Crain's Cleveland Business by Crain's Cleveland Business

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Colleges set to wield scalpels Institutions look to trim their payrolls amid fears state will slice subsidies to higher ed By TIMOTHY MAGAW tmagaw@crain.com

Though Gov. John Kasich’s twoyear budget won’t be unveiled for a few weeks, Northeast Ohio’s public college and universities already are

taking precautions to brunt the impact of what they expect will be deep cuts in the state’s support for higher education. College officials say they’re bracing for a 10% to 20% reduction in the state subsidy, which roughly makes

up one-third of their budgets. Many haven’t ruled out layoffs as personnel costs make up the bulk of their operating budgets. Other cost-saving measures include consolidating services, halting renovation projects and slowing hiring. Newly elected state Rep. Kathleen Clyde, a Democrat whose district includes Kent State University, said although budget details are scarce, colleges and universities are wise to

proceed with caution. “Cuts are likely to be made in a lot of areas,” said Rep. Clyde, who serves on the Ohio House subcommittee on higher education. “They’re wise to be anticipating that and to develop a strategy moving forward.” At Kent State, President Lester Lefton last month announced a universitywide hiring freeze in anticipation of state budget cuts. See CUTS Page 4

INSIDE Irresistible Russia Euclid-based Lincoln Electric Holdings Inc. aims to capitalize on Russia’s economic growth and infrastructure investments by expanding its presence there in the welding supply business. The manufacturer’s recent acquisitions illustrate its strategy. Read Dan Shingler’s story on Page 3.

Optimism on upswing at industrial companies Manufacturers’ surveys suggest a better 2011 By DAN SHINGLER dshingler@crain.com

DAN MENDLIK/CLEVELAND INDIANS

The Indians during better times could pack Progressive Field — along with its premium seats and enclosed Terrace Club restaurant — with fans, but they’ve struggled to fill the ballpark over the last couple of years.

THE LACK OF LUXURY Indians’ latest ticket incentives — free suite rental, Terrace Club membership — point to difficulty of selling premium inventory, may foreshadow changes By JOEL HAMMOND jmhammond@crain.com

T 04

he Cleveland Indians raised eyebrows this month when they announced their latest season ticket packages, now more incentive-laden than ever. And it’s those incentives that may provide a glimpse into the future of Progressive Field — a future the Indians

have been planning since last March. It was then that team officials began developing a master plan for the ballpark. The process started with an invitation to seven architectural firms to tour the park and make suggestions on what could be done to take advantage of underused areas, such as its suites and the Terrace Club restaurant. See INDIANS Page 6

The path of local manufacturers may be reaching the edge of the woods. Local companies and their representatives say they are more optimistic now than they have been for the last two years. Sales are continuing to pick up even through the normally slow months of December and January, and there are no signs that they are slowing. Two local manufacturing groups — Cleveland-based Wire-Net and the Precision Metalforming Association — just completed surveys of their members. Both found increased, broad-based optimism with regard to the general economy and their See SURVEY Page 7

INSIDE THE NUMBERS The latest surveys conducted by manufacturing advocacy groups Wire-Net and the Precision Metalforming Association each show members gaining steam: ■ 83.6% of Wire-Net respondents expect increases in revenues this year, while only 7.3% expect a decrease in sales. In 2009, Wire-Net president John Colm said, only 8% expected revenue increases. ■ For only the third time since 2009 in PMA’s monthly poll, a majority of members — 52% — said they expect order volumes to increase.

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DIFFERENCE MAKERS

COMING NEXT WEEK

The May 16 issue of Crain's Cleveland Business will present Difference Makers, a special section in which we'll profile 10 individuals who have made significant, long-term contributions to the betterment of Northeast Ohio. We're asking readers to help us identify potential profilees. As part of that process, we've provided an online nomination form at www.CrainsCleveland.com/ nominate. Nominations also can be submitted via e-mail to editor Mark Dodosh at mdodosh@crain.com; please include “Difference Makers nomination” in the subject line. In addition, they can be sent via regular mail to Mr. Dodosh at 700 W. St. Clair Ave., suite 310, Cleveland 44113. Nominations should be no longer than a single page. The deadline for nominations is the close of business today, Jan. 24.

Banks on the lookout Industry analysts say acquisitions among banks could rise in 2011, as institutions look to grow. We’ll analyze what’s next in our Finance section.

REGULAR FEATURES Classified ..................................30 Editorial ......................................8 Going Places ..............................10 List: Real estate investment trusts ..17 Reporters’ Notebook ......................31

JANUARY 24 - 30, 2011

TRAINING WHEELS SPIN FASTER U.S. corporate spending on training increased slightly last year, though it remained below levels of 2005, according to data compiled by a research and advisory firm for Workforce Management, a sister publication of Crain’s Cleveland Business. Bersin & Associates’ national training figures are based on a survey of 748 companies, all of which had at least 100 employees. Training-related expenses include learning tools and technology; outside products/services; facilities; materials; and training staff travel and payroll.

Year

Total training spending

2010

$48.9B

2009

48.2

2008

56.2

2007

58.5

2006

55.8

2005

51.1

700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editors: Joel Hammond (jmhammond@crain.com) Sports Kathy Carr (kcarr@crain.com) Marketing and food Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Manufacturing Tim Magaw (tmagaw@crain.com) Health care & education Michelle Park (mpark@crain.com) Finance Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing/Events manager: Christian Hendricks (chendricks@crain.com) Marketing/Events Coordinator: Jessica Snyder (jdsnyder@crain.com) Advertising sales director: Mike Malley (mmalley@crain.com) Account executives: Adam Mandell (amandell@crain.com) Dirk Kruger (dkruger@crain.com) Nicole Mastrangelo (nmastrangelo@crain.com) Dawn Donegan (ddonegan@crain.com) Business development manager & classified advertising: Genny Donley (gdonley@crain.com) Office coordinator: Toni Coleman (tcoleman@crain.com) Production manager: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Graphic designer: Kristen Wilson (klwilson@crain.com) Billing: Susan Jaranowski, 313-446-6024 (sjaranowski@crain.com) Credit: Todd Masura, 313-446-6097 (tmasura@crain.com) Circulation manager: Erin Miller (emiller@crain.com) Customer service manager: Brenda Johnson-Brantley (bjohnson-brantley@ crain.com) 1-877-824-9373

Crain Communications Inc. Keith E. Crain: Chairman Rance Crain: President Merrilee Crain: Secretary Mary Kay Crain: Treasurer William A. Morrow: Executive vice president/operations Brian D. Tucker: Vice president Robert C. Adams: Group vice president technology, circulation, manufacturing Paul Dalpiaz: Chief Information Officer Dave Kamis: Vice president/production & manufacturing Kathy Henry: Corporate circulation/audience development director G.D. Crain Jr. Founder (1885-1973) Mrs. G.D. Crain Jr. Chairman (1911-1996) Subscriptions: In Ohio: 1 year - $64, 2 year - $110. Outside Ohio: 1 year - $110, 2 year - $195. Single copy, $1.50. Allow 4 weeks for change of address. Send all subscription correspondence to Circulation Department, Crain’s Cleveland Business, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373 or FAX (313) 446-6777. Reprints: Call 1-800-290-5460 Ext. 136 Audit Bureau of Circulation

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Big-ticket commercial property sales rise

THE WEEK IN QUOTES “With the state facing an $8 billion to $10 billion gap, we just didn’t know where we’d end up this year.” — Jerry Sue Thornton, president, Cuyahoga Community College. Page One

Deals $5 million and higher slowly trend up despite lack of financing

“These luxury areas are hard to re-sell the second time around, and some teams are far beyond the second time around.” — Michael Cramer, former president of the Texas Rangers and now director of the Texas Program in Sports & Media at the University of Texas. Page One

“Higher education as a growth industry is countercyclical. More students attend college in downturns, especially public universities. … We’ve been the odd man out in the busting of the development bubble.” — Jack Boyle, vice president for business affairs and finance administration, Cleveland State University. Page 11

“If you’re going to be a college in the football region, and you don’t play football, people don’t give you as much respect. … That’s probably wrong, but it’s the truth.” — Dave Armstrong, vice president, Notre Dame College. Page 12

By STAN BULLARD sbullard@crain.com

JASON MILLER

Lincoln Electric Holdings Inc., led by CEO John Stropki, is pushing its business into Russia as it seeks to capitalize on economic growth in the former Soviet centerpiece.

TO RUSSIA, WITH LOVE With two purchases, Lincoln Electric aims to become leading welding authority there By DAN SHINGLER dshingler@crain.com

hey say not to invade Russia in the fall or winter, but Lincoln Electric Holdings Inc. thinks it can pull off what Napoleon and other would-be conquerors could not. To be fair, the Euclidbased manufacturer of welding equipment and supplies isn’t trying to take over Russia entirely. Lincoln Electric just wants to carve out a niche

kingdom for itself in its core business, which company CEO John Stropki said is driven hard there by strong fundamental forces in the former Soviet centerpiece. In pursuit of Russia’s economic growth and infrastructure investments — both of which are outpacing activity in the United States — Lincoln Electric since October has purchased two Russian companies in the welding supply See RUSSIA Page 9

“Long term, we could have multiple manufacturing sites (in Russia) because of the logistics.” – John Stropki, CEO, Lincoln Electric Holdings Inc.

