA unveiled those plans last fall. However, the initiative required a buy-in by law firms that would ultimately cover that person's salary. The CMBA didn’t disclose how much money was needed, but McMahon said commitments amounted to less than half of what was hoped for. Still, McMahon said those efforts have far from fizzled out. The 25 firms in that action plan will work with the CMBA to host the first Midwest regional career fair in September. “Even though we didn’t secure enough to hire that director of inclusion, this is going to give us an opportunity to advance the ball toward our goals of increasing that pipeline of diverse candidates coming into Cleveland and the Cleveland market,” McMahon said.
plish an NBA mandate that Turner and ESPN get an opportunity to benefit from such sponsorships. Turner Ignite, the company’s inhouse sports marketing agency, is tasked with bringing the gold Wingfoot patch “to life through storytelling,” Matt Hong, Turner Sports’ chief operating officer, told Crain’s. The first example aired during TNT’s Game 1 broadcast of the Eastern Conference finals on May 17. That night, as the Goodyear Blimp hovered over a Quicken Loans Arena watch party, a graphic showed a wine jersey with a gold Wingfoot logo being unfurled from the blimp. “You’ll see more and more of that,” Goodyear’s Klugherz said. The jersey patch is the headliner and the TV ads are catchy, but the three-way deal between the Cavs, Goodyear and Turner is a complicated one that, according to sources, includes various other assets that ensure the Akron company and the Cavs remain partners for quite a while. The contract also features a suite at The Q, season tickets, courtside and midlevel LED signage, a position at the front of the arena’s basket stanchions, a presence in the organization’s youth basketball initiatives and other community-related assets. For such deals, the team assigns a
value to the jersey patch that is lower than the total amount of the deal. Once the amount is approved by the NBA, the league will take 50% of it and eventually divide it evenly among the 30 clubs. The overall deal, however, is classified as basketball-related income, which means that the players, after deductions such as hard costs associated with the deal are taken off the top, get 51% of the pie. Another beneficiary is Turner, which, according to sources, gets media spending from Goodyear that could increase over time. By looping in a league partner very early in the process, the Cavs were able to keep two key parties — Turner and the NBA — happy. “When the league first announced this program, Goodyear was used as the model,” Cavs CEO Len Komoroski told Crain’s after the deal was announced. Thirteen months, and many twists and turns later, it came to fruition. “More driven” is a Goodyear tagline. “More sports” seems to be an essential part of its marketing plan. “As this (media) shift is happening and Goodyear is strong in live sports, working with Turner — a broadcast partner of the NBA with lots of reach and lots of fans — it was only a natural,” Klugherz said.
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Eric Smallwood, managing partner of Apex Marketing Group, a sports sponsorship and analytics firm in St. Clair, Mich., has calculated the exposure value of a jersey patch on the likes of James and Kyrie Irving at $22 million to $29 million per year. Smallwood bases that value on such factors as star power, team success, home and away attendance, jersey sales, social media, appearances on the popular NBA 2K video game, and trading cards. The Cavs — who led the league in road attendance in 2016-17, were second in home attendance and are fifth with a combined 15 million-plus followers on Facebook, Instagram and Twitter — check every box in that regard. Those metrics, plus three consecutive appearances in the NBA Finals, helped them secure a jersey patch deal that is believed to be the richest of the six that have been announced. Still, Goodyear is going to get a quality return on investment, Smallwood said. The deal also includes one of the league’s two major TV partners in Turner Sports — the first of its kind for a jersey patch sponsorship, and one that allowed the Cavs to accom-
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There was no shortage of options for Dr. Phil Settimi, CEO of Aurora-based PartsSource, and his management team when they began looking late last year at potential buyers for the fast-growing medical parts supplier. Settimi said PartsSource, which also offers sophisticated supply chain management technology to streamline procurement processes for hospitals, outpatient clinics and physician offices, last year landed big deals with systems including Hospital Corporation of America, UnityPoint Health in Iowa, OhioHealth, New York-Presbyterian Hospital and Kaiser Permanente. Growth from those relationships began leading to inquiries from potential buyers, Settimi said in an interview last week. The timing for a deal was good, too. In 2008, about 32% of PartsSource was sold to Polaris Partners and Primus Capital Fund. A. Ray Dalton, a serial entrepreneur who founded PartsSource in 2001 and in 2014 stepped into the executive chairman role as Settimi became CEO to build up the company's digital capabilities, said those partners were looking for an exit. An exit would have come earlier, but slower growth during the recession pushed back the timetable. The PartsSource board last October brought on Robert W. Baird & Co. to serve as financial adviser and, as Settimi put it, “actively look at what the market might offer.” Turns out,the market was really active.
Settimi and Dalton said more than 20 potential buyers made offers for PartsSource — a challenge logistically, but a nice problem to have. The process ended on May 23, when PartsSource announced it had been acquired by Boston-based Great Hill Partners, a private equity firm with nearly $3 billion under management. Terms weren’t disclosed, but Settimi called it “a sizable deal” and said it will be “in the top few deals in Ohio in health IT” of recent years, a list headed by the 2017 acquisition (for more than $1 billion) of software company CoverMyMeds by McKesson and the 2015 deal in which IBM bought analytics software company Explorys for an undisclosed price. Settimi said PartsSource at present has about 175 employees and annual revenue of $200 million, and it’s growing at a rate of about 20% a year. The company facilitates more than 1.5 million transactions annually by connecting suppliers and OEMs to more than 3,300 hospitals. The deal will lead to more hiring, Settimi said, in areas ranging from sales and marketing to software engineers and data scientists. The scope of the company’s business is nationwide, but most of the employee growth will be in Aurora, he said. Great Hill works with middle market companies in high-growth sectors. Settimi said it was a good fit for PartsSource because the firm has “tended to buy dominant, disruptive technology players” and has had “a number of terrific outcomes” with health care companies. Among Great Hill investments have been Passport Health Communications (acquired by Experian for $850 million), SterilMed (acquired by Johnson & John-
son) and bSwift (acquired by Aetna for $400 million). Dalton, who sold his stake in PartsSource in the deal, said prospects for the company are strong because Great Hill has a strong understanding of how to accelerate that growth. Mark Taber, a managing partner of Great Hill now on PartsSource’s board, sees the Aurora company’s digital capabilities as key to its growth. He said PartsSource’s e-commerce technology that automates the procurement process of medical parts “has disrupted a workflow that has historically been offline ... allowing those providers to procure parts and supplies more efficiently.” Settimi said PartsSource now has greater resources to focus on leveraging procurement technology for what he called the “holy trinity” for health systems — improving cost structures, quality of service and productivity. “It’s our focus to help them lower the cost of delivering care, ensure they have the highest-quality tools and the ability to do it efficiently,” said Settimi, who prior to joining PartsSource was an executive at GE Healthcare IT and Hill-Rom, a health care equipment company in Batesville, Ind. Dalton, meanwhile, is in the process of building another health IT business in Aurora, reLink Medical. The company was created two years ago to streamline the process of hospitals to dispose of obsolete, excess or out-of-service medical equipment. Dalton said reLink “is doing really well” and has grown to about 20 employees and $10 million in sales. His goal is to get to $100 million in sales by 2020.
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Hospitals taking wider approach to care By LYDIA COUTRÉ @LydiaCoutre lcoutre@crain.com
Akron Children’s Hospital has several initiatives across its system — from emergency care to primary care — to support, monitor and care for kids with asthma. But to coordinate these programs and bring them to the next level, the hospital needs someone with a more global perspective to pull all of the efforts together. Meet Kristene Grayem, who was just named Akron Children’s vice president of population health management and has the job of doing just that. And Akron Children’s isn’t the only hospital system in Northeast Ohio filling new administrative posts dedicated to understanding that global view. Grayem, who has worked in various administrative roles at Akron Children’s for 29 years, will work to enhance and align current coordination efforts, manage new care models, identify gaps in care and develop efforts to address those. “We do a great job when you show up for a well visit taking care of that patient,” Grayem said, “but what about the families who didn’t show up for their well visit last year? And really kind of starting to look at those patients that we’re not seeing that maybe we should be seeing.” In the past few years, interest in executive roles dealing in population health has “drastically increased,” said Sue Martin, senior vice president of interim leadership at B.E. Smith, a national health care executive search firm headquartered in Kansas. Some of these roles come with population health in the title, while others are strongly aligned with those goals, such as chief clinical transformation officers or chief patient experience officers. Last year, MetroHealth brought on Dr. Nabil Chehade as its newly created senior vice president of population health. Cleveland Clinic is working to create a leadership team for population health. And at Summa Health, Dr. Mark Terpylak, president of the system’s accountable care organization New Health Collaborative, added the title senior vice president of population health a couple of years ago. Put simply, population health is caring for various defined populations in a community. More broadly, it encompasses providers’ efforts to shift the long-held paradigm in health care where providers are only paid for services rendered rather than the broader goal of maintaining the health of a designated population at a controlled cost. Without someone at the executive level driving this transformation as the sole part of his or her job, “I do think that they will find some struggles there,” Martin said. It can feel like a pretty abstract concept, with many population health roles holding monumental goals: reducing total cost of care, improving the health of communities. Data analytics and clearly defined organizational goals for measuring the success of executive-level popu-
Correction Eddie Taylor’s role was misstated in the May 29 “Who’s Who in Northeast Ohio” feature. In 2012, Taylor became president and majority owner of Taylor Oswald, a separate but linked venture of Oswald Cos.