In the same way tossing sticks and blowing puffs of air on dying embers rekindles a campfire, the slowly recovering economy, a resurgent Wall Street and rising optimism are re-igniting the market for big-ticket commercial real estate in Northeast Ohio. Continued difficulty securing loans makes the process of doing a real estate deal resemble feeding a fire in the rain, and sales still aren’t close to what they were before the recession. Nonetheless, a just-completed survey of commercial real estate sales in Northeast Ohio of properties valued at more than $5 million shows their volume more than doubled last year to $253 million from $118 million in 2009. “The increase is surprising given how little financing is coming into the market,” said Alec Pacella, a vice president at the NAI Daus brokerage who compiles the annual survey. Mr. Pacella contributes the results to the Pacella Real Capital Analytics Inc. realty data service in New York City for its global report on investment sales. A total of 15 deals accounted for last year’s sales volume compared with 10 deals in 2009. In a sign of a strengthening market, sales of properties valued at more than $5 million closed in nine of the 12 months last year compared with just five of 12 months in 2009. Until 2008, a month with no sales of at least $5 million was a rarity. Well-heeled real estate investors and real estate investment trusts that began buying again last year fed the uptick after they sat on the sidelines during the worsening economy. See SALES Page 30

$5M CLUB IMPROVES The volume of commercial property sales of more than $5 million improved in 2010 from 2009, but still were well below previous years. In 2009, there were no sales exceeding $5 million in seven months of the year. In 2010, only three months had no sales exceeding $5 million. Northeast Ohio commercial property sales

Year

Sales

2010

$253.53M

2009

117.84M

2008

538.23M

2007

1.29B

SOURCES: ALEC PACELLA/NAI DAUS, REAL CAPITAL ANALYTICS

INSIGHT

Older, inner suburbs get creative in economic development Lacking developable land and new housing, cities turning elsewhere By JAY MILLER jmiller@crain.com

Building the tax base in older, close-in suburbs around Cleveland is a dicey business. These communities don’t have the open, developable land available in outer suburbs and, besides, they don’t

want more smokestacks or highrise office buildings, if they have any at all. If they had their druthers, they’d prefer new, single-family homes or small cluster home communities with new retail shops. But the recession has dashed any hopes of a housing-led revital-

ization, and too many shopping strips already have “for lease” signs on them to make retailing a prime economic development tool. So these communities, with outdated or underutilized buildings, have begun to rethink their futures. Cleveland Heights has replaced a generic assistant director in its

planning and development department with an economic development director who will be looking to attract new high-tech and medical businesses that sprout from institutions in nearby University Circle. “There is a shifting paradigm in the way inner suburbs are looking at economic development,” said Howard Thompson, who became the suburb’s economic develop-

ment director last November. “In Cleveland Heights, the focus had been on developing residential, entertainment and retail centers. Now we want to add commercial business.” Other cities are further along in remaking economic development efforts. Shaker Heights in November unveiled a new master plan that See SUBURBS Page 9

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Cuts: Tension, uncertainty mount continued from PAGE 1

There are limited exceptions to the freeze, with Kent State planning to fill only “mission critical” positions, according to a letter Dr. Lefton sent to the university community. “The motivation is that we don’t extend an offer of employment and have to turn around and withdraw the employment if economic circumstances become so troubled we can’t afford to keep our work force,” said Gregg Floyd, Kent State’s vice president for finance and administration. Kent State also halted plans for a $250 million construction and renovation project after the Ohio Board of Regents refused to sign off on a $210 million bond sale that would have financed much of the plan. Dr. Lefton had said it would be appropriate to wait until more is known about the state budget. Mr. Floyd said each vice president within the university is examining every aspect of his or her operation to root out inefficiencies. He noted that Kent State needs to “begin to think in terms of priorities and about which things are essential to continue to do business.”

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‘Piece by piece’ analysis Cleveland State University has assembled a task force led by provost Geoffrey Mearns to review “all the operations and obviously look for places where efficiencies can be found as well as ways to increase revenues,” according to university spokesman Joe Mosbrook. Some of those revenue increases could come in the form of higher parking or housing fees. Mr. Mosbrook said layoffs are under consideration. Spending cuts would be done strategically across university departments.

“We’re going to look at them piece by piece and make recommendations where it makes most sense,” Mr. Mosbrook said. Cuyahoga Community College, the state’s oldest and largest community college, has taken steps to curb its personnel costs, which make up 80% of the college’s operating budget, according to president Jerry Sue Thornton. Tri-C’s trustees and faculty agreed last fall on a new three-year contract that offers no salary increase for the current academic year, a 1% increase next year and a 2% increase the following year. “With the state facing an $8 billion to $10 billion gap, we just didn’t know where we’d end up this year,” Dr. Thornton said Dr. Thornton said Tri-C has cut costs by eliminating some jobs through attrition. The college also has been hesitant to hire full-time faculty, but rather has relied heavily on adjunct professors — a strategy that has caused tension between the administration and faculty and helped lead to a non-confidence vote by faculty against Dr. Thornton. The president said Tri-C thrives when the economy struggles because so many displaced workers go to the college for training. If the college hired many full-time faculty members, she said, they might need to be laid off if the economy rebounds and state support is cut.

The tuition question Aside from state aid, tuition makes up a large portion of the operating budgets of colleges and universities. As state support dwindled over time, tuition prices generally have risen. Still, college officials are hesitant to talk about whether they’ll raise tuition for the next academic year; such moves, they say, largely are contingent on whether lawmakers impose a tuition freeze or cap how much colleges can

increase their prices. Lawmakers are aware of the pressure a tuition freeze, coupled with subsidy cuts, could have on schools. “I do think that we should keep tuition as low as possible and education as affordable as possible, but if there are significant reductions in state support, it would be unreasonable to expect universities to have a state tuition freeze imposed at a time of significant state reductions,” said state Rep. Randy Gardner, a Republican who is one of the architects of a previous two-year freeze on tuition at state schools. He also is chairman of the House subcommittee on higher education. University of Akron president Luis Proenza said he’s encouraged by what he’s heard so far from the Kasich administration, particularly when it comes to talk of easing regulatory burdens on employers. One such burden in the view of state-supported colleges is the “multiple prime requirement,” where they must work directly with several contractors rather than with a single, or prime, contractor to manage construction projects. “If those regulations are relieved, then we might — depending on what the budget numbers are — have a reasonable substitution if not an amelioration of that decrease in state funding,” Dr. Proenza said. Dr. Proenza said the University of Akron has worked over the last few years to develop new revenue sources and to enter shared services agreements. On the revenue front, Dr. Proenza cited the university’s new corrosion engineering program, which has brought in new tuition revenue and has yielded contracts with companies that want to tap into its resources. “We have leveraged resources to create new opportunities as well as savings,” Dr. Proenza “We’re in an exciting place. Let’s just say we’re not out begging.” ■

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Volume 32, Number 4 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of May and fifth week of May, the fourth week of June and first week of July, the third week of December and fourth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2011 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $1.50. POSTMASTER: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877824-9373. REPRINT INFORMATION: 800-290-5460 Ext. 136

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Indians: Suite sales drop as market suffers continued from PAGE 1

Team officials have said since May, when Crain’s reported on the plan, that no decisions have been made and the process is ongoing. Team spokesman Curtis Danburg acknowledged last Thursday, Jan. 20, that suites and the Terrace Club remain “part of that conversation,” though nothing specific — such as repurposing some suites and the club — has been decided. One decision that has been made, though, is to use those spaces as sales tools in pushing season ticket plans. As the team announced Jan. 7, all renewing and new season ticket customers — including those who take advantage of a new offer of bleacher seats for $9 apiece — receive a free

suite rental, two free tickets in the club section (where all food, fancy or not, is free) and free membership to the fine-dining Terrace Club. The total value of the incentives ranges from $3,300 to $7,500. The hope is that the carrot will boost season-long commitments, drive concession revenues and perhaps turn on more fans to areas they may never have seen or used.

Too much of a good thing The Indians long have acknowledged the ballpark, which opened in 1994, has far too many suites. It originally was built with 121 — second only to the Texas Rangers’ Ballpark at Arlington, which has 128 — so that the team could sign up plenty of

local companies to 10-year leases and so generate enough revenue to offset the team’s share of stadium construction costs. Business people signed up back then as a show of support for the club under the ownership of the late Richard Jacobs, who invested heavily in the team and made it into a winner, and because the economy was humming along and they could use the suites in a shiny new ballpark for entertaining clients and would-be customers. However, the fortunes of both the Indians and the economy have changed since then, and not for the better. Last season was the first time the Indians used a free suite rental as an inducement for returning season ticket buyers. It has become a way to

JANUARY 24 - 30, 2011

put to use space that no longer is in demand like it once was. “These luxury areas are hard to re-sell the second time around, and some teams are far beyond the second time around,” said Michael Cramer, president of the Rangers from 1998 to 2004 and now director of the Texas Program in Sports & Media at the University of Texas at Austin. “Four or five or 17 years after you open a facility, it’s hard to sell to new buyers and renew, so why not create traffic there?” Mr. Cramer said. Mr. Danburg last week declined to reveal recent suite sales figures, saying 2010 and 2009 were similar. The Indians in June 2009 told Crain’s they had 78 full-season-equivalent suite sales; Mr. Danburg last week said the Indians’ suite sales were comparable to those at some of the newer stadiums, such as the new Yankee Stadium, which has only 56.

ABOUT THE FUTURE ... Let’s look into the future. In 2013, three Fortune 500 companies move to Cleveland. The Indians turn around their poor track record drafting and development. Playoff appearances follow, including Cleveland’s elusive first pro championship since 1948. Will the fans, who have become accustomed to a free suite rental, two free club seats and a Terrace Club membership — if it’s still there — once again pay for those perks? “If we get to 14,000 or 20,000 (full-season equivalent tickets), we might not have the same inventory we have now, and fans will understand,” said Indians spokesman Curtis Danburg. Said Jim Kahler, a former Cavs executive and now director of the Center for Sports Administration at Ohio University: “If Southwest (Airlines) has a sale today (on extra tickets), it may not sell them for the same price next month or next year. Sports will be sensitive to it.” — Joel Hammond

As for the Terrace Club — where the Indians and club operator Delaware North split revenue 50-50 — traffic has waned along with the team’s season ticket base, which dropped to 8,000 full-season equivalents last year from 12,000 in 2009 and 15,000 in 2008. Before including free membership in the club with season ticket packages for 2011, those customers had the option of buying memberships for either $500 or $900. “We evaluate our benefits for season ticket holders every year, and many of them said this was their first chance to be in a suite,” he said. “That played into expanding it this season. We said, ‘Here’s excess inventory. How can we use it to our advantage, and fans’ advantage?’”

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Sales declines likely will spell doom for some suites and other luxury areas not just at Progressive Field, but at other stadiums, too, said Mr. Cramer, the former Rangers exec. He’d have preferred the Ballpark at Arlington be built with about 30 fewer suites and about 8,000 fewer seats than the 49,170 it has. The Indians already have tried remaking a handful of their suites: Before last season, they turned one into a “Fancave,” featuring a pool table and a handful of flat-screen televisions; they also combined two into a “presidential” suite behind home plate. “I wouldn’t be surprised if a lot of these areas go away,” Mr. Cramer said. “Suites can turn into open areas, party suites, things where three suites turn into one. Now you can offer different types of packages than the ones that weren’t selling and see if those work.” Jim Kahler agreed. The former vice president of sales and marketing for the Cleveland Cavaliers and now executive director of the Center for Sports Administration at Ohio University said the Indians are doing what all teams should be doing. “Good organizations are not afraid to take a look at where they are,” said Mr. Kahler, who noted that a number of NBA teams, including the Portland Trail Blazers and Phoenix Suns, have responded to their markets and trends by making changes. “Kudos to the Indians for taking a look at their square footage and figuring out what works,” he said. “The teams that sit back are making a mistake.” ■

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Elderly care provider’s future at home Mission Accomplished! By TIMOTHY MAGAW tmagaw@crain.com

The A.M. McGregor Group, a Cleveland-area provider of services to the aged, has taken over a program that allows poor seniors to live at home rather than in costlier residential care facilities, and it wants to use the program to launch a broader home care operation. About 165 low-income seniors are served by the program, but McGregor executives hope to double that number during the next year. The Centers for Medicare and Medicaid Services oversees the program and 72 others like it in the country, including one in Cincinnati. The program, known as the Program for All-Inclusive Care of the Elderly (PACE), will be labeled as McGregor PACE. Rob Hilton, McGregor president and CEO, said McGregor’s takeover of the home

care program allows the group to position itself as a “one-stop shopping” destination for aging services, as it already provides skilled and intermediate nursing care, assisted living and low-cost independent housing. “In a sense, home care is where the money is,” Mr. Hilton said. Mr. Hilton said he expects grant money from private foundations, as well as support from Medicaid, will favor home care over residential care in coming years. Seniors typically prefer home care, he said, and it’s less expensive than placing them in nursing homes. Ann Conn, McGregor’s chief financial officer, estimates the PACE program reaches only 2% of seniors who are eligible for it. To qualify, the person must be a Cuyahoga County resident and eligible for both Medicare and Medicaid, and must require a level of care

provided in a nursing home. To boost enrollment in the program, Ms. Conn said McGregor is working with individuals who have been referred by the Ohio Department of Aging. McGregor also is working with nursing homes and discharge planners at area hospitals to identify people who require a skilled level of care but would like to remain in their homes. The PACE program had been managed by the now-defunct Concordia Care, which was a collaboration between Benjamin Rose Institute and the MetroHealth System. Concordia Care ultimately decided the program would be better handled elsewhere because of its complicated regulations and reporting requirements, according to Concordia spokeswoman Barbara Paynter. The 100 employees involved with the PACE program now are employed by McGregor. ■

Survey: Most plan for revenue boost continued from PAGE 1

own business prospects and hiring plans. Wire-Net received responses from 213 businesses, mostly local manufacturers of all types. The PMA’s data came from 116 machine shops, stamping plants and other metal fabricators from across the United States, including Northeast Ohio, where its membership is concentrated. “I think this is pretty dramatic evidence that the corner has been turned, and now, hopefully, we can pick up some speed on the straightaway,” Wire-Net president John Colm said. Mr. Colm said he was particularly struck by his members’ optimism about their prospects for higher sales and hiring in 2011. A vast majority of Wire-Net’s respondents, 84%, said they expected to see their revenues rise in 2011 — with 39.5% saying they expect an increase of more than 10%. Only 7.3% said they expected to see a decrease in their sales this year. “That was a dramatic switch from 2009,” Mr. Colm said. “Only 8% in 2009 said revenues would go up.” Likewise, 52% of the PMA’s survey participants said they expect their order volumes to increase over the next three months. That’s only the third time since 2009 in the monthly poll that a majority of the organization’s respondents indicated they expected an increase, and it’s the first time it has happened since 54% said they expected a pickup in February 2010. As for hiring employees, manufacturers indicated they are adding people. Only 12% of the PMA’s respondents said they had any employees on short time or layoff. The last time that number was lower than 12% in this survey was in October 2007, when only 8% of companies had workers on short time or layoff. Among Wire-Net’s survey respondents, 56% said they would hire more workers this year, while a scant 4.1% said they planned to reduce payrolls. Those additions would be on top of the new hires made by 51% of the respondents in 2010 — a year in which 17% let employees go, Mr. Colm noted.

‘So far, so good’ Optimism among manufacturers

appears broad-based. Manufacturers in the automotive sector have been telling Crain’s they’re seeing steady improvement going into 2011, and those in other industries echo their sentiments. For example, Mentor-based Fredon, which is in the process of doubling its size to 60,000 square feet, is seeing an increase in its defenserelated helicopter component business and in demand for parts it makes for diesel locomotives. Sales for the last six months of 2010 were 25% ahead of their pace during the same period of 2009 — and so far this year they are running 39% over where they were last year at this time, said Fredon president Roger Sustar. “So far, so good,” Mr. Sustar said. At Drabik Manufacturing in Cleveland, business has been picking up since late August, but a continued increase in business during the normally slow months of December and January has been a particularly pleasant surprise, said president Jim Drabik. “Even in normal times, those months are usually slow,” Mr. Drabik said. “But right now, we’re busy.” When Mr. Drabik’s workload picks up, it’s often a sign larger companies are making substantial capital investments. That’s because his machine shop does most of its work for heavy industrial clients who need specialized equipment, replacement parts and other large metal parts made or rebuilt. When Mr. Drabik receives orders, it’s generally because an automotive plant, steel mill or recycler somewhere is investing in a plant, which means those larger companies see demand continuing.

Mr. Drabik said his business normally makes a slow and steady climb out of any recession. This time the recovery was slow in coming, but fast and steady once it began, he said. His business looks good at least through March, Mr. Drabik said, and as a result he has added some workers. His production staff of a dozen employees isn’t going to move the needle on the state’s unemployment rate, but two of those workers are new machinists and Mr. Drabik said he’ll likely add a third and then a trainee in the months ahead.

Worried in a good way Still, some manufacturers are exercising caution, said Bill Beaufait, a partner at the Cleveland accounting firm Maloney + Novotny who works with manufacturing clients. Manufacturers have become better at controlling their costs, he said, and some still are reluctant to add to them, unconvinced the economic recovery is as strong as some say. “When they need another guy, they say, ‘I’ll make do,’ and when they need three or four they say, ‘OK, I’ll hire one,’” Mr. Beaufait attests. Still, Mr. Colm said, “that’s better than the alternative.” He noted that while pessimists remain among his members — 17% say they are still worried about their prospects — the situation today is a reversal from what it was two years ago, or even last year. “Now, more (manufacturers) tell us they are starting to worry about their ability to find good people — and that’s a sign for optimism,” Mr. Colm said. ■

It’s a done deal. Our accomplished attorneys have executed hundreds of deals. We are on a mission to help you accomplish yours. ADCO Global, Inc. Acquisition of EternaBond, Inc.

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Bucyrus Community Hospital Sale of substantially all assets to an affiliate of Galion Community Hospital December, 2010

FirstSource Laboratory Solutions, Inc.

Forum Health

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Sale of substantially all assets to an affiliate of Community Health Systems

September, 2010

The Hall China Company

Hawaii Medical Center

Sale to The Homer Laughlin China Company

Chapter 11 Reorganization

March, 2010

August, 2010

Hunter Equity Capital Acquisition of Mid-Plains Power, Inc. December, 2010

Innovative Process Administration Sale to Mercer, a division of Marsh & McLennan Companies June, 2010

Marjoan, Inc.

Sale of stock of Briar Hill Health Care Residence

Sale of stock of Holly Hill Healthcare Community

July, 2010

MCM Capital Partners

Sale of Amrep, Inc. to ZEP Inc.

Acquisition of RMB Products, Inc.

January, 2010

December, 2010

Ninth Street Capital Partners

OncoDiagnostic Laboratory, Inc. Diagnostic Laboratory Partners, Inc.

Acquisition of Castronics, Inc. December, 2009

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Remington Products Company

Sale to Aurora Diagnostics, LLC

Acquisition of Stable Step, Inc.

March, 2010

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Western Pathology Consultants, P.C.