lation health roles will be critical, Martin said. Systems may assume that they can flip the switch from fee-for-service to value-based payment models, but in reality, the majority of systems today are not designed to function that way, said Chehade, the former head of the HealthSpan provider group. “I have not yet seen any health system that has been successful in moving from a fee-for-service to a global risk without putting a significant emphasis on population health,” Chehade said. And for many, that significant emphasis has been through executive level roles. Dr. Rob McGregor, chief medical officer at Akron Children’s Hospital, said providers may be caring for a pa-
HE
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tient in one area and uncover something else, and need to be able to wrap it back around. The new role, which will report to him and the chief nursing officer, is an attempt to create cross-talk between existing silos, and ideally, break them down. Many organizations have long understood they need to shift to value-based payments, but until payment models align, it remains challenging, McGregor said. And Grayem’s role is expected to establish an infrastructure to be ready for that shift. Grayem, who started in her role after the holiday weekend, is still working to define what her team will look like and how their work will be measured. But with a history of taking on and developing new roles, she said
she’s excited to create it from scratch. Dr. Michael Modic, Cleveland Clinic’s chief clinical transformation officer, sees his role — which was created about two and a half years ago — as driving the confluence of strategy and market conditions. A number of organizations nationwide have created similar positions focused on helping systems transform from volume to value, he said. Presently, a significant amount of his work has been around population health. His intention is not to have his office run population management, but rather to be a catalyst, drive the conversation and build a leadership team to then continue that work. “From an organizational perspective, we’ve spent a considerable
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Apple Growth’s ambitious plan is on track By JEREMY NOBILE jnobile@crain.com @JeremyNobile
Apple Growth Partners’ latest acquisition of fellow Akron-based accounting firm Schlabig & Associates keeps the firm well on pace to hit its strategic goal of doubling the business by 2020. Schlabig will merge into Apple Growth effective July 1. Terms of the deal are not being disclosed. Schlabig has two locations — its flagship Akron office and a Kent location that opened in 2007 — 18 employees and $2.5 million in annual revenues. All staff are expected to make the transition. The Schlabig name will
Fisher
Hagar
dissolve, and the firm’s Akron location will be absorbed into Apple Growth’s nearby office. The acquisition will elevate Apple Growth to about $17 million in annual revenues and roughly 105 people. Schlabig partner Bob Fisher will
Mullen
come on as a shareholder, join the executive committee and is expected to manage the Kent office. Schlabig managing partner Tom Hagar joins Apple Growth as a principal. When the plan for 2020 was outlined, doubling the business meant
expanding Apple Growth to about $20 million in revenues and 160 people. “We’re cautiously optimistic that we’re just on track to just a little bit ahead of schedule,” said Apple Growth chairman Charles Mullen. “This fits perfectly into our strategic plan.” While the deal underscores an ongoing strategy for Apple Growth to gain market share in Northeast Ohio — the firm will have its first physical presence in Portage County with the deal, along with some new clients in southern Geauga County — it also marks a new chapter for Schlabig, which was founded in 1962. Hagar said his firm was considering how it would best serve clients in the future about five years ago. Acquisitions of their own were consid-
ered. They even entertained a few potential deals that simply didn’t pan out, Hagar said, adding some had “ramifications.” But those didn’t fit their vision for the business. In considering to instead merge with another firm, dialogue opened up with Mullen regarding a combination about a year ago. “When we did our due diligence on smaller firms, we were far and away above what they were doing,” Hagar said, adding that he feels cultural similarities with Apple Growth. “They just didn’t fit. When we started to strategize, we said we have the infrastructure and we have the capacity larger firms have. So it just started to make more sense to be the firm that was acquired.” “Where we want to be as a firm and how we want to serve clients culminates with the merger,” he added. For Apple Growth, which has been in the midst of its growth spree having in January acquired KPFF LLC of Beachwood, a firm of comparable size and scope to Schlabig, the otherwise competing accounting firm in their backyard was a logical target. “We want to be the big small firm in Northeast Ohio,” Mullen said. “We don’t want to sell out to an out-ofstate firm. We want to keep everything local.” Indeed, other accounting firms have been making moves in Northeast Ohio in recent years. Among a handful of notable acquisitions in the region is Sikich LLP of Naperville, Ill., which bought Akron’s Brockman, Coats, Gedelian & Co. last spring to break into the market here. Sikich's incoming CEO at the time, Christopher Geier, told Crain's a few weeks later that the firm had big plans in store for Northeast Ohio and already was contemplating additional deals in the market. Allan Koltin, CEO of Koltin Consulting Group Inc. in Chicago and an adviser on M&A deals in the accounting sector, has said interest has been high by established Midwest firms looking to cast out into the Cleveland pond. In general, midsize CPA firms in this region seem to field calls from interested out-of-state buyers with some regularity. “It was very important for us to remain local,” Hagar said. “Large firms are gobbling up firms of our size. And we didn’t want to be a number in a firm that’s 1,000 or 1,500 people.” Mullen has acknowledged challenges with recruiting top CPA talent in today’s landscape as the firm plots its aggressive growth. Beyond what Schlabig adds in terms of staff and deepened service to Apple Growth — Schlabig has a strong group working with auto dealerships and the manufacturing sector, for example — the deal also bolsters connectivity with nearby Kent State University, which Apple Growth sees helping it fill out its pipeline for people. “There is a big talent war out there right now,” Mullen said. “We like to be close to our top universities, and the Kent office is very close to KSU, which is a place we recruit from.” Apple Growth is making progress on its growth plans. Asked about the timing of this deal coming just months after the KPFF acquisition, Mullen asserts it’s not moving too fast. “As for KPFF, that is going better than expected,” Mullen said. “Obviously, you don’t plan to do two mergers in five or six months of each other. But we felt that firms that have the reputation like Schlabig don’t come around every day, so we needed to move on it.”
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Liberty Ford’s home is shifting to Aurora By STAN BULLARD sbullard@crain.com @CrainRltywriter
Liberty Auto Group’s well-known jingle listing Northeast Ohio cities it’s in will need a rewrite if plans to move Liberty Ford to Aurora from Solon come to fruition. The dealership wants to move to a 14acre site on part of the former Geauga Lake that Sandusky-based Cedar Fair Entertainment Inc. shut almost a decade ago. The dealership would be the first business to locate in the 320 acres of the former amusement park that Aurora voters rezoned to mixed use to ready
it for development in 2014, according to Mayor Ann Womer Benjamin. Aurora also is taking steps to sweeten the dealership’s deal for the site on the southeast corner of Squires and North Aurora roads. On May 22, Aurora City Council introduced legislation to provide Liberty Ford with a property tax abatement for 75% of the value of the proposed $7 million investment in the property for 15 years. The mayor said the council may adopt the measure on second reading at its next meeting, or let it go for a third, formal reading. The abatement will shave a total of $1.7 million from its property tax bills in Portage County. “This is a good fit for our mixed-
use zoning,” Benjamin said. “It’s a great business to bring to the city and they’ve been good to work with.” The auto dealer agreed to have an entrance off a side road rather than directly on busy state Route 43 and comply with the city’s architecture standards for the project’s design. With the luxury of a sprawling potential site to deal with, the ease of the Aurora approvals is a big contrast to the roller coaster ride between the dealership and the city of Solon over allowing Liberty to expand at its 32811 Aurora Road site. After three years and multiple efforts, the dealership announced last summer that it would exit Solon for a
new location, which prompted a detailed discussion reflected in Solon City Council minutes of its Aug. 16, 2016, meeting of the city’s efforts to work out a plan. A new zoning class was created by a vote in the suburb at one point. At another time, the suburb adopted 15 variances to allow the dealership to expand. Peggy Weil Dorfman, Solon economic development coordinator, said in an email, “We’re sorry to see a longtime Solon business leave. The city did its best to facilitate the redevelopment of the existing Liberty Ford dealership, but they opted for new construction in Aurora. We’re already getting inquiries about the property, so we’re ready to
assist Liberty Ford in marketing their property whenever they are ready.” Dustin Peugeot, chief financial officer of Maple Heights-based Liberty Auto Group, did not return three calls from Crain’s Cleveland Business. The dealership is clearly a prize. With 57 full-time employees and 10 part-timers, the dealership will bring a payroll of more than $3 million annually to Aurora, according to Benjamin. Some home builders have explored acquiring part of the Geauga Lake land, but no deals have surfaced, she said. Aurora’s mixed-use plan, Benjamin said, will allow for new development in that portion of the city while retaining its downtown as a quaint area.
Case forum to showcase firms that give back By JAY MILLER jmiller@crain.com @millerjh
As part of its $4.1 billion merger with First Niagara Financial Group last year, KeyCorp pledged $16 billion to a community benefits agreement (CBA) that will result in the financial services firm’s bank, KeyBank, making major investments in mortgage and consumer loans, small business lending, community development lending and investment and philanthropy over the next five years. Only recently have banks committed to CBAs, and Key will use the upcoming Global Forum for Business as
an Agent of World Benefit at Case Western Reserve University to share its experience with other bankers, businesspeople and academics, and to solicit advice on how best to make the investment work for its communities and its bottom line. The event, subtitled, “Discovering Flourishing Enterprise,” is expected to attract 400 participants to a twoand-a-half-day event June 14-16 that will focus on businesses that, in the words of Chris Laszlo, executive director of the Fowler Center for Business as an Agent of World Benefit at CWRU, “do well by doing good.” A flourishing enterprise is one that seeks to benefit its communities and works toward a sustainable environ-
ment in addition to making a profit. Speakers including Jenniffer Deckard, CEO of Fairmount Santrol of Chesterland, will discuss how the flourishing concept is benefiting their companies. The event will be held at CWRU’s Tinkham Veale University Center. Laszlo said he and others in academia see what is “an admittedly small but burgeoning movement around the world” of companies that are working to go beyond simply return on investment. These companies, he said, believe that putting their social responsibility goals — to employees, suppliers and communities — on the same level as their financial goals does not diminish and may even enhance the bottom line.
Laszlo pointed to Tesla Inc., the maker of non-polluting electric cars, as an example of a company whose mission goes beyond making money. He noted that the market capitalization for this 14-year-old company surpassed that of longtime auto leader General Motors Co. in April. Another local business, Epoch Pi, a 2-year-old investment bank in Ohio City, will school forum attendees on “impact investing.” Impact investments, said William Vogelsgang, a founder and partner of Epoch Pi, “are made in companies that exist for a higher purpose, the ones that are attracting the millennials to work there, and they’re connecting with consumers, because consumers are
wanting to spend their money with companies whose products and values align with theirs.” At other sessions, teams of corporate attendees will present their goals for sustainability and social responsibility, and brainstorm how to execute those goals with other attendees. Andrew Watterson, KeyBank’s head of sustainability, said Key will participate in a panel at the forum to help the company move ahead with the community benefits agreement it made when it swallowed First Niagara. It’s an ambitious commitment, and Watterson said Key hopes forum attendees will help the bank plan how it will follow through on its benefits agreement.
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CRAIN’S CLEVELAND BUSINESS
Opinion From the Editor
It’s good to be touted, but NEO can also boast
Editorial
The good fight 4,149. That's the number of Ohioans who died from unintentional drug overdoses in 2016, according to county coroner data compiled by The Columbus Dispatch. It works out to more than 11 people every day. The figure was 36% higher than 2015, when Ohio's 3,050 overdose deaths were the highest in the nation. In Cuyahoga County alone, the opiate epidemic killed 666 people last year, figures from the county Medical Examiner's Office showed. Cleveland.com reported that officials there project deaths to increase to at least 775 in 2017. Those are frightening numbers that show no signs of slowing down. In addition to the deaths are thousands of Ohioans who have become addicted to heroin, fentanyl and other illicit and prescription substances, wreaking havoc on their personal and financial lives, and creating yet more challenges for employers who struggle to find workers to fill available positions. In short, it's a problem that is gaining momentum and stands to exact a heavy social and economic toll on the state. Combating the opioid epidemic has become an all-hands-on-deck situation, and in that respect, there are some encouraging developments. Ohio is fortunate to have two U.S. senators — Democrat Sherrod Brown and Republican Rob Portman — who are treating the problem with the utmost seriousness. Portman last week announced that Ohio is eligible to receive funding for addiction treatment services under three new grant programs authorized as part of the bipartisan Comprehensive Addiction & Recovery Act, which he co-wrote and President Barack Obama signed into law last year. He said the programs will give Ohioans “better access to addiction treatment and the life-saving overdose-reversing drug naloxone.” Brown was among the strongest voices of protest when reports emerged that the Donald Trump administration planned significant cuts to the budget for the White House Office of National Drug Control Policy. The administration has reversed course on many of the proposed cuts, though as Brown noted in a May 23 statement, the budget “still proposes to cut funding for
the high-intensity drug trafficking program and the drug-free community program under the Office of National Drug Control Policy.” We trust he will continue to be a strong advocate for these programs. Ohio Attorney General Mike DeWine last week sued five companies, alleging they flooded the state with prescription painkillers that gave rise to the crisis by overstating the benefits of prescription opioids and understating the risks. At a news conference, he said “the people who played a significant role in creating this mess in the state of Ohio should pay to clean it up.” Those costs are heavy. As Cleveland.com pointed out, DeWine said increased foster care placements for children of addicted Ohioans costs about $45 million a year. Meanwhile, the Ohio Third Frontier Commission economic development program is looking to leverage technological innovation in the fight. At the urging of Gov. John Kasich, the commission plans to use $20 million to encourage development of products to combat opioid addiction. About $12 million of that will be distributed to Ohio companies and other organizations to turn existing technologies into products. The other $8 million will be used to fund “The Challenge,” a competition that aims to attract ideas from anywhere. (Ultimately, a team with a concept worthy of significant capital to turn it into a product would have to be in Ohio or work in partnership with an Ohio organization.) “This is just one more arrow” in the addiction fight, a Third Frontier commission official told Crain's. The situation is tough but not hopeless. In a recent Crain's profile of Coleman Professional Services, a Kent provider of behavioral health and rehabilitation services, CEO Nelson Burns described the company’s efforts to help opioid-addicted people get cleaned up and “change their destiny through a job and responsibilities.” Job placements are rising. Addiction doesn’t have to end in ruin. We encourage companies to take up this fight. It’s in everyone's interest to do so vigorously.
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Cleveland has ramped up efforts to become a more global city in recent years, but what will it take to prevent Cleveland and other Midwest cities from being stuck on the a “cul-de-sac of globalization,” as geographer Jim Russell once described our fair city? The economic development nonprofit Global Cleveland set out to address that issue with its recent Global Employer Summit, which aimed to help local companies address workforce needs by connecting with global talent. I got an up-close education on globalization while moderating a panel with local employers who do business internationally and who see the economic value of hiring people with a global view. The panelists were Michele Connell, Cleveland office managing partner for Squire Patton Boggs; Baiju Shah, CEO of Elizabeth BioMotiv; Peter Clarke, general manager of McIntyre the InterContinental Hotel Cleveland and regional director of operations for the hotel group; Jack Schron, Cuyahoga County councilman and CEO of Jergens Inc., which operates locally and in China and India; and Dr. Nizar Zein, chairman of global patient services at the Cleveland Clinic, They have seen what happens when prospective employees actually visit Northeast Ohio and experience the benefits of what our region offers. We’re no cul-de-sac. We’re a bustling boulevard. Clarke, who has been in Cleveland for less than a year, knows this firsthand. Clarke certainly has a world view, and not only because he was born in Ireland. His work has taken him to places like Budapest, Bangkok and Bali. It was while working in Shanghai that he got a late-evening call offering him the top position at the InterContinental Hotel in Cleveland. “Cleveland?” he said. His next thought? “No.” Clarke’s wife, however, was more pragmatic, and as Clarke slept for a few hours, she dove into online research to find out all she could about Cleveland. By the time Clarke awoke, his wife was sold on the move. And she sold him on it, too. His takeaway? People will love the area if they know about it, which is why our region needs to pay attention to marketing itself. We’re not big on bragging in Cleveland, except when it comes to our NBA champion Cavaliers. But if we want a twoway connection to the world, we’ve got to do a better job of talking ourselves up. “It took her hours to find out what she should’ve been able to find in minutes,” he told the Global Employer Summit audience. Now that Clarke is living in Northeast Ohio, he particularly enjoys Cleveland’s small-town feel with the benefits of a much larger city, a sentiment shared by Schron, the County Council member and Jergens CEO. Connell shared that a recent summer associate at Squire Patton Boggs was trying to decide whether to work in the law firm’s Phoenix or Cleveland office. After experiencing all that Cleveland offers, the associate picked Cleveland. If Cleveland is truly to become a more global city that attracts talent from all over, we need to embrace and tout the best aspects of our region. And, of course, continue to build on our strengths so we have plenty to crow about. There’s room for improvement. Our airport isn’t the asset it could be, the panelists said. And Dr. Zein, of the Cleveland Clinic, said our industries work in silos. We need to improve collaboration. As Shah noted, having people on board with a global mindset allows us to embrace different business cultures and ultimately be a better place for business. The Cleveland culture is part of that, too. Welcoming. Down to earth. Hard working. And, on this vibrant thoroughfare, ready to connect to the world.
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 letters@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.
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Letter to the Editor
Web Talk
Politicians need to look well beyond downtown
Re: Cleveland Clinic names chief design officer Having been involved with health care facilities planning and design, I have learned to really appreciate an institution that respects the full impact of good design and planning. The latest move by the Clinic proves that it continues to lead in more than just delivering medical care. Christopher Connell has to bring various physical components dating back many, many decades delivering services under many different time periods into a single entity positioned for the 21st century and beyond. He is definitely capable. — Neil Dick
(Regarding the May 22 editorial “Frank and Banks,� in which it was stated, “A common knock against Mayor Jackson, who’s about to seek a fourth term, is that he has focused on downtown development at the expense of city neighborhoods. We don’t share that view.�) Please tell me who “we� is. Does any of “we� actually live in Cleveland neighborhoods? I don’t mean Shaker Heights, Broadview Heights or The 9 downtown. I mean Old Brooklyn or Warner Road area, Miles Avenue or West 130th in Cleveland. How about Train Avenue, any of those “we� live there? Unless or until they do, give us neighbors a break. Many of us do not want to pay to dress up The Q, and we saw no reason to support FirstEnergy Stadium. Some of us are tired of drug dealers, smashed car windows, and not enough police in the neighborhoods. Someone is shot in Cleveland nearly every single day. Downtown got its money. Time to get to work in the “real� community. Election time is the politicians’ version of Groundhog Day. They only come out when they are running. Well, I’m not interested in six more weeks, or four more years of the same old promises. It is time for a change. And that goes for council, too. Susan L. Gundich, Cleveland
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GUN BUSINESS - Page 14 TAX TIPS - Page 16 ADVISER - Page 17
MIDDLE MARKET
Carving out success for 50 years
Merritt continues to dazzle clients with its high-end woodworking By DOUGLAS J. GUTH clbfreelancer@crain.com
T
he construction industry generally operates with a certain level of tunnel vision, said Michael Merritt, whose self-named company is celebrating 50 years of providing luxury woodworking services to billionaire clients. In other words, many construction businesses are only concerned about the item or product they’re supplying, without enough thought toward how their contribution fits into a project’s overall scope. In contrast, Merritt approaches each job from a holistic point of view. To the company CEO, that means every piece contributes to the final design, meeting demands of customers as well as the world-class architects with whom the firm collaborates. “We’re going into projects with our eyes wide open,” Merritt said. “We want to make the whole project perfect, not just the woodwork that goes into it.” Merritt provides its ultra high-end clientele with interior woodworking services such as carpentry, installation and joinery manufacturing. Merritt-built cabinetry, wall panels, window frames, doors and cornice moldings can be found in your typical $200 million residential estate, opulent town-house or 500-foot superyacht. “Ninety-eight percent of our clients are true billionaires,” Merritt said. “Our focus is interiors while building the structure is handled by others.” Merritt’s range of services include metal and glasswork, hardware and specialty materials. Headquartered in Mentor with nine locations in the United States and overseas, operations have further expanded into consulting and engineering. According to the firm CEO, Merritt manages tasks from concept to delivery, creating a “service mentality” not often seen in super high-end construction. SEE MERRITT, PAGE 18
Merritt’s work spans the country, including this residence in Aspen, Colo. (Contributed photo)
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MIDDLE MARKET
There’s no more gun bump with President Trump By D’ARCY EGAN clbfreelancer@crain.com
MORTON Q. LEVIN FOUNDER, LEVIN GROUP, INC. VICE CHAIR, CSU BOARD OF TRUSTEES
A $500 million architectural makeover has reinvigorated CSU’s campus in the heart of downtown Cleveland and spurred development in the surrounding neighborhood.
Firearms sales exploded during eight years of the Barack Obama administration, fueled by a fear of gun restrictions that never came to fruition, but they’ve been in a slump since the election of gun-friendly President Donald Trump and a Republican-dominated Congress. After posting record sales of pistols, rifles and shotguns, gun manufacturers and outdoor retailers are now struggling with large inventories and disinterested buyers. The urgency promoted by the National Rifle Association and gun groups to buy firearms before a more liberal president — namely gun foe Hillary Clinton — could take office has been erased. For one, outdoor retailers, many buoyed by firearms sales, are stumbling. Gander Mountain, which had 160 stores around the country, has been sold to Camping World. CEO Marcus Lemons tweeted that Camping World will change the chain’s name to Gander Outdoors and close all but 62 locations — and the out-
look doesn’t look promising for the three remaining stores in Northeast Ohio. Lemons confirmed the Twinsburg store location was closing, while the Mentor and North Canton locations have been undergoing liquidation sales. Its store in Sheffield Village closed in 2016 after Cabela’s opened a store in nearby Avon. However, at the heart of the downturn in gun sales have been the popular but expensive military-style rifles. Average sportsmen became enamored of the exotic appearance of the AR-platform rifles, and the fact they can be a fun, fast-shooting firearm to blaze away at targets. Surprisingly, sportsmen began tailoring hunting styles to employ the semi-automatic weapons. In Ohio, hunters use them for wild game such as coyotes and groundhogs. A new straight-walled .450 Bushmaster cartridge would allow hunting whitetailed deer. Gun makers producing the socalled “black rifles” soared from a handful to more than 300 in less than a decade. With concealed carry rules expanding in many states, the sales of concealable pistols also increased.