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JANUARY 24 - 30, 2011

PUBLISHER/EDITORIAL DIRECTOR:

Brian D. Tucker (btucker@crain.com) EDITOR:

Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:

Scott Suttell (ssuttell@crain.com)

OPINION

Cashing in

ometimes it’s hard for people to see the economic changes taking shape in their own backyard. For example, there was a time when the words “Cleveland” and “venture capital” only would appear in the same sentence if they were in a story about how our city wasn’t seeing much of those investment dollars coming its way. That time has passed. If anything, Cleveland has become somewhat of a venture capital magnet — at least relative to other cities in the Midwest — when it comes to securing investments in health care companies. And that’s a welcome development in a city still viewed by most as a bedraggled old industrial town without much of a future. The numbers from the latest Midwest Health Care Investment Report produced by nonprofit biotech advocacy group BioEnterprise Corp. are encouraging for Cleveland. They indicate this area has fared far better than most parts of the Midwest in attracting venture dollars for health care investments over the last four years. Of the 14 regions that BioEnterprise tracks over 11 states, only health care companies in Minneapolis raked in more venture capital than those in Cleveland during the period from 2007 through 2010. The latest BioEnterprise report estimates the total dollars invested in companies in this region over that period at nearly $607 million. Chicago is a distant third, at almost $423 million. Also heartening is the number of investments that added up to produce that dollar total. BioEnterprise puts the number of Cleveland-area companies receiving venture dollars during the four years at a low of 21 in 2009 and a high of 33 just last year. The payoff for many of these investments has yet to be seen, and in some cases may never come, because that’s the nature of venture investing. It isn’t for those who like their investments to produce instant gratification or who expect guaranteed rates of return. That’s because the young companies fortunate enough to pull in venture dollars often are innovators that still are developing the product or technology they’d eventually like to bring to the marketplace. However, it is these very companies that down the road each could employ tens if not hundreds of Northeast Ohio residents in good-paying jobs should they succeed in their missions. And the more of these companies the region can nurture, the better the chances of producing its share of winners. Few companies ever evolve into the out-and-out grand slam that is Minneapolis-based medical device maker Medtronic Inc., or even the home run that is sterlization equipment maker Steris Corp. of Mentor. But we’re fairly confident economic development advocates in Northeast Ohio wouldn’t be disappointed if the region could develop a solid lineup of singles and doubles hitters that in the aggregate would serve as a foundation for building its biotech base. So, how’s this for a game plan: Let’s work to keep those venture dollars coming by cultivating and encouraging the kind of ingenuity that already has made this area attractive for investment.

FROM THE PUBLISHER

Eighty-eight counties just won’t cut it

to reduce the payroll is a message that emo to Ohioans: If you think resonates with many Ohioans fed up with the past couple years have ever-expanding government agencies. been bad — what with the So, it’s inevitable that we’ll see severe global financial meltdown employee reductions in state governand all — batten your hatches and tighten ment, and budget cuts to a host of your seat belts. agencies, institutions and organizations You are in for a rough ride. across the state. And that will bring By now, most people who can read or cheers from the black-or-white hear know that the state is gang of new officeholders who facing an enormous budget BRIAN rode that sentiment to office. deficit over the next biennium. TUCKER The trouble is, well, life is It’s been estimated at $8 billion, rarely that easy. The cuts will and the real gap could be higher. begin, soon to be followed by Like several other states, Ohio angry constituent calls about a has a batch of newly minted, community theater about to go conservative Republicans in belly up, a bridge that will close Columbus vowing to cut taxes because we can’t afford to fix it, and government. They’re led by or a program for troubled teens a couple of veteran conservative that must end. politicians in Gov. John Kasich That’s when it gets complicated, espefrom Cincinnati and House Speaker Bill cially when the spouse of a big donor sits Batchelder of Medina. on the board of that troubled community Few would argue that government — theater, or a business can’t ship its in all its forms — hasn’t grown to an products efficiently because that bridge unwieldy size, and that we’re spending is unsafe. Those troubled teens? They’ll an enormous chunk of our precious be on their own. revenues on salaries and benefits. The This next budget cycle is sure to be the intent of the new governor and speaker

harshest seen in generations, and to succeed, we’ll need more challenging thinkers such as Ned Hill, urban affairs dean at Cleveland State University. He urged radical changes in his remarks last week to a couple hundred folks who gathered in Akron to consider the future of that city and its metro area. Cut the number of counties until each has at least 750,000 people. Ohio’s 88 counties were drawn so that every resident could get to and from the county seat in a single day’s buggy trip. We could probably come up with more logical boundaries. Force regionalization, he advocates; the heck with parochial thinking. Turn welfare oversight back to the state and administer it from six “super-center” offices, not by sluggish bureaucracies in each county. Focus all energy on product development and business creation and stop focusing on “quality of life” amenities. If towns want swimming pools, or community theaters, or rec centers, they’ll need to pay for them. We have to rethink Ohio. It’s our only chance. ■

THE BIG ISSUE Do you think Congress should repeal the health care reform law that was passed last year?

JEFF BURGESS

ERIK KOBAL

CINDY MARIZETTE

SUSANN GEITHNER

Lakewood

Euclid

Cleveland

Lakewood

I do not think Congress should repeal that law, because Washington is notoriously tied up and bogged down. It was something that was passed and to rework it at this point ... would just logjam Congress.

I don’t think it should be repealed, but I think they should go back and (change it) with a real bipartisan bill. I think it was kind of pushed through and kind of went too far in one direction.

Congress should not repeal the act. Hundreds if not thousands of Americans are relying on the health care reform act to assist them in their medical situations today. Sick Americans ... need this help badly.

I’m from Germany, so we have social health care. I think it’s a good idea to move in that direction. ... The “scare” stories, they are not true. ... (There is) no half-year waiting for an appointment or anything like that.

➤➤ View more of these comments by visiting the Multimedia section at www.CrainsCleveland.com.

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CRAINâ&#x20AC;&#x2122;S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

Russia: Growth areas need welding

Oil, gas lead the way Mr. Stropki said a number of factors are driving Russia forward, many of them tied to the nationâ&#x20AC;&#x2122;s efforts to more fully exploit its oil, gas and mineral reserves through exploration, drilling and mining. All those activities require a substantial amount of welding, he said, as do the pipelines and facilities that are built to handle and move the materials. Those investments play into Lincoln Electricâ&#x20AC;&#x2122;s strengths, said its senior vice president, David LeBlanc. â&#x20AC;&#x153;In the mid-â&#x20AC;&#x2122;90s, we became a

THE NEW GUY IN TOWN Lincoln Electric in the last three months has announced two deals in Russia it hopes will help the company establish itself as a welding leader in an area undergoing economic growth. The new additions: â&#x2013; Mezhgosmetiz-Mtsensk (MGM), which has 200 employees and had 2010 revenues of $30 million â&#x2013; OOO Severstal-metiz, with 283 employees and $40 million in 2010 revenues

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One step at a time Lincoln Electric has been watching Russia for some time and has spent the last four years finding and arranging its recent deals, Mr. Stropki said. It may do others as well, if it finds the right opportunity, because Russia is such a large country geographically. â&#x20AC;&#x153;Long term, we could have multiple manufacturing sites there because of the logistics,â&#x20AC;? Mr. Stropki said. Foreign ventures are nothing new to Lincoln Electric, which has been establishing operations in other countries for longer than many manufacturers have been in existence. Its first foray outside the United States was in Australia, some time before World War II, Mr. Stropki said. Today, it has 40 operations in 20 countries. In most cases, Mr. Stropki said, Lincoln Electric began by participating in large infrastructure or industrial projects in a particular market, increased its export sales there and then ultimately bought or formed a manufacturing operation â&#x20AC;&#x201D; just as itâ&#x20AC;&#x2122;s doing in Russia. â&#x2013;

T EN

AGING PACK ALL T S IN

NG KITTI

FULFILLM

well-known and well-appreciated supplier to the pipeline industry and we really made a name for ourselves in (supplying welding equipment to) both pipelines and pipe mills.â&#x20AC;? Mr. Stropki predicts Russia will grow its gross domestic product by 5% to 6% this year, ahead of the most optimistic projections of U.S. growth of about 4%. â&#x20AC;&#x153;But all GDP growth is not the same to us,â&#x20AC;? Mr. Stropki said, explaining that the growth in Russia is more oriented toward infrastructure and heavy industry than it is in the United States. The U.S. Central Intelligence Agency backs up Mr. Stropkiâ&#x20AC;&#x2122;s belief that Russia is growing. It notes in an online report on Russia that its pre-recession growth was strong, and that its recession seems to have ended. â&#x20AC;&#x153;The economy had averaged 7% growth since the 1998 Russian financial crisis, resulting in a doubling of real disposable incomes and the emergence of a middle class,â&#x20AC;? the CIA states. Other companies also have been moving into Russia, especially over the last five years or so, observes Brooke Christian, senior vice president for New York-based translation firm TransPerfect, which works with many U.S. corporations. â&#x20AC;&#x153;We certainly have seen a shift toward much more oil and gas activity there,â&#x20AC;? said Mr. Christian, who noted clients such as BP also have been using his services to establish operations in Russia. â&#x20AC;&#x153;Oil and gas is so heavily tied to the success of their economy, and theyâ&#x20AC;&#x2122;re starting to see some trickledown effect as well,â&#x20AC;? Mr. Christian said. â&#x20AC;&#x153;It makes sense to me that a company like Lincoln would go there, too.â&#x20AC;?