“Led by sales of military-style rifles for target shooting and hunting, more firearms were manufactured and sold over the last five years to recreational markets than in the history of gun manufacturing,” said outdoor advertising expert Jim McConville of North Ridgeville, manager of national sales for InterMedia Outdoors Inc. If Clinton had won the frenzy to
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MIDDLE MARKET
A shopper peruses Lake Erie Arms, a firearms shop in Huron. The shop has developed a niche with AR-platform rifles. (D’Arcy Egan for Crain’s)
buy firearms would have continued, said McConville. After Trump’s surprise victory the threat of strict gun regulations or an outright ban on military or “assault rifles” simply evaporated. Guns and ammo giant Vista Outdoor’s CEO Mark Young, whose company owns AR-15 maker Savage Arms
and ammunition companies Federal, American Eagle and CCI, bluntly said Trump’s surprise victory set the industry on its heels. Vista Outdoor, in Farmington, Utah, saw its stock plummet more than 50% from this time last year. “We do believe one of the key contributing factors is that people built
up inventories in advance of the election in anticipation of a Democratic administration,” Young told CNN Money. “When that didn’t happen, we know that many of our customers had inventory levels that were too high.” Private gun companies do not report sales, but a good indicator is the FBI’s National Instant Criminal Background Check System needed to purchase a firearm from a retail dealer. NICS checks soared from 8.7 million in 2004 to 27.5 million in 2016. Gun checks have still been substantial since the election, but the difference between December checks in 2016 and 2017 was dramatic. Background checks slipped from 3.3 million in December 2016 to 2.8 million last December, an annual decline of more than a half-million firearms. In 2017, despite more than 2 million NICS background checks each month from January through April, there was a decline of more than 1 million checks from the first quarter of 2016. Brent McConnell opened Lake Erie Arms, a firearms shop in Huron, just over two years ago. He has developed a niche market in AR-platform rifles, and recently business is still brisk. McConnell expected big crowds for the shop’s Try Before You Buy Weekend (May 19-21), encouraging new and veteran shooters to head to the range behind the Lake Erie shoreline shop and try out a wide range of firearms. “It was pretty crazy when we first opened the shop, simply because of
“The business is far more stable now, and I like that. We’re finally getting support for our events, such as the Try Before You Buy Weekend sponsored by Smith & Wesson.” — Brent McConnell, owner of Lake Erie Arms
the boom-and-bust aspect of being able to get the firearms our customers wanted to buy,” said McConnell. “There had been severe shortages of some firearms and ammunition. Prices were high because of demand. “The business is far more stable now, and I like that. Gun companies are offering deals and working with
retail shops much more than in the past. We’re finally getting support for our events, such as the Try Before You Buy Weekend sponsored by Smith & Wesson.” A former Huron police officer, McConnell had taken a concealed carry course a few years ago and was disappointed in the quality of instruction. He had a Federal Firearms License required to sell firearms, so he opened Lake Erie Arms and began teaching concealed carry courses, which combine classroom instruction with range time. The full service shop has the largest selection of AR-style rifles, parts and accessories in Ohio, said McConnell. It also offers pistols and shotguns, including used firearms, and shooting accessories. An expensive shooting simulator helps customers to fine tune shooting skills. The outdoor 300-yard range is busy throughout the year. “Unlike big box stores, we have experts behind the counter and these days it is much easier for us to get what a customer wants,” said McConnell. “We don’t have long waits any more for certain firearms or ammunition.” The National Shooting Sports Federation estimated the firearms industry added 30,000 new jobs over the past three years. Companies are now scaling back. Remington Arms announced in March they laid off 122 employees at the Ilion, New York plant and 39 in Huntsville, Alabama. Its labor force of 1,300 employees three years ago has shrunk to under 1,000.
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Ruling could affect the self-employed A recent decision in U.S. Tax Court should serve as a warning to those who are self-employed and believe they have insulated themselves from some self-employment tax. Self-employment tax is paid by those who are both business owner and labor provider in the same entity. It is the equivalent to the tax paid by employers on behalf of their wage-earning employees who have payroll taxes deducted from their paychecks and receive W-2s every year. Under arrangements like limited partnerships or limited liability companies, self-employment tax is paid by owners who are also earning income from the business as a result of their work product. That includes many small business owners, depending on how their businesses are structured. The income earned by partners or owners in partnerships when they are working and making decisions in the business is different from the income earned by passive investors. Those who are working in the business earn taxable income subject to self-employment tax. Those who are investors are earning investment income that is not subject to self-employment tax. The recent tax court case is focused on where to draw that line between active participation and passive investment. Businesses have long leveraged the different treatment through tax planning to minimize self-employment tax that must be paid. Now those plans may not be as reliable as they once seemed.
Peter A. DeMarco is vice president and director of tax services at Meaden & Moore.
The case centers on three Mississippi attorneys who are members and managers in a professional limited liability company. All three contribute to the work product of the legal partnership, and all three participate in controlling its daily activities. Despite surviving Hurricane Katrina in 2005, which destroyed the firm’s office and many of its records, the trio didn’t prevail in a dispute with the Internal Revenue Service over their tax filings for 2008, 2009, and 2010. The members operated the firm under a compensation agreement that required each member to be paid “guaranteed payments,� tantamount to a salary. The court acknowledged that the payments were in line with local legal salaries at that time. The compensation agreement allowed for net profits in excess of guaranteed payments to be distributed to the three members as well. The three members all worked with the same accountant for many years, and they all paid self-employment tax on the guaranteed payments, but not on the distributed share amounts over the
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MIDDLE MARKET Adviser: Stacy Feiner guaranteed payments. In essence, they reasoned that portion represented their investment in the entity rather than their work in the entity. The IRS took exception with that treatment and assessed self-employment tax on the distributed share portion of their income. The IRS deemed it more consistent with normal compensation than with investment income. The members took their case to the Tax Court, and the court sided with the IRS. The case should be an eye-opener for organizations that are structured as limited liability companies or partnerships. It’s not uncommon for such entities to have compensation arrangements whereby some portion of partners’ income is regarded as taxable income subject to self-employment tax and some other portion of income is regarded as arising due to the partners’ investment. Professional services organizations may become even more of a target for the IRS given the court’s decisions. Working with their tax advisors, companies often establish classes of owners for just such purposes — to sort out whose income should be subject to self-employment tax and to what extent. It will be difficult to accomplish this going forward in service firms, like those providing legal, accounting, engineering, business consulting, and other professional services. There’s no cut-and-dried formula to sort out whose work produced what portion of an entity’s profits, but the recent Tax Court finding represents an extreme view that should give pause to companies with similar arrangements. In some respects, the case may be seen as raising more questions than providing answers, but it’s clear companies with such arrangements should take note and review their plans.
Exceptional business leaders don’t ignore the psychology of sound decision-making Your psychology is always with you. To most, it is an invisible passenger barely acknowledged. You know instinctively the power that your psychology holds and you must do something with it, but what? Trying to avoid or control your psychology has its costs. For business leaders, avoiding the real internal issues translates into frustration, exhaustion, distraction and misjudgments. To say nothing of capping your potential. Choosing to embrace your psychology, tap into it, understand it and evolve, and you become energized, responsive, full of conviction and free of self-doubt. I’ve spent my career offering psychological advice to business leaders. People who run companies are not looking to be a little better; they want to be great. So we have real conversations where leaders express deep ideas and lingering conflicts — the kind that get ugly sometimes in order to get issues resolved. We clear the mental roadblocks and then move to conversations that advance aspirations and goals. Exceptional business leaders have explored their psychology and without exception have upped their game.
What do you understand about your psychology? Do you react the same way in certain situations only to find the result disappointing? Ever wish that if people
Stacy Feiner is a business psychologist and coach at BDO USA.
would just “get you,� they’d perform your directives better? Maybe siblings and cousins are competing with each other in the family business hierarchy. How you lead directly ties to your perceptions of yourself today which are shaped by a lifetime of experiences. Where do you stand with understanding your psychology and how it impacts your business decisions and the fate of your organization? Your psychology is the core of who you are. It’s the center of how you live. It is the root of the decisions you make. What does it look like in practice?
You make the call. Take Sonya’s manufacturing company: Everything was moving as planned until her head of operations left for the competition. Sonya’s team mobilized with an unwavering commitment to fill the void. Sonya determined to compensate her team in proportion with their significant contribution, despite outsiders trying to dissuade her, insisting that she shouldn’t be so generous. Insight: With so much complexity,
you might feel pressure to follow along with convention even when a decision demands higher standards. When an issue seems to have little consequence, do you tend to go along with the norm or listen to your inner voice and go against the norm? When Mark bought a tool and die company nine years ago, he was focused on an eventual sale. Finally, he was in a position to sell at his desired price. But what weighed heavily on his mind was whether he would be able to find a buyer equally committed to his employees, the company’s culture and the region. Insight: It’s not easy to put words to the underlying principles that guide you to decisions that feel “right� and “good.� Digging into your psychology reveals your character, ideals and practical thinking which inform your decision-making, especially when you’re working in the gray. Would you turn down a lucrative offer if you believed your employees and company culture would suffer? Gwen and Art were ecstatic that the company they founded 20 years ago was being acquired by a large, renowned strategic buyer. When, at the eleventh hour, their bright, capable adult children pleaded with them not to sell. Insight: How do you make those gut-wrenching decisions? Operating with an internal compass brings into quick focus the competing and compelling priorities and gives voice to the convictions that guide your deci-
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CONTINUED FROM PAGE 13
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“At our core we’re a manufacturer, but we have to operate with that mentality,� Merritt said. “We’ve added services based on reading the tea leaves of our clients’ needs. We’ve plugged holes with additional services and wrapped them into our woodworking and manufacturing business. All of this comes out of the mentality of finding the best solutions.�
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Company growth has supported this strategy, as Merritt recently acquired a West Coast woodworking firm as well as an architectural wood carving operation out of the United Kingdom. An office in Schweinfurt, Germany, houses a team of project managers and engineers who impart Merritt’s customer-centric approach around the globe. Along with expansions and acquisitions, the $50 million company is commemorating the culmination of a large-scale rebranding campaign. Merritt was founded in 1967 by the CEO’s father, George Merritt, a cabinet maker and master carpenter. Michael Merritt joined the enterprise in 1985, logging 4,000 hours into an apprentice program that began when he was still in high school. His brother, Keith, also entered the program, eventually rising to the title of company executive vice president and treasurer. “Our dad wanted us to learn all aspects of manufacturing before deciding our roles,� Merritt said. “My brother did machining, and I chose the art of making and finishing woodwork.� Livingston Builders, a Florida-based contractor specializing in customized residential construction, has worked with the Merritts on at
least 20 projects since 1999. The brothers’ dedication to the craft does nothing less than raise the quality of other subcontractors involved with any particular job, noted company president James Remez. “The Merritt guys are always very observant and provide an intellectual contribution that is extremely rare,� Remez said. “This is a large company, yet Mike and Keith have been personally involved in every project I’ve ever contracted. They’re passionate about their brand.� The interior finish and decorative components Merritt supplies reflect the company’s precision-driven work ethic, Remez added. “Their material sourcing, material finishing and project engineering are on an aeronautical level,� he said. “It could be a high-gloss lacquer, polished finish, or an authentic 150-year-old design, it’s all executed
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MIDDLE MARKET “We have an immense volume of talent at every level, and sync our efforts to the needs of our clients.” — Michael Merritt, CEO
A residence on which Merritt worked in East Hampton, N.Y. (Peter Aaron/ OTTO for Robert AM Stern Architects)
fantastically.” Merritt the CEO takes pleasure in the exactitude that goes into woodworking, from sanding fresh wood to applying the various chemical treatments that bring out particular fin-
ishes in a piece. “The whole process is enjoyable, but I gravitated to finishing when I first started,” Merritt said. “I’m still involved in finishing, even if I’m not doing it myself.”