ARE

business, and it could acquire more in the future, Mr. Stropki said. So far, Lincoln Electric has bought Mezhgosmetiz-Mtsensk (which it is mercifully referring to as MGM), a welding wire manufacturer about 250 miles south of Moscow, and OOO Severstal-metiz, another maker of consumable welding supplies about 30 miles away from the MGM plant. Severstal has 283 employees and 2010 revenues of about $40 million; Lincoln Electric announced that deal Dec. 28. MGM, with 200 employees, had 2010 revenues of about $30 million, Lincoln Electric reported in announcing that transaction Oct. 27. It did not disclose terms of either deal. Both are strategic acquisitions aimed at making Lincoln Electric the No. 1 or 2 welding supplier in Russia, like it is in most of the rest of the world, Mr. Stropki said. There is strong motivation for achieving that goal. â&#x20AC;&#x153;In and around Moscow, the amount of infrastructure development would dwarf anything youâ&#x20AC;&#x2122;d find in the U.S.,â&#x20AC;? Mr. Stropki said in an interview.

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continued from PAGE 3

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Suburbs: Smart cities go â&#x20AC;&#x2DC;back to basicsâ&#x20AC;&#x2122; continued from PAGE 3

recommends â&#x20AC;&#x153;more business-proactive policies, including competitive commercial tax rates and aggressive measures to enhance the climate of investment in and around its commercial districts and building stock.â&#x20AC;? It also is helping a private developer turn an old car dealership on Lee Road into a business incubator. West of the Cuyahoga River, Lakewood, which has a legacy industrial section and two multistory office buildings, is stepping up efforts to attract small businesses and law firms to second-story office space above shops along Detroit Avenue and elsewhere. A little farther south and west, Fairview Park has bought a string of rundown, obsolete motels along Lorain Avenue and is beginning to redevelop those properties as office buildings. Itâ&#x20AC;&#x2122;s now looking for a developer for an 11.8-acre site across from City Hall.

Back to basics These older suburban communities have fewer people to tax than 10 or 20 years ago, but their police departments still have the same number of streets to patrol and their school districts face rising per-pupil costs. So they must find new ways to raise revenue without

increasing municipal costs. â&#x20AC;&#x153;You have to spread the tax base,â&#x20AC;? said Jim Kennedy, Fairview Parkâ&#x20AC;&#x2122;s director of service and development. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re always looking for highest and best use (of land), and in most cases, for a municipality, thatâ&#x20AC;&#x2122;s office development,â&#x20AC;? Mr. Kennedy said. â&#x20AC;&#x153;You donâ&#x20AC;&#x2122;t put an extensive burden on your infrastructure (as industrial development would) and theyâ&#x20AC;&#x2122;re paying you some nice tax dollars.â&#x20AC;? The trick for these communities is knowing what their strengths are and capitalizing on them, said Nathan Kelly, the new deputy chief for development for Cuyahoga County Executive Ed FitzGerald. â&#x20AC;&#x153;The difficult task for a lot of suburbs is that there are a lot of vogue things cities are doing,â&#x20AC;? said Mr. Kelly, who until recently was Lakewoodâ&#x20AC;&#x2122;s director of planning and development. â&#x20AC;&#x153;But there is only one University Circle, and you canâ&#x20AC;&#x2122;t have an incubator in every city. â&#x20AC;&#x153;The smart cities arenâ&#x20AC;&#x2122;t trying anything new; theyâ&#x20AC;&#x2122;re going back to the basics to find out what works for their city,â&#x20AC;? Mr. Kelly said.

â&#x20AC;&#x2DC;Weâ&#x20AC;&#x2122;re just evolvingâ&#x20AC;&#x2122; The hiring of an economic development director is a sign that

Cleveland Heights, for the first time, will look seriously at attracting officebased businesses to the community, beyond the occasional law practitioner or accountant. Mr. Thompson said the community has several 1970s-era, openplan schools that he believes could be attractive to high-tech or biotech startups. They even come with ample parking, an important feature in the built-out suburb. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;m going to try to capitalize on that,â&#x20AC;? he said. Other communities are doing more to retain existing businesses, to keep them competitive in a changing economy. Bedford Heights economic development director Marty Divito said she has been able to help energy-reliant manufacturers in her community by offering financial and technical assistance to companies that make investments in energy-saving equipment. â&#x20AC;&#x153;I donâ&#x20AC;&#x2122;t know if itâ&#x20AC;&#x2122;s differentâ&#x20AC;? from what other communities may be offering, she said. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re just evolving.â&#x20AC;? Ms. Divito said suburban communities are realizing the businesses within their borders are more than just commercial property owners and taxpayers. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re finally getting the global competition concept,â&#x20AC;? she said. â&#x2013;

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20110124-NEWS--10-NAT-CCI-CL_--

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3:23 PM

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CRAIN’S CLEVELAND BUSINESS

GOING PLACES JOB CHANGES

ADVISORS: Eileen J. Stanic to vice president, senior relationship manager.

ARCHITECTURE

BCG & CO.: Mary Cowx and Emily Zaubi to tax supervisors; Kathy Adkins, Tim Stiller and Jessie Houck to senior associates; Tanya Dunkle to assurance services manager; BJ Davis and Dana Howell to assurance services supervisors; Abby McMullen to senior associate; Jason Christman and Dave Duma to senior associates; Albert Macso to valuations supervisor.

VOCON: Jason Rohal to intern architect; Sarah Schwarz to project designer; Steven Rush to information technology administrator.

CONSTRUCTION GREAT LAKES CONSTRUCTION: Albert P. Leonard to vice president, project management.

ENGINEERING OSBORN ENGINEERING: Lee Hooper to president.

FINANCIAL SERVICE BAIRD PUBLIC INVESTMENT

BRUML CAPITAL CORP.: Eric W. Starr to vice president; Kelvin Zhan to analyst. BRUNER-COX LLP: Steven O. Pittman to managing partner. CORRIGAN KRAUSE: Janice L. Henshaw to bookkeeper.

WWW.CRAINSCLEVELAND.COM

ENTERPRISE CLEVELAND GROUP: Susan I. White to president, CEO; Eric Rader to senior vice president. FIRST FIDUCIARY INVESTMENT COUNSEL INC.: Darian H. Chen to shareholder. SS&G WEALTH MANAGEMENT LLC: Michael J. Gheen to director; Patricia Valentic and Tammy Ertley to senior associates.

HEALTH CARE AKRON CHILDREN’S HOSPITAL: Dr. Bruce Cohen to director of pediatric neurology; Dr. Richard Hertle to director, department of pediatric ophthalmology; Dr. Robert Parry to pediatric general surgeon.

JANUARY 24 - 30, 2011

Kimberly A. Umpleby to associate. BROUSE MCDOWELL: Todd C. Baumgartner, Nicholas P. Capotosto, Mark F. Craig, Caroline L. Marks and Louise M. Mazur to partners; Alexandra V. Dattilo and Justin M. Schafer to associates. MILLISOR & NOBIL: Jeffrey D. Smith to partner.

Hooper

Pittman

Korman

Reuscher

Umpleby

Smith

Heuser

Jacobs

Robinson

THOMPSON HINE LLP: James B. Aronoff to partner-in-charge, Cleveland. TUCKER ELLIS & WEST LLP: Chris Caryl, Jack Goldwood, Kristen Mayer, Tariq Naeem, Jack Palumbo, John Patterson and Benjamin Sassé to partners. ULMER & BERNE LLP: Marie C. Kuban to partner.

LEGAL

MANUFACTURING

BENESCH: Jean Kerr Korman and Christopher P. Reuscher to partners;

JOHN D. OIL & GAS CO.: Carolyn T. Coatoam to chief financial officer.

WALLOVER OIL CO.: Dan Heuser to metalworking product manager.

MARKETING

Was a regular garden good enough? Nope. They put in a rock garden. And a rose garden.

HENNES PAYNTER COMMUNICATIONS: Nora Jacobs to vice president.

Makes me tired just thinking about it.

NONPROFIT CITY YEAR CLEVELAND: Phillip M. Robinson Jr. to executive director. CUYAHOGA ARTS & CULTURE: Jill Paulsen to director of grant programs; Jonah Weinberg to director of external affairs; Stacey Hoffman and Donnie Gill to program managers. GREATER CLEVELAND AUTOMOBILE DEALERS’ ASSOCIATION: Nick Hanna to director of regulatory affairs.

REAL ESTATE CHARTWELL GROUP LLC: Mark Abood to senior vice president; John Chluda, David Lang, Curt Schneider and John Wagner to vice presidents; David Stover to executive vice president. GLOBAL REAL ESTATE ADVISORS INC.: David Sigg to vice president.

TECHNOLOGY BCG SYSTEMS INC.: Dominic Irrcher to senior network engineer; Josh Holyak to desktop/helpdesk technician.

BOARDS LEGAL AID SOCIETY OF CLEVELAND: Ilah Adkins (Charter One) to president; Adrian Thompson and Ann Bergen to vice presidents; Rick Petrulis to secretary/treasurer; Richard Panza to president emeritus.

Send information for Going Places to dhillyer@crain.com.

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■ The Morning Roundup: A collection of the day’s business news from Ohio’s daily papers ■ Breaking news alerts: When major news happens, you’ll know ■ Daily headlines: A collection of Crain’s-produced news and blog items from the day ■ e!Cleveland: A weekly guide to arts and leisure in Northeast Ohio

20110124-NEWS--11-NAT-CCI-CL_--

1/20/2011

4:14 PM

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CRAIN’S CLEVELAND BUSINESS

JANUARY 24 - 30, 2011

INSIDE

12 SPORTS PROGRAMS A WIN-WIN FOR COLLEGES.

HIGHER EDUCATION A MARKET WITH SELLING POINTS Parents, investors spot opportunities to capitalize on student housing near NE Ohio college campuses By STAN BULLARD sbullard@crain.com

egan McKee, a 2009 graduate of Kent State University, fondly remembers four years living in a six-bedroom house her parents bought on Sherman Street in Kent for herself and her older brother while they attended the school. “It was so much fun,” Miss McKee recalls of living with friends she grew up with at the house located so close to class “you could hit campus with a rock.” Matt Corpora and two longtime friends, freshmen at the University of Akron, began the latest quarter in a two-bedroom Cape Cod in Cuyahoga Falls that his parents purchased for his college years. See STUDENTS Page 15

COMFORTABLE LIVING QUARTERS New-breed student housing is providing an oasis of multimilliondollar activity amid a desert-like outlook for realty development projects in the downturn. Central to many such projects is a combination of private bathrooms and bedrooms for each student with shared kitchens and living rooms for one to four students.