These days, Merritt manages 140 highly skilled engineers, 3D modelers, project managers, machinists, carpenters and on-site superintendents. Computer-controlled design has replaced the old-school method of writing down formulas, but advanced automation will never re-
place raw ability. “Our greatest asset is our people,” Merritt said. “We have an immense volume of talent at every level, and sync our efforts to the needs of our clients.” Finding that talent is difficult in a country where lessons on wood use aren’t exactly part of the national curriculum, Merritt said. Companies in the United States are tasked with providing an in-house education that may pair a young worker with an experienced woodworking master. Acquiring other businesses has lent depth to Merritt’s talent pool, but unearthing motivated brainpower will ever be an ongoing challenge — a challenge not unique to Merritt, as demand for skilled workers in the en-
tire manufacturing space as a whole far outpaces supply. “The talent search is always tough,” Merritt said. “You’ve got to have that talent base in a market to hire from.” As Merritt remains on the hunt for new employees, the company is staying on course for double-digit growth in 2017. In anticipation of this continued prosperity, Merritt recently completed a rebranding effort that recalibrated its name (dropped “woodworking” from its name), logo, website and social media presence. The changeover further emphasizes the comprehensive, consumer-facing outlook that is the firm’s heartbeat, said the CEO. “This is luxury brand with broad reach, broad resources and 50 years of success,” Merritt said. “Bringing us onto your team will ensure success and allow you to create something very special.”
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Both city’s mayors cited health care as a particularly important industry in the region, and Youngstown is home to Youngstown State University, which in recent years has been working to increase its enrollment and to improve its financial standing. Manufacturing still plays a sizable role in Youngstown, and with the National Additive Manufacturing Innovation Institute America Makes, it’s likely to continue to play a role into the future. That preliminary Bureau of Labor Statistics data showed that the region had about 28,100 jobs in manufacturing in April 2017, making it the fourth-largest category of jobs. So the region has diversified, but the preliminary unemployment rate of almost 6% in April shows there is still need for more jobs. Barb Ewing said the Youngstown Business Incubator, along with America Makes, Magnet and Team NEO, is looking to turn the region into a 3D printing hub. Ewing said the incubator, of which she is CEO, is part of an investment fund along with the Tech Belt Energy Innovation Center, the YSU Research Foundation, the Mahoning Valley Economic Development Corporation and Mercy Health that will work to attract high-tech firms to the area, as well as grow its existing companies faster. Entrepreneurs investing in the region are particularly important to its revitalization, as they’re showing others the Mahoning Valley is a good place to do business, said Warren Mayor Doug Franklin. Keys agreed — the city needs its businesspeople to sell it, he said. One such investor is Mark Marvin, who was born and raised in Warren but based his construction products distribution company, The Marvin Group, in New Mexico. For a while, the company was manufacturing its own products, which Marvin decided to do in Warren. Once that part of the business sold, he turned his attention to redevelopment. So far, he has bought and renovated seven commercial and residential buildings in the city through the Downtown Development Group LLC, where he’s also president. Real estate costs in the city are down, which gives him the opportunity to buy spaces cheaply and try it out. And if he’s going to do that work, he said, why not try to help bring his hometown back? The idea is to bring foot traffic back downtown. Other entrepreneurs in downtown Warren view the city’s smaller size as a way for their businesses to make their mark, as the competition is less than in larger cities. Adam Keck, who is in the process of opening Modern Methods Brewing Company, said he thought putting a brewery in his “adopted hometown” — he’s from nearby North Jackson — would give it a chance to stand out. He said the name is a reference to the city’s industrial roots, and a sign it had proudly hung near the turn of the 20th century. After college, Keck returned to the Mahoning Valley to do community organizing and fell in love with the city of Warren. When he decided to try to turn his beer-making passion into a career, Warren seemed like the place to do it. He saw growth in the brewery industry in cities like Cleveland, but realized it hadn’t quite spread to Warren. Or take The Lime Tree restaurant, for example. Travis Taylor bought The Lime Tree in downtown Warren with his girlfriend, Kristin McLennan, almost two years ago. He wanted to do
The Youngstown Neighborhood Development Corp. hopes to help revitalize the city. (Shane Wynn for Crain’s)
something different for the city at the already established restaurant and decided to put his own spin on the business by introducing a small plates, pop-up style concept. To keep young people in the region, you have to offer what they want, he said — and he doesn’t remember many high-quality dining options around when he was growing up. It’s important for people to see avenues for bringing back the city that don’t focus on manufacturing, like the city’s arts scene and the new coffee shop and brewery, said Asha Gregory, program director for the 2017 Warren Homecoming. The “younger generation” wants to put their own mark on Warren, she said, and those business owners are helping bring young people downtown. Warren Homecoming is, itself, a sign of the changing community. The weekend-long event began last year, inspired by Crain’s Detroit Business’ homecoming. The goal is to celebrate the city and show people who are returning what has developed.
Adam Keck is in the process of opening Modern Methods Brewing Co. in his “adopted hometown” of Warren.
But community revitalization is about more than just business. Youngstown’s big specter — crime — has diminished in recent years, said Youngstown Mayor John A. McNally. (McNally’s time as mayor is limited, as he recently lost the primary for the 2018 election.) In the mid-1990s, the city reached a high of 68 homicides in a year. In 2016, there were fewer than 20. McNally recently spoke to a small group of young adults at a Community Initiative to Reduce Violence meeting. The goal of the program, which has been in place for about fourand-a-half years, is to let young adults who may be on a troubled path know that the city is aware of them. The police are there, but so are resources in the community that can help if the participants decide they want to change their ways. Youngstown has to work to revitalize the city in a number of ways, McNally said, and programs like this are part of that. “It can’t just be new buildings or new restaurants,” McNally said. “It has to be people, as well.”
David Grohl Alley is near Modern Methods Brewing Co. in Warren. The Foo Fighters frontman and former Nirvana drummer is from the city.
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The work of the region’s neighborhood development corporations are playing a big role in the people part. “Selfishly, I think this is the most important work, right?” said Ian Beniston, executive director of the Youngstown Neighborhood Development Corp. “I mean, the city is composed of its citizens, who live in the neighborhoods, right? If they continue to leave and the neighborhoods are not places where people choose to be, there’s really no reason for a downtown.” Beniston was born in the 1980s and grew up in Youngstown. While there were more people in the city in the ’80s and the ’90s, downtown was “dead,” he said. Crime was rampant, and new investments were rare. There are still plenty of challenges, but today, there are programs in place to help the city move forward, he said. That includes the Youngstown Neighborhood Development Corp. and the county land bank, neither of which existed 10 years ago. Youngstown Neighborhood Development Corp., which started in 2009, works to clean up blight across the city, mowing lawns and boarding up homes, helps fix owner-occupied homes and even develops real estate. Since 2013, Beniston said the group has boarded more than 1,700 homes and rehabbed over 80. The organization’s work primarily focuses on 10 of the city’s 32 neighborhoods that are at a “tipping point,” Beniston said. They’ve experienced disinvestment, but they’re not 70% vacant like some of the neighborhoods. And if they were to tip the
“This really has to be all hands on deck, and everybody has to carry their weight.” — Matt Martin, executive director of the Trumbull Neighborhood Partnership
wrong direction, the future of Youngstown would be “bleak,” Beniston said. It’s important to create and maintain areas of density, because it’s difficult to provide city services in less-dense areas. Youngstown may be the poster child for disinvestment and blight, but Warren is its “younger sibling,” with the same story on a smaller scale, said Matt Martin, executive director of the Trumbull Neighborhood Partnership, which began in late 2010. Like the Youngstown Neighborhood Development Corp., part of the Trumbull Neighborhood Partnership’s work focuses on tearing down or renovating vacant housing. Martin thinks demolishing vacant houses is an important step in a community that’s been losing population like Warren. But the work of the Trumbull Neighborhood Partnership isn’t enough to turn the tide for the city, he said. “I think the revitalization of the Valley overall falls on multiple entities,” Martin said. “I mean, there’s no one silver bullet and there’s no industry that’s going to save it, save us. There’s no one unit of government. There’s no one portion of the nonprofit sector. This really has to be all hands on deck, and everybody has to carry their weight.” Ultimately, challenges remain, and it’s tough to say whether these entrepreneurs and community organizations will succeed. But these different efforts are about making sure the Mahoning Valley’s lasting legacy isn’t that steel left. Maybe the region has at least one more story in it.
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CRAIN’S CLEVELAND BUSINESS
Akron Zoo
AKRON
University of Akron
Ma in St Hig . hS ad t. wa y
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Akron markets prime industrial acreage Bro
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W. Thorton St.
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Former Firestone headquarters
Cole Ave.
Cole Ave.
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Once the city completes the reconstruction of the Main and Broadway streets, in about 18 months, the site will also have easy access to I-76 and I-77, Horrigan noted. Horrigan said the former Firestone building, which the city owns, is an “eyesore” that remains a challenge, though it’s not part of the land the city is seeking to sell. Bridgestone Americas still uses a portion of the
t ain S S. M
Crain’s map
1200 Firestone Parkway
Firestone Parkway
S. Main St.
Firestone Parkway
For sale: a big chunk of Akron’s history and a decent-size piece of the city itself. The city has cleared a 14-acre parcel of land just south of downtown and west of South Main Street. It’s directly behind the old Firestone headquarters and was once at the very heart of the company, not to mention the city’s industrial power and prominence. Now the city hopes it might again be put to good use, possibly for industrial purposes, though they would be smaller and lighter than what Firestone used to use it for. “We have a couple of things that we’re working on, and we’re showing it to a few people. I spoke with someone just yesterday that we’re going to take out there and show it to soon,” said Akron mayor Dan Horrigan in an interview on May 30. To be sure, it’s not the only land in the city for sale, but it’s a fairly rare piece of large vacant land close to
76
Grant St.
dshingler@crain.com @DanShingler
E. Thorton St.
8
Ke nm or e
By DAN SHINGLER
downtown, and Horrigan said there has been initial interest. “Even more than initial (interest) — it’s pretty active among our four major sites,” Horrigan said. The city also is marketing 30 acres that will soon be available right downtown when the current deconstruction of Akron’s Innerbelt finishes up, along with the 50 acres that once housed Rolling Acres Mall and about 90 acres off Evans Avenue a few miles north of downtown. But the Firestone site is getting the most interest — possibly because the mayor says it has a lot of attributes potential buyers want — and has only been on the market since May. The city is marketing it primarily to buyers who would use it for light manufacturing, or as some sort of computer or information technology facility, or a research and development center, Horrigan said. The site already has rail access, available high-voltage power and upto-date fiber optic lines, and the city is installing new utilities as well, said Horrigan and Akron economic development director Sam DeShazior.
building to manufacture race tires and in December exercised an option to remain at the site until 2018. So how hard is it to sell a chunk of vacant industrial land in a mid-size city in the Rust Belt? Perhaps not as hard as one might think. Such land is actually in short supply, said Jerry Fiume, a commercial real estate broker
and head of SVN | Summit Commercial Real Estate Group in Fairlawn. “The industrial market hasn’t been this tight since World War II. There’s just no space … and that’s all across Northeast Ohio,” Fiume said. Fiume credits the city with working hard to aggregate, prepare and market such parcels, which he says gives it a leg up in terms of economic development. “It’s rare that there’s a project of that size, but we need more of them,” Fiume said. Not that price doesn’t matter, and the fact that land is still relatively cheap in cities like Akron is one reason it’s possible to market it. Fiume predicted the land will fetch the city something in the six-figure range, shy of a million dollars. But that would still turn the property from a burden the city must maintain into a tax-paying entity, which is Horrigan’s goal. Fiume suggested that the timing might be right for Akron to sell — or that it will be a far easier task than it would have been just a few years ago. “Five years ago, you couldn’t have done this. The financing and demand just wasn’t there,” Fiume said.
After proxy fight, Wayne Savings looks to grow By JEREMY NOBILE jnobile@crain.com @JeremyNobile
Fresh off a proxy battle with an activist investor that appears to have gone in a Wooster community bank’s favor, board members are set to refocus on growing the institution. But what those may look like at
Wayne Savings Community Bank, the banking subsidiary of Wayne Savings Bancshares with $448 million in assets and 11 offices surrounding Wayne County, isn’t entirely clear just yet. That’s partly because the bank’s executives haven’t devoted much time or resources to those efforts in recent months with the proxy fight — initiated by The Stilwell Group, a ma-
jor shareholder that wants to see the bank sold — going on. The bank’s current interim CEO, David Lehman, had only planned to hold his role for a few weeks. But it has been months now. The proxy war effectively has halted any efforts to find a permanent leader. “I do remind the board periodically I’m good for the sprint, but not for the marathon,” Lehman said. “But I’m a
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small-company guy. And if I can help salvage and then redirect a small community bank, the last one in Wayne County, I will have considered this an extremely successful venture worth every minute of my time.” While Wayne seems to have won the proxy fight — preliminary tabulations from Wayne’s May 25 annual meeting show incumbent board member Debra Marthey beating Stilwell’s candidate by a mere 36,000 votes — retaining directors who aren’t as immediately motivated to sell the bank as they are to grow it organically, there is undoubtedly some room for improvement. “The bottom line is, it’s fair to look at strategic options. It doesn’t necessarily mean you have to sell, though that’s always an option. To look at that is certainly a prudent thing to do,” said Fred Cummings, president at Elizabeth Park Capital Management, a hedge fund that invests in community banks, but doesn’t have a stake in Wayne. Cummings points out that at 80%, Wayne’s efficiency ratio is too high, and that’s limiting profitability, which hampers some shareholder returns. Regardless of what happens next, Stilwell isn’t going away. “Wayne Savings has performed poorly for a long time,” said Stilwell spokesperson Megan Parisi in an emailed statement. “When there are unsatisfied stockholders, we expect an improvement in performance or a sale or merger with a better-run company. The Wayne Savings board and management have consistently failed to perform well. The stockholders have entrusted these directors with the company. We expect them to make the decision to sell the company to a better-run bank or we will be back again next year.” Lehman is a longtime Wayne board member who previously ran Mennonite Mutual Insurance Co. in Orrville. He stepped up as temporary CEO at Wayne after the prior president and CEO, Stewart Fitz Gibbon, resigned in December. Just weeks after that, The Stilwell
Group, a New York-based hedge fund with a 9.7% stake in Wayne and a well-known activist investor in the banking sector, solicited shareholders to vote in their candidate, West Virginia-area lawyer and Poage Bankshares Inc. (of Kentucky) board member Stephen Burchett, over longtime member Marthey. Marthey’s seat was one of two open for election on Wayne’s six-member board. In filings, Stilwell had harsh words for Wayne, calling the bank “thoroughly disappointing.” The group called out board chairwoman Peggy Schmitz and lead director Jonathan Ciccotelli for overseeing what it called “subpar performance for the better part of a decade” and took exception with Schmitz’s growing compensation over the years. “Their letters reek of entitlement and have a certain smug, juvenile quality to them, in our view — not to mention their arrogance at spending $500,000 of stockholder money to keep a major stockholder’s nominee off the Wayne Savings board,” Stilwell told shareholders. Lehman, speaking on behalf of the board, said the bank strongly disagreed with a litany of Stilwell’s claims. In filings, Wayne argued its profitability as a thrift was on par with or slightly better than peers and that Burchett was not more qualified than Marthey. Stilwell also disclosed in filings financial incentives for Burchett contingent on selling the bank inside his term, should he be elected. Stilwell offered him an option for 50,000 shares of Wayne stock with 90% of that contingent on a sale of the bank in three years. Independent proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis eventually sided with Wayne’s board and discouraged votes for Burchett. Both groups found shareholder returns were in line with peers and considered Burchett’s stock options tied to a sale as a clear conflict of interest. SEE WAYNE, PAGE 23
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AKRON
Looking to stick in adhesives market By JUDY STRINGER clbfreelancer@crain.com
Barry Rosenbaum points to a collage of photos outside the lab of Akron Ascent Innovations. No pushpins or tape in sight, the pictures cling to the wall — a la a gecko or Spiderman — suspended by the startup’s unique adhesive backing. “It’s a cool technology,” said Rosenbaum, but the AAI president and CEO is the first to admit the company has yet to prove itself in the marketplace. When it does, possibly by the end of the year, Rubber City entrepreneurs will be up against an “800-pound gorilla.” “We are aspiring to compete with 3M,” he said. “That ain’t bad.” No. It ain’t. 3M is a $30 billion multinational conglomerate with a virtual monopoly in the — for lack of a better description — adhesive wall hanging market. 3M’s Command line of products has been popularized most recently with commercials featuring “U Can’t Touch This” rapper MC Hammer, who persuades viewers to “stop hammer time” and use the Command adhesive hooks and strips rather than hammers and nails. How large that market is, however, is difficult to say, according to IBISWorld industry analyst Rory Masterson, because 3M does not publicly “segment its Command adhesives as separate from the rest of its adhesive technology.” IBISWorld research suggests that retail and commercial users represent just over 11% of the $6.5 billion national adhesives market, which includes other prominent 3M brands such as Scotch tape. What Masterson does state: “No major Command competitor has yet to break into the industry, at least not with enough ferocity to garner a significant market share.” Will AAI be the one to stick? Rosenbaum opts for a measured outlook. “If we can have a product that it is little stronger, a little easier to remove, a little more of this, a little more of that, good for us,” he said. AAI was spun out of the University of Akron in 2013 by inventor Josh Wong, a UA mechanical engineering professor, and Rosenbaum, a retired
Kevin White, left, AAI principal scientist and chief operating officer, and Barry Rosenbaum, University of Akron Research Foundation senior fellow and AAI president and CEO, stand next to a formulation-scale electrospinning machine. (Judy Stringer for Crain’s)
Exxon Mobile executive who works with the University of Akron Research Foundation. Before founding AAI, Wong, Rosenbaum and a handful of UA graduate students went through the National Science Foundation I-Corps program with Wong’s unique “dry” adhesive technology. Most adhesives used today can be considered “wet” adhesives, explained Kevin White, chief operating officer and principal scientist at AAI. Some, like the Command strips, work by conforming to, or wetting, surfaces under application of light pressure. The problem is the adhesive never leaves that liquid state, which means the film can slowly creep along the surface, leaving behind a residue and/or taking paint or drywall off with its removal. In addition, by their very nature, pressure-sensitive adhesives are not repositionable or reusable, and tend to be tailored to their intended use, which in the Command case is painted walls. “We are actually laying down solid fibers, which are like tiny fingers that can grab onto a surface,” White said. “The fibers are about 100 times thinner than your hair and small enough they can grab onto any little asperity or flaw in a wall and hold on to it.” Those minuscule polymer fingers will find imperfections to grasp in a wide range of surfaces, White said, including painted walls, drywall, steel, glass, cinder blocks and even plastic surfaces, such as nonstick Tef-
lon. And, he said, AAI’s films are stronger than wet adhesives, release with a gentle tug without leaving any stickiness behind, and can be easily moved and reused. “Our overall property set is both unique and useful,” he said. “It took us two years to build up to that claim. … We have all the numbers to back it up now.” The current question, White added, is “can we make this on a bigger scale and how to fit it into a high-value-added application.” One of AAI’s major innovations — and value propositions — is its use of electrospinning to create the thin polymer threads, which White referred to as “fingers.” While other university research groups across the country also have developed dry adhesives to mimic the way geckos cling to surfaces, Rosenbaum said none has been commercially viable because the processes used are too
complicated or expensive to scale. Electrospinning machines, on the other hand, already are widely used to create nanofiber membranes used in air-filtration products. At the Akron Global Business Accelerator, the AAI lab has a prototype roll-to-roll electrospinning line — the size of the small car — that can produce 30-inch-wide sampling rolls for prospective partners and customers. AAI also has relationships with toll manufacturers that give the startup access to 24- and 36-inch continuous-roll lines where it can make 250 feet of the adhesive film in a single run. “In the filtration market, they go as wide as 72 inches. We are not ready for that,” Rosenbaum said. “If we get to 72 inches wide, we can compete with the 800-pound gorilla.” Rosenbaum’s confidence is rooted not only in the economies of scale made possible by electrospinning, but a partnership with privately held Velcro Companies. The two inked a joint development and commercialization contract late last year to combine AAI’s adhesives with VELCRO brand hook-and-loop technologies. “They have market needs and not just in the walls and hanging stuff, but in other applications,” he said. “They are ready to do business, and fortunately for us, they are already in the space and see an opportunity for the kind of adhesives we make.” Velcro Companies made a Series A investment in AAI as part of the deal. While he would not disclose the exact amount, Rosenbaum said that investment combined with state and federal grants totaling more than $1.5 million gives AAI the resources to a run at commercialization. “We have the money to thrive or die.”