Amenities abound. A 596-bed student housing complex that Columbus-based Edwards Student Housing Management Co. wants to construct in Kent includes a fitness center, a business center and 24-hour security and maintenance, said Ryan Szymanski, an Edwards vice president. Edwards, the developer of 10,000 student bedrooms over

the past decade, is facing opposition of nearby residents as it seeks Kent approvals to rezone nine acres on Lincoln and Summit streets to “boarding house” in order to build units for more than two unrelated students rather than typical apartments. In the meantime, Kent Presbyterian Church wants to construct a See CONSTRUCT Page 15

Notre Dame lands nearby space to accommodate growth By TIMOTHY MAGAW tmagaw@crain.com

otre Dame College recently bought the old Regina High School site in South Euclid, and officials say the much-needed space will help alleviate the crunch caused by the college’s skyrocketing enrollment over much of the last decade. The college purchased the facility, which sits on eight acres, for just

more than $2 million from the Sisters of Notre Dame, the Catholic order that operated Regina High School. The property is located on South Green Road next to the Notre Dame campus. The high school closed last June due to dwindling enrollment and mounting financial trouble. Notre Dame’s plans for the facility still are fluid, but over the next few months, it will be used for more classroom and office space.

Notre Dame had been leasing the space since the school closed, but now that it owns the property, officials are weighing how best to leverage their new asset. Renovations at the 115,000square-foot facility and its adjacent 1,100-seat auditorium likely will take place over the next several years. Aside from classroom and office space, college officials would like to create more common space for students to socialize because

Notre Dame, for instance, lacks a student union. But because of the immediate need for space, officials aren’t planning to demolish the building and start from scratch. “We’re near capacity, and this changes that dramatically,” said Andrew Roth, president of Notre Dame College. “It gives us more room to grow. Since Dr. Roth was hired, enrollment at the private college on

Cleveland’s East Side has grown substantially. In 2003, the college’s total enrollment was 894. Last fall, that number had climbed to more than 2,000. Likewise, the number of employees — both full-time and parttime — rose from 114 in 2003 to 222 in 2010. The college also heavily relies on adjunct professors, but Dr. Roth said he’s made it a priority to expand the school’s See REGINA Page 16

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HIGHER EDUCATION

If you play it, they will come Colleges that add football say programs score enrollment gains

HIGHER EDUCATION Pam Lebold, Director

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he way Michael Victor sees it, the success of Lake Erie College’s still-youthful football program is directly proportional to the amount of Storm gear worn around Painesville. And lately — on the strength of a vastly expanded athletic department headlined by a now-Division II football team — those threads have been multiplying, the school’s president says. At Notre Dame College, 25 miles away in South Euclid, it’s perhaps even simpler than that, says vice president of enrollment Dave Armstrong: “This is the birthplace of football. If you’re going to be a college in the football region, and you don’t play football, people don’t give you as much respect. “That’s probably wrong, but it’s the truth,” he said. Lake Erie and Notre Dame, five and three years, respectively, after installing their programs, say they are reaping the benefits: wild enrollment increases, expanding campuses, improved engagement with alumni and fundraising pushes. They’re also two of 26 schools nationwide, according to an August USA Today report, that have added or will add football programs between 2009 and 2013. Cleveland State since October 2008 has considered adding the sport, but after the school conducted a student survey last year to gauge their willing-

Globally recognized Nationally ranked Locally vital Kent State University is the region’s leading public university • Ranked as one of the top 200 universities in the world, by Times Higher Education, London • Named to the top tier of the Best Colleges in the nation by U.S. News & World Report • Generated 1.96 billion in added income to the Northeast Ohio economy • Ohio’s second largest public university • Nearly 200,000 alumni worldwide • Celebrating more than 100 years of excellence in action

PHOTO PROVIDED

Notre Dame Falcons fans show their support for the football team, which the college introduced three years ago. ness to pay part of the startup costs, there’s been little movement, according to athletic department spokesman Brian McCann.

Storm surges At Lake Erie, enrollment has doubled to 1,300 since 2006. As such, Mr. Victor said the school has been able to be more selective in choosing its student body. Football startup costs, Mr. Victor said, were about $500,000, but only because there was no stadium construction involved. The Storm play at Jack Britt Memorial Stadium, also home to Painesville’s Harvey High School games. School officials say the enrollment gains, spurred in large part by adding 100 football players and hundreds of other students participating in 11 more varsity sports — the Storm now compete in 23 — have offset those startup costs. “We’re in the black,” said Mr. Victor, who spearheaded the development of the football team and the athletic department’s expansion when he arrived at Lake Erie in 2006. The revenue gained from the added enrollment helped pay for a renovation of the old Andrews Osborne Academy gymnasium — which the college purchased in 2007 to accommodate enrollment growth — into Lake Erie’s athletic training center. Plus, the $800,000 price tag on the installation of turf at Jack Britt, split between the college and the Painesville City School District, also was covered by the student gains. The Storm, in their first season as a full member of NCAA’s Division II, won seven games in 2009 but slipped to a 3-8 mark in 2010. In 2008, as a Division III competitor, Lake Erie beat Glenville (W. Va.) State, a perennial national contender in Division II, for the Pioneers’ only loss. They missed the playoffs. “It gives us a more vibrant institution,” Mr. Victor said. “More people want to attend. It helps academically. It helps retention, and it has an intangible effect.”

Falcons fly

Kent State University, Kent State and KSU are registered trademarks and may not be used without permission. Kent State University, an equal opportunity, afﬁrmative action employer, is committed to attaining excellence through the recruitment and retention of a diverse workforce. 10-2858

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At Notre Dame, enrollment has increased to 1,200 full-time students, from 300 in 2003, Mr. Armstrong said. Factor in parttimers and continuing education participants, and traffic has risen to more than 2,000, from 800. The football team has made the biggest impact, with 100 men coming to campus; the school started a women’s rowing team in an effort to

counteract that imbalance, and it hopes to grow its marching band, which numbers 55 right now, to 200. The school in 2009 was recognized by the Palo Alto, Calif.-based Carnegie Foundation as having the fastest enrollment growth among 204 institutions in its weight class, so to speak. On the football field, the Falcons played eight games in 2009 against junior varsity and club teams — like Lake Erie did in 2007. Notre Dame in 2010 went 2-9 participating in the National Association of Intercollegiate Athletics (NAIA) and if it follows on its current path, will be a full member of NCAA Division II for the start of the 2012 academic year. That designation allows both Notre Dame and Lake Erie to offer college scholarships, something Division III and NAIA schools cannot. Additionally, Notre Dame partnered with Good Karma broadcasting, parent company of ESPN Cleveland WKNR 2 1540-AM, and its games are broadcast both on the radio station and streamed live on its web site. “(Football has) had an immediate impact,” Mr. Armstrong said. “We have cachet with people who hadn’t previously thought of us.”

Winning records Stories of football — and other high-profile sports — driving expansion and enrollment increases abound. Akron’s men’s soccer team has become a national powerhouse with a well-paid coach and a newly renovated stadium, the latter possible because of on-field success and national exposure. Cleveland State officials have said the team’s upset of No. 4 seed Wake Forest in the 2009 NCAA men’s basketball tournament led to many more enrollment inquiries. Also qualified to speak of the impact of athletic success is Laing Kennedy, who before he retired from Kent State was the Mid-American Conference’s longest-tenured athletic director. The Flashes’ basketball program has been the MAC’s flag-bearer in all sports and for a while was the nation’s top mid-major team. In 2002, it advanced to the Elite Eight, and the school has seen the rewards. “The impact on the school, the community and the Kent State world was very significant,” said Mr. Kennedy, who noted that applications spiked in the aftermath of that success. “That develops new revenue to the total institution, in tuition fees and other avenues.” ■

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HIGHER EDUCATION

New library spaces speak volumes about student preferences Colleges repurpose facilities to foster engagement, service By TIMOTHY MAGAW tmagaw@crain.com

eing met with a glare for uttering anything beyond a whisper is a scene from an academic library of a bygone era. Libraries at today’s colleges and universities aren’t so much academic silos but rather gathering places armed with the latest gizmos to enhance the academic experience. Indeed, as more students and faculty go to the Internet for research materials, Northeast Ohio college officials have had to conjure up ways to attract students to the libraries. In many cases, that means better facilities, fewer books and more electronic resources and acute customer service. And so far, those methods appear to be working as college librarians say growing numbers of students are coming through their doors. According to a guide from the Association of College and Research Libraries and the Library Leadership and Management Asso-

ciation, librarians and university architects looking to revamp their library space should strive to create a flexible space to plan for future technology, changing library collections, future expansions and changing user demographics. It’s also important, the organizations note, to understand how students and faculty are going to use the space, and that’s what many local academic libraries have done. “We’re much more multipurpose,” said Jeanne Somers, director of the Grasselli Library and Breen Learning Center at John Carroll University. “We’re much less a storehouse of books and much more preferred academic space.” Dr. Somers said the library at John Carroll isn’t the “hush-andbe-quiet” space it used to be, and the 125,000 people who enter the library each year are using the space much more for group studying, prepping collaborative projects and even socializing. And to make space for more of those kinds of activities, Dr. Somers estimates the library has reduced its print reference collection by 30% over a four-year period. “We’re moving toward redesigning ourselves as an information commons and making more space for users and more space for technology and less space for print,” Dr. Somers said.