WAYNE
CONTINUED FROM PAGE 22
Shareholders ultimately sided with Wayne directors in re-electing Marthey. But their work is far from over. Wayne’s immediate priority is to find a permanent CEO. Lehman said the bank recently engaged a search firm to make that happen. Clearly, though, Wayne’s board does not want to sell. Asked whether the bank has gone through a strategic planning process to see if buyers are interested or what they might pay, Lehman said there have been talks, but no formal offers or much follow-up with potential acquirers. “The danger and fine line that you walk is as soon as there is any public statement or statement of a strategy, you now put the bank in play,” Lehman said. “As a board, our message is this: We are open to all the options available to us for the future of the bank while at the same time trying to weigh what’s best for key stakeholders.” In terms of what Wayne might focus on to grow profitability, Lehman acknowledged the 118-year-old bank “could do better” and has a plan in place to do so, but added “I can’t go beyond that.” Lehman declined to comment whether an acquisition of their own could be in the works. In fairness, that would be partly motivated by whatever vision a new CEO might have for the bank. But with an activist shareholder breathing down their neck, Wayne's stakeholders will be closely following their next moves. “Every fiber of my body says you need to keep moving forward until something makes you change course,” Lehman said. “We are engaged with a search firm (for a CEO), and we are going to move forward.”
WHAT ARE THE FACTORS DRIVING CORPORATE RELOCATION DECISIONS? Corporate relocations are not taken lightly. They have long-range impact and the decision process is laden with immense challenges. Decisions to relocate corporations must take into account a variety of parameters centered primarily on strategic issues, overall investment and cost, as well as qualitative considerations. JUNE 22 • NOON - 1 PM FEATURED SPEAKERS: Taft attorneys Gregory J. O’Brien and J. Donald Mottley, and Leslie Wagner of Ginovus
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THANK YOU! Family business leaders, experts and businesses gathered on May 3 at the Cleveland Metroparks Zoo’s Stillwater Place to chart a course for success through family generations. The program kicked off with Donatos founding family member and chairwoman of the board, Jane Grote Abell, who discussed how the business has grown, changed and looks forward. Throughout the morning, attendees also heard from other experts on how to overcome challenges, sustain growth and create family policies and a family constitution. To wrap up the day, The Ahola Corporation honored the Orlando Baking Company with the Longevity Award and presented its Legends Award to Andrew Keyt, a noted international speaker, author and president of the Family Business Network North America. Crain’s would like to extend a very special thank you to our title sponsor, The Ahola Corporation, and to all our sponsors and partners who made the Crain’s third annual Family Business Forum a success.
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CRAIN’S CLEVELAND BUSINESS
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THE LIST
Largest Privately Held Companies Ranked by Estimated 2016 Revenues
REVENUE (MILLIONS) (1) THIS YEAR COMPANY
2016
2015
LOCAL YEAR % CHANGE EMPLOYEES (2) FOUNDED
TYPE OF BUSINESS
TOP EXECUTIVE
1
Medical Mutual of Ohio, Cleveland (216) 687-7000 / www.medmutual.com
$2,800.0
$3,000.0
-7%
1,970
1934
Health insurance
Rick A. Chiricosta president, CEO, chairman
2
Aleris , Cleveland (216) 910-3400 / www.aleris.com
$2,664.0
$2,900.0
-8%
191
2004
Aluminum rolled products for industries including automotive, aerospace, building and construction
Sean M. Stack chairman, CEO
3
Swagelok Co., Solon (440) 248-4600 / www.swagelok.com
$2,000.0
$2,000.0
0%
3,990
1947
Developer of fluid system products, assemblies and services
Arthur F. Anton president, CEO
4
Jones Day, Cleveland (216) 586-3939 / www.jonesday.com
$1,977.0 (3)
$1,941.0
2%
622
1893
Legal services
Heather Lennox Cleveland partner-in-charge
5
Westfield Insurance, Westfield Center (330) 887-0101 / www.westfieldinsurance.com
$1,809.5
$1,769.1
2%
1,803
1848
Insurance, banking and related financial services
Edward Largent president, CEO, board chair
6
Ganley Auto Group, Brecksville (440) 584-8202 / www.ganleyauto.com
$1,473.6
$1,313.4
12%
1,630
1968
Automobile sales, service, repair, insurance and financing
Kenneth G. Ganley president, CEO
7
Associated Materials, Cuyahoga Falls (330) 929-1811 / www.associatedmaterials.com
$1,250.0
$1,200.0
4%
1,100
1947
Manufactures exterior residential building products
Brian Strauss president, CEO
Directional Aviation, Cleveland (216) 261-3000 / www.directionalaviation.com
$1,236.0
$1,164.0
6%
800
2003
Private aviation: Fractional, JetCard, charter management, maintenance, repair, fuel, leasing
Kenneth C. Ricci, Michael A. Rossi, principals
Shearer's Foods LLC, Massillon (330) 834-4030 / www.shearers.com
$1,178.4
$901.2
31%
1,275
1974
Manufacturer of snack foods
CJ Fraleigh CEO
Squire Patton Boggs, Cleveland (216) 479-8500 / www.squirepb.com
$983.0
$930.0
6%
301
1890
Global legal service provider
Frederick Nance, global managing partner; Michele Connell, managing partner, Cleveland
11
Bendix Commercial Vehicle Systems LLC, Elyria (440) 329-9000 / www.bendix.com
$886.0
$1,045.0
-15%
525
1930
Developer of active-vehicle safety technologies, air brake charging and control systems, and components
Berend Bracht, president, CEO; Joseph McAleese, chairman; Carlos Hungria, COO
12
The Davey Tree Expert Co., Kent (330) 673-9511 / www.davey.com
$845.7
$821.9
3%
670
1880
Tree services, grounds maintenance and consulting services
Karl J. Warnke chairman, CEO
13
Safeguard Properties Management, Valley View (216) 739-2900 / www.safeguardproperties.com
$842.0
$939.7
-10%
1,141
1990
Mortgage field services company
Alan Jaffa CEO
14
Ohio CAT, Broadview Heights (440) 526-6200 / www.ohiocat.com
$719.0
$756.0
-5%
482
1945
Caterpillar engine and equipment distributor, Ohio, Northern Kentucky and Southeastern Indiana
Kenneth E. Taylor president
15
Discount Drug Mart Inc., Medina (330) 725-2340 / www.discount-drugmart.com
$684.0
$665.0
3%
2,157
1968
Regional drug store chain
Don Boodjeh CEO
16
BDI Worldwide, Cleveland (216) 642-9100 / www.bdi-usa.com
$662.0
$750.0
-12%
167
1935
Global distribution of industrial products and supply chain services
Carl G. James chairman, CEO
Baker & Hostetler LLP, Cleveland (216) 621-0200 / www.bakerlaw.com
$642.5
$633.5
1%
383
1916
Legal services
Hewitt B. Shaw, Cleveland office managing partner; R. Steven Kestner, firm wide chairman
18
The Anderson-DuBose Co., Lordstown (440) 248-8800 / www.anderson-dubose.com
$518.2
$546.8
-5%
190
1991
Distribution of food, paper and beverage products
Warren E. Anderson chairman, CEO
19
The Garland Co., Cleveland (800) 641-7500 / www.garlandco.com
$479.2
$460.9
4%
119
1895
Manufacturer of roofing, flooring, coatings, sealants and maintenance systems for commercial buildings
David M. Sokol president
20
Hyland, Westlake (440) 788-4988 / www.hyland.com
$430.0
$367.0
17%
1,592
1991
Developer of OnBase enterprise information management software
Bill Priemer president, CEO
21
Majestic Steel USA Inc., Pepper Pike (800) 321-5590 / www.majesticsteel.com
$415.0
$400.0
4%
274
1979
National distributor of prime flat rolled steel
Todd M. Leebow president
22
Cleveland Construction Inc., Mentor (440) 255-8000 / clevelandconstruction.com
$352.1
$296.8
19%
145
1980
Commercial building contractor, general and subcontractor construction and design build
Jon D. Small president
Cleveland Browns, Berea (440) 891-5000 / www.clevelandbrowns.com
$347.0 (4)
$313.0
11%
230
1946
Professional football team
Jimmy Haslam Dee Haslam owners
24
Reserve Management Group, Twinsburg (440) 519-1768 / www.reserve-group.com
$317.0
$318.0
-0%
200
1991
Scrap metal processor specializing in ferrous and non ferrous metals and scrap electronics
Steve Joseph president, CEO
25
Famous Enterprises Inc., Akron (330) 762-9621 / www.famous-supply.com
$301.0
$283.0
6%
300
1933
Distributor of HVAC, plumbing, PVF, industrial, building products
Marc Blaushild president, CEO
26
Cleveland Indians Baseball Co., Cleveland (216) 420-4487 / www.indians.com
$271.0 (5)
$220.0
23%
NA
1901
Professional baseball team
Lawrence Dolan, owner; Paul Dolan, chairman, CEO
27
Donley's Inc., Cleveland (216) 524-6800 / www.donleyinc.com
$269.0
$268.0
0%
207
1941
Construction manager, design builder and concrete contractor
Malcolm M. Donley president, CEO
28
The Millcraft Paper Co., Cleveland (216) 441-5500 / www.millcraft.com
$265.4
$238.2
11%
71
1920
Fourth-generation distributor of commercial printing papers, forms, envelopes, packaging, and graphic design products
Katherine M. Mlakar chairman, owner
29
Cleveland Cavaliers, Cleveland (216) 420-2000 / www.cavs.com
$233.0 (6)
$191.0
22%
NA
1970
Owns and operates the NBA Cleveland Cavaliers, manages Quicken Loans Arena
Dan Gilbert chairman, majority owner
Thompson Hine LLP, Cleveland (216) 566-5500 / www.thompsonhine.com
$198.0
$205.6
-4%
304
1911
Legal services
Deborah Read, managing partner; Robyn Minter Smyers, Cleveland office partnerin-charge
31
Motorcars Cleveland, Cleveland Heights (216) 932-2400 / www.motorcarscleveland.com
$183.0
NA
NA
200
1972
Auto dealer (Honda, Toyota)
Chuck Gile president
32
Valley Ford Truck Inc., Cleveland (216) 524-2400 / www.valleyfordtruck.com
$163.5
$149.4
9%
91
1964
New and used truck sales, leasing, long- and short-term rental, commercial vehicle service, truck parts
Brian E. O'Donnell president
33
The Ruhlin Co., Sharon Center (330) 239-2800 / ruhlin.com
$145.5
$175.5
-17%
160
1915
Building, industrial and heavy civil construction and construction management services
James L. Ruhlin president, CEO
34
Cornwell Quality Tools Co., Wadsworth (330) 336-3506 / www.cornwelltools.com
$141.0
$125.0
13%
200
1919
Franchise wholesale distributor and manufacturer serving the mobile automotive tool market
Raymond M. Moeller CEO
8 9 10
17
23
30
RESEARCHED BY CRAIG MACKEY
Want the full version of this list Ă‘ and every other Crain's list? Become a Data Member: CrainsCleveland.com/data
The digital version of this list included 46 companies and names of additional executives. Information is supplied by the companies unless footnoted. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all feedback and will include omitted information or clarifications in coming issues. (1) Companies are permitted to submit rounded revenue figures. (2) As of April 1, 2017. (3) 2016 gross revenue from The American Lawyer's 2017 Am Law 200. (4) Revenue numbers from Forbes, 2016 NFL Team Values. (5) Revenue numbers from Forbes, The Business of Baseball, 2016 and 2017. (6) Revenue numbers from Forbes, Business of Basketball.
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CRAIN’S CLEVELAND BUSINESS
List: Private companies see little growth By CHUCK SODER csoder@crain.com @ChuckSoder
Northeast Ohio’s largest private companies barely grew at all in 2016, if our latest list is any indication. The top 30 businesses on the Crain’s Largest Privately Held Companies list saw their combined revenue grow by less than 1% in 2016. Even though most companies on the list saw revenue grow in 2016, some of the biggest companies posted decreases. Consider that the biggest company on the list, Medical Mutual of Ohio,
saw its revenue drop to about $2.8 billion from $3 billion — a 7% decline. The company at No. 2, Aleris, which makes aluminum rolled products, logged an 8% revenue decline. Granted, a few of the larger companies grew significantly in 2016. Consider Shearer’s Foods at No. 9: The snack food maker saw revenue climb 31% to $1.18 billion last year — the biggest percentage gain posted by any of the 46 companies on the full digital version of the list. But those gains were for the most part offset by declines at other companies. For the record, Shearer’s has more than doubled in size since 2013,
when it produced just $507 million in revenue (putting it at No. 18 on the 2014 list). Since then, Shearer’s has acquired Lance Private Brands (a $430 million deal) and a few other snack food companies. Safeguard Properties has steadily moved in the opposite direction. Though the recession pushed the mortgage field services company to grow rapidly (someone had to take care of all those foreclosed homes), lately the company has been shrinking. Safeguard generated $842 million in revenue last year, compared to $1.3 billion in 2013 (but it’s still way up from $159 million in 2005). All three of Cleveland’s major pro
sports team enjoyed double-digit revenue increases in 2016. The Cavaliers and the Indians experienced the most growth. It probably didn’t hurt that the Cavs won an NBA championship and the Indians nearly won the World Series. But they’re still much smaller in terms of revenue compared with the Browns (which were certainly not championship contenders last year). Also not surprising: Hyland Software in Westlake has posted sizable revenue gains every year since it first submitted figures for the list in 2013. The region’s largest software company generated $430 million in sales last year — a 17% increase. And it
should get even bigger this year, when it completes a deal to buy a portion of Lexmark International’s software business. The oldest companies on the list are some of the largest — perhaps because they’ve had plenty of time to grow. All five companies founded in the 1800s are in the top 20, and three are in the top 10. The oldest is Westfield Insurance at No. 5, founded in 1848. The youngest, as you might imagine, is one of the smallest, at No. 45 on the digital version of the list: Great Day Improvements (known as Patio Enclosures and Stanek Windows), which was founded in 2010.
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CRAIN’S CLEVELAND BUSINESS
Source Lunch Denny Young
President, Elevation Group Denny Young has a knack for putting on concerts in unlikely places. There’s Elevation’s acclaimed Cathedral Concerts series — featuring the likes of Glen Hansard, Colin Hay and Joe Jackson — in Cleveland’s breathtaking Trinity Cathedral. Elevation also has handled booking inside Akron’s historic former headquarters of Goodyear Tire and Rubber Co. Elevation’s most ambitious endeavor, however, is perhaps the budding LaurelLive music festival — a two-day gathering now in its second year at Laurel School’s 140-acre Butler Campus in Russell and Chester townships. This year’s event takes place June 10 and 11. Young and his business partner, Steve Lindecke, had always considered bringing a large music festival to Cleveland, so when a few Laurel board members approached Elevation for some help programming the school’s concert pavilion, Young had an even bigger idea. Last year, LaurelLive drew 11,000 over two days. This year, they expect more than 15,000. — Timothy Magaw
Five things Favorite band U2, hands down. He’s seen the band about 30 times and even worked with them on a documentary Elevation produced called “Music of Ireland.”
First big concert he attended KISS in January 1978 at the Richfield Coliseum
Favorite pastime The self-described “closet baseball junkie” loves coaching his son’s little league baseball team.
Biggest regret Not learning how to play an instrument. “I still have time, but I don’t have any time, if that makes any sense.”
Proudest moment Elevation winning an Emmy for its documentary about contemporary Irish music
Lunch spot BOLD Food & Drink 1121 W. 10th St., Cleveland 216-696-8400 www.boldfoodanddrink.com
The meal One had the Astoria salad (blue cheese, fuji apples, candied walnuts, dried cherries) with grilled chicken. The other had shrimp tacos and a Greek salad.
The vibe Located in the resurgent Flats East Bank development, this chic eatery has an upscale feel without the high prices.
The bill $38.34, plus tip
Elevation is a small outfit compared to other promoters in the area. How do you do business alongside giants like Live Nation? We’re not trying to be Live Nation. They are in the bulk booking business. They’re a wonderful company and bring in some incredible artists, but we’re in the boutique specialty concert business. Just look at what we’re doing in Akron at the Goodyear Theater. Down there, it’s not about volume. It’s about quality. While we do a number of shows there, there’s no pressure for us to be open every day like the House of Blues. It’s really about the quality. Then there’s LaurelLive. Live Nation doesn’t do a festival in Cleveland. With that, we’re serving a different audience, demographic and mission. I’d say the same about the Cathedral Concerts. We’re all about unique shows in cool, different spaces. We want to make the experience be as front and center as the artist. How is Laurel Live different from other music festivals? First off, I don’t know any other commercial, contemporary music festival that takes place on a high school property. If I went to Laurel School, I’d be amazed — and the students are. If someone had done that at my high school when I was growing up, I would have thought that was pretty cool. Because this is a production with Laurel, there is an educational component, correct? For two years running we’ve actually taught a weekly class over there. All of the students in that class have a seriously meaningful role in the festival. That’s a unique opportunity, but also makes it a unique festival. And the artists know that. We’ve got students coming up with promotions with various artists like Cobi and Lunchmoney Lewis this year. They came up with the ideas and are in touch with the artists’ representatives, and they’re implementing those promotions. That’s pretty extraordinary. How do you maintain that family-focused atmosphere? We have a head start because our site is a school. That speaks to families and kids. We also have off-site parking, and we shuttle everyone in from lots on school buses. That also sends a message. We have an incredibly safe environ-
ment. Finally, it’s the programming. Our programming beyond music includes educational seminars with the Rock and Roll Hall of Fame and art programming and education. The students are involved. When you arrive, you see them front and center. Does that commitment to a family-first atmosphere change the types of artists you book? We said to the school from the very beginning we will program this appropriately and accordingly, but it’s still a music festival. We’re still going to have bands that may use profanity on stage. It is a rock concert. Every band we have, they’re incredible live performers, but the music is somewhere between jam bands, pop alternative and adult alternative. It’s suitable for people of all ages. It played out that way last year, and we believe it will play out that way this year. What have been some of the challenges of putting this on? In the first year, it was booking because we had to talk bands into playing — in their minds, because they had never been here — a school. We don’t have that issue anymore. All those bands, agents and managers from last year talked us up. We had more bands than we could book that wanted to do it this year. People are already asking about 2018. How would you describe the state of the concert business in Northeast Ohio? There are some amazing venues here, and we have some really strong promoters. The more promoters we have, the more everybody will up their own game and the more shows they’ll want to do. I think Live Nation is doing more shows because others around them are doing more shows. Live Nation has done a great job this summer. I always root for Live Nation. I don’t know if they root for me as a promoter, but successful, sold-out concerts get people excited, and they’ll want to see more shows. What makes the Goodyear complex a nice addition? If you draw a 50-mile radius around Cleveland, 25 miles are in the lake. If you draw a 50-mile radius around Akron, you get up to Cleveland and south of Canton and into New Philadelphia. I think you have a pretty robust Summit County concert environment and industry as well.
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sider intel
MARKETING, ADVERTISING & EVENTS INSIGHTS.
Today’s Tip: Be passionate, authentic and original in your marketing message.
The most effective marketing campaigns come from those who are passionate about what they do. They are driven by companies or business leaders whose culture is rooted in all their messaging yet is done in a unique way. This isn’t a case of “drinking the Kool-Aid,” it is authentic because they are representing something they believe in. The best influencers are simply being themselves because they have found something that represents their own voice.
JOHN BANKS
ACCOUNT EXECUTIVE Crain’s Cleveland Business JBANKS@CRAIN.COM
How Crain’s can work for you: We have various unique marketing and event opportunities that can make sure your business leaders are not only heard but are recognized as true influencers in their space. Consider partnering with us on a roundtable discussion, webinar or custom event. For more information contact Nicole Mastrangelo at 216.771.5158 or nmastrangelo@crain.com.
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