The ‘Borders’ model James Bracken, the dean of libraries at Kent State University, said research libraries used to be judged by the sheer size of their collections. When the Kent State library opened in 1970, its membership in the Association of Research Libraries hinged on the number of volumes it had, so officials tried to fill the library as best they could. That resulted in a collection that now hinders the university’s ability to create more common space for students, so Dr. Bracken, who joined the university in August, has tasked himself with eliminating more than 50% of the collection over the next 10 years. The idea is to create a warm environment similar to the national retail book chain Borders rather than the “austere and Spartan” one of the past, Dr. Bracken said. “The model has changed,” he said. “We no longer measure the quality of a research library by number of volumes. We measure it by how it engages its community, how its users see it as an intellectual center of campus and by a lot of other things.” Case Western Reserve University also is looking to soften the atmosphere of its library. The university is in the midst of putting together a strategic plan to guide the library

“We’re much less a storehouse of books and much more preferred academic space.” – Jeanne Somers director of the Grasselli Library and Breen Learning Center, John Carroll University into the future, and a key component of that is figuring out what works for students. At the moment, students are working with university administrators to redesign the first floor. Additionally, a café is being installed, which should open sometime in February. “It’s to try and change the atmosphere of the building to make it more warm and inviting and to make it easier for students to study without having to leave the building,” said Arnold Hirshon, CWRU’s associate provost and university librarian.

Customers are always right In the past, college librarians had been viewed primarily as “gatekeepers and stewards of books,” said Phyllis O’Connor, associate dean of university libraries at the University of Akron. Their primary job, she said, was to collect materials, organize them and keep them safe. “We pretty much twisted that around,” Ms. O’Connor said. “We don’t just amass the stuff to keep it safe. We try to amass the right stuff

and point our users to it.” At Cleveland State University, library employees have undergone extensive customer service training to better appeal to students. “Because of the way information was available in the past, librarians had to focus on organizing the information so we could retrieve it for people,” said Glenda Thornton, director of the library at Cleveland State University. “It was organized more to make us more efficient. That’s not necessarily just the case now.” Students also have new avenues of accessing information or other library services. Services such as “text a librarian” or online support are ubiquitous at most institutions. At Kent State, the library will even go as far as delivering printed materials to a student’s dorm room. Dr. Bracken said Kent State’s library is not required to keep a copy of every book, which allows the university to focus on making the student experience be the best possible. “We can be more people centered,” Dr. Bracken said. “We can be more reflective of what our users want. ■

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HIGHER EDUCATION

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berlin College’s new, $16 million Robert Kahn residence hall wasn’t what freshman Dalia Fuleihan expected. The spacious student rooms, the large living areas and the new laundry and kitchen facilities, for instance, were a bit of a surprise for her. Perhaps even more surprising was the pledge she had to sign in order to live there saying she would agree to live sustainably — for one, take shorter showers — and not bring a car to campus. “It’s a good environment,” Ms. Fuleihan said. “It’s nice to be around other people who are dedicated to that.” The new Oberlin residence hall, which opened last fall and houses 150 students, is part of a growing movement nationwide in which universities and colleges aren’t just constructing green buildings but rather putting the onus on students to live in a way that ultimately reduces waste and protects the environment. These so-called “green buildings” have been embraced by higher education as a teaching tool, said Stephen Muzzy, a senior associate at Second Nature, a Boston-based organization that promotes sustainable strategies in higher education. “I think higher education has an opportunity that if green buildings are ubiquitous, the norm would be when students graduate and go into the work force, they believe green buildings should go everywhere, and ask, ‘Why are you still building in the old paradigm?’”

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Colin Koffel, an environment sustainability fellow at Oberlin, works to develop programming with students to help them understand the importance of living green. However, he said most of the ideas come directly from the students. For instance, he has worked with students to develop shower timers to remind students to use less water. Meanwhile, the hall boasts a list of sophisticated features such as a system that automatically shuts off the heat or air conditioning in student rooms when windows are opened. Glowing orbs in the building

also change color depending on the energy usage to remind students of their commitment. However, it’s not all complicated technology. There are simpler measures in place, such as clotheslines in the laundry rooms and an onsite compost tumbler. “If anything, the students that live (in Kahn) are asking us to do more of it,” Mr. Koffel said. Because it’s a new building, it’s not without its kinks — at least in the students’ eyes. Things, for instance, always could be done a little greener. In one of the hallways, students felt the motion-censored lights were wasting energy, so they put tape over the censors. They also unplugged a flat-screen panel display that details the energy usage in the hall. “Students are extremely reasonable and extremely logical,” said Molly Tyson, the associate dean and director of residential education at Oberlin. “They are what make the building work, and they are the people that live here.”

A simpler approach Oberlin isn’t alone in its efforts to push students to live sustainably. Though perhaps not on Oberlin’s level, other Northeast Ohio colleges and universities have put forth their own efforts aimed at curbing student energy use and waste. Even colleges without student housing, like Cuyahoga Community College, have made an effort to give students the tools to change their behavior. Kevin Snape, that college’s new vice president of sustainability, said the college is starting composting at its dining halls and has placed student ambassadors to stand by the trash cans to remind students to put their waste in the right bucket. Kent State University, meanwhile, implemented a bike sharing program to encourage students to ditch their cars and bike around town. The university also coordinates recycling and energy conservation competitions among the residence halls, according to Andy Weyand, the coordinator for administrative services and facilities for Kent State’s residence services. “Our efforts are not so much to generate interest but give them the tools to put that interest into action,” Mr. Weyand said. “I think as it becomes more and more of a trend, the interest is building with the students coming on campus. The interest is already kind of in their head.” ■

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HIGHER EDUCATION

Students: Housing needs rise along with enrollment continued from PAGE 11

In both cases, parents bought single-family homes for children who sought to live away from home but not on campus during their time at college. Thanks to affordable housing prices in Northeast Ohio, the dream of converting college housing costs into a house investment is within reach of more parents of the college-bound here than in many parts of the country. A recent Coldwell Banker Realtors survey even ranked two Northeast Ohio cities among the most affordable college towns in the country: Kent was ranked No. 8 with a $153,662 average home listing price in 2010, and Akron came in at No. 5 at $139,711.

Against the grain Despite the challenges of managing a high turnover population, niche factors are fueling movement in the student housing market for parent-owners and investors despite the worst realty development market since 1945. “Higher education as a growth industry is countercyclical. More students attend college in downturns, especially public universities,” said Jack Boyle, vice president for business affairs and finance administration at Cleveland State University. “We’ve been the odd man out in the busting of the development bubble.” Consider the dynamics at Kent State as a test case. Ryan Szymanski, a vice president of Columbusbased Edwards Student Housing Management Co., said that firm wants to build a $20 million project in Kent after several years of watching the market while developing similar student complexes across the country. “Look at KSU’s growth in student enrollment over the last two years — an increase of 3,000 students, or 17%, while there has not been that much additional housing added to the market,” Mr. Szymanski said. “That makes it a prime market for us.” Some of the uptick is people

turning to college in a job-shy economy. Edwards focuses on public university areas because more students stay in-state in downturns. Demographics also come into play. The baby boom echo generation is now moving through colleges. The U.S. Department of Education estimates boomer offspring will buoy college enrollments through 2015, according to Michael Zaransky, author of the book, “Profit by Investing in Student Housing.” CSU’s Mr. Boyle also notes that colleges try to keep enrollment gains for the long haul, which may give the phenomenon longer legs.

A parent-buyers’ market Stricter credit requirements complicate second-home purchases, but experts say the housing downturn has aided parents who want to own houses for students attending college, which in turn has reduced numbers of empty houses in some neighborhoods. Gary Stouffer, the owner of Akron-based Stouffer Realty, said the 20% decline in housing prices in the region puts houses in nicer neighborhoods close to the Akron and Kent campuses within the reach of more prospective parent buyers. “Had home prices stayed where they were, fewer parents could afford to do it,” Mr. Stouffer said. For example, his firm has sold parent buyers homes for $100,000 now that cost $130,000 five years ago. The price decline has put neighborhoods such as Cuyahoga Falls within reach, and he has seen parents like Matt Corpora’s grab the opportunity. The question of parents buying student homes comes up more regularly now, said Jack Kohl, president of Ravenna-based Jack Kohl Realty LLC, which has a Kent office and manages about 500 Kent State student rentals, mostly in single-family houses. “We don’t go a week when someone does not stop in our office to talk about buying a house

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Construct: Development under way continued from PAGE 11

four-story building with 375 beds for students. The church’s plan capitalizes on its 1456 E. Summit St. grounds across from Kent State. Other colleges and investors throughout the region also are getting in on the act or already have. ■ In downtown Akron, Richland Communities of Middleburg Heights has opened 22 Exchange at that street address near the university with 471 beds for students in a complex that includes shops and restaurants. ■ In Cleveland, American Campus Communities of Austin, Texas, last fall opened a 348-bed student housing project on Euclid Avenue at Cleveland State University. Other developers

for a student, keep it a few years and sell it.” Mr. Kohl said. “We don’t know how many actually buy.” He wonders, though, if job losses and stock-market losses have offset the upswing in interest.

have finished or plan projects nearby. ■ In University Circle, the $45 million UpTown project is under construction at East 115th Street near Euclid. It includes 100 apartments in its first phase, and plans call for later doubling its size. All told, another 400 renovated or new rentals are adding to University Circle’s residential base. So, can these communities absorb the influx? Beachwood-based investor Dan Siegel, owner of 1,200 Kent apartments, said new projects may soften the market, but it does not worry him — so much so that he plans to sell Edwards its site if it proceeds. He puts Kent apartment vacancy at 10% today compared with 20% in 2000. — Stan Bullard

Mom and dad know best In Miss McKee’s case, her parents, David and Debbie McKee of Richfield, bought the Kent house “because they knew how much it

was going to be to rent something … they wanted us to focus on school.” Her parents benefited from rental income, but she noted “there was always a project to do.” Although economics get top billing, being a parent is the biggest factor. “They want their kids living in nicer housing,” Mr. Stouffer said. “With University of Akron bursting at the seams, little housing is available close to campus.” Boarding house rentals in Kent are scarce, Mr. Kohl said, so parents seek purchases for alternatives. Ron Corpora of Hudson said he bought the house this month because he sought a less transient, quieter neighborhood than those near the Akron campus for his son. The $80,000 house is eight minutes from the University of Akron and dates from the 1950s rather than still-older homes near campus. “I looked at it not as a chance to profit on rents but to buy into a stable housing market at a good time,” Mr. Corpora said. ■

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Regina: Notre Dame eyes more visible entryway continued from PAGE 11

A new front door

full-time ranks. Since his arrival, the number of full-time faculty has risen from 24 to 61. Dr. Roth attributed the growth to several tactics, including new recruiting strategies that included more high school visits rather than relying solely on advertising. Pushing extracurricular programs, particularly sports, and upgrading the campus with two new dorms and new technology also attributed to the growth, he noted. The growth had caused the college to be somewhat “out of balance,” according to John Phillips, the college’s vice president for finance and administration. To make more room for classroom space, the college had to move about 20 employees farther up South Green Road into some leased space. But with the Regina acquisition, those employees, which include the marketing department and others, will move back to campus.

Notre Dame essentially is landlocked on its South Euclid campus. Since the college opened in the 1920s, residential communities have sprung up around the campus, stifling the possibility for further expansion. The college’s main entrance faces south toward College Road, but campus officials have altered some of the driving patterns as to not disturb the neighboring communities. The primary entrance is now along South Green Road near the Regina site. Prior to the Regina purchase, Notre Dame typically was known as the “college behind the high school,” Dr. Roth said, because not much of the campus could be seen from the road. The Regina acquisition allows the college to better orientate its front entrance along South Green Road and build an entryway, such as a fence or some sort of arch, to better identify the college. The

PHOTO PROVIDED

Notre Dame College plans to use the nearby Regina High School facility for more classroom and office space. admissions office, which is currently located in the main administration building, will also move to the Regina facility to welcome prospective students. “It will make a statement that you’ve arrived at Notre Dame

College,” Dr. Roth said. Upgrading the Regina facility to make it usable could cost about $2 million, Dr. Roth said, but the cost to completely upgrade and renovate the facility and turn it into a “stateof-the-art collegiate building” could cost as much as $11 million. “We will use the building as it is, but we’ll incrementally remodel it as we go along,” Dr. Roth said. To help finance the Regina upgrades and others around campus, Dr. Roth said the college is putting together a capital campaign that would run over the next three to

five years. Though a final dollar amount has yet to be set, Dr. Roth noted, on the high end, the college would like to raise as much as $12 million. Behind the Regina site, college officials would like to construct another building that mirrors the old high school, which could cost an additional $10 million. To pay for that, the college likely would take on debt. Because the new building would likely include student housing, there would be a built-in revenue stream to pay back the debt, Dr. Roth said. ■

has been acquired by

The undersigned acted as the exclusive financial advisor to Bronx International, Inc. in this transaction

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NORTHEAST OHIO REAL ESTATE INVESTMENT TRUSTS RANKED BY TOTAL SQUARE FOOTAGE OWNED IN NORTHEAST OHIO(1) Name of firm/Ticker

2009 funds from Change in funds 2009 NE Ohio square operations from operation revenue feet owned(2) (millions) from 2008 (%) (millions)(3)

Change in revenue Equity NE Ohio from 2008 market cap properties (%) (millions)(4) owned(5) Property focus

Phone Web site

CEO

Simon Property Group Inc./SPG 225 W. Washington St. Indianapolis, Ind. 46204

(317) 636-1600 www.simon.com

David E. Simon

4,675,486

1,748.3

(5.6)

3,797.6

(0.2)

28,981.5

Regional mall

Developers Diversified Realty Corp./DDR 3300 Enterprise Parkway Beachwood, Ohio 44122

(216) 755-5500 www.ddr.com

Daniel B. Hurwitz

4,160,004

(102.4)

971.9

3.8

3,378.8

Shopping centers

Kimco Realty Corp./KIM 3333 New Hyde Park Road, Suite 100 New Hyde Park, N.Y. 11042

(516) 869-9000 www.kimcorealty.com

David B. Henry

1,595,354

287.1

(45.1)

911.5

(16.8)

6,941.8

Shopping centers

Lexington Realty Trust/LXP One Penn Plaza, Suite 4015 New York, N.Y. 10119

(212) 692-7200 www.lxp.com

T. Wilson Eglin

1,384,007

(56.0)

353.3

(26.7)

1,109.5

Diversified

Duke Realty Corp./DRE 800 E Ninth St., Suite 100 Indianapolis, Ind. 46240

(317) 808-6000 www.dukerealty.com

Dennis D. Oklak

1,324,147

13.3

(96.6)

948.2

(0.1)

2,811.2

Office

U-Store-It Trust/YSI 460 E. Swedesford Road, Suite 300 Wayne, Pa. 19087

(610) 293-5700 www.u-store-it.com

Dean Jernigan

1,194,278

55.9

(8.6)

218.0

(7.9)

863.0

Self-storage

Associated Estates Realty Corp./AEC 1 AEC Parkway Richmond Heights, Ohio 44143

(216) 261-5000 www.associatedestates.com

Jeffrey I. Friedman

1,172,700

19.8

(9.4)

131.7

(2.4)

629.6

Multi-family

First Industrial Realty Trust Inc./FR 311 S. Wacker Drive, Suite 3900 Chicago, Ill. 60606

(312) 344-4300 www.firstindustrial.com

Bruce W. Duncan

1,056,116

113.0

504.4

415.8

(21.2)

528.7

Industrial

CBL & Associates Properties Inc./CBL 2030 Hamilton Place Blvd., Suite 500 Chattanooga, Tenn. 37421

(423) 855-0001 www.cblproperties.com

Stephen D. Lebovitz

980,494

282.2

(25.0)

1,097.9

(4.3)

2,445.4

Regional mall

(312) 960-5000 www.ggp.com

Adam Spencer Metz

913,443

(421.4)

3,143.8

(8.8)

14,308.2

Regional mall

(716) 633-1850 www.sovranss.com

Robert J. Attea

778,938

54.5

(23.1)

195.3

(4.0)

1,013.3

Self-storage

(703) 287-5800 www.gladstonecommercial.com

David J. Gladstone

758,427

13.5

0.0

42.8

4.0

160.1

Diversified

Rank Headquarters address

General Growth Properties Inc./GGP 110 N. Wacker Drive, Suite 3900 Chicago, Ill. 60606

Sovran Self Storage Inc./SSS 6467 Main St. Buffalo, N.Y. 14221

Gladstone Commercial Corp./GOOD 1521 Westbranch Drive, Suite 200 McLean, Va. 22102

CommonWealth REIT/CWH 400 Centre St. Newton, Mass. 02458

(617) 332-3990 www.cwhreit.com

645,000

300.8

(0.5)

878.1

4.9

1,781.8

Office

Vornado Realty Trust/VNO 888 Seventh Ave. New York, N.Y. 10019

(212) 894-7000 www.vno.com

Michael D. Fascitelli

520,000

640.5

(24.2)

2,891.6

6.0

14,997.3

Diversified

Apartment Investment and Management Co./AIV 4582 S. Ulster St., Suite 1100 Denver, Colo. 80237

(303) 757-8101 wwww.aimco.com

Terry Considine

504,900

177.3

(20.3)

1,174.4

(4.4)

2,936.4

Multi-family

Regency Centers Corp./REG One Independent Drive, Suite 114 Jacksonville, Fla. 32202

(904) 598-7000 www.regencycenters.com

Martin E. Stein Jr.

474,886

85.8

(67.5)

490.5

(2.3)

3,369.7

Shopping centers

Extra Space Storage Inc./EXR 2795 E. Cottonwood Parkway, Suite 400 Salt Lake City, Utah 84121

(801) 562-5556 www.extraspace.com

Spencer F. Kirk

332,589

90.3

(0.7)

322.0

9.2

1,532.1

Self-storage

Cedar Shopping Centers Inc./CDR 4 S. Bayles Ave., Suite 304 Port Washington, N.Y. 11050

(516) 767-6492 www.cedarshoppingcenters.com

Leo S. Ullman

332,250

24.6

(56.8)

182.8

7.4

408.3

Shopping centers

Public Storage/PSA 701 Western Ave. Glendale, Calif. 91201

(818) 244-8080 www.publicstorage.com

Ronald L. Havner Jr.

279,100

1,154.8

2.5

1,685.1

(3.3)

16,918.4

Self-storage

Inland American Real Estate Corp./IRC 2901 Butterfield Road Oak Brook, Ill. 60523

(630) 218-8000 www.inlandrealestate.com

Mark E. Zalatoris

192,321

68.2

(19.9)

179.9

(11.2)

755.9

Shopping centers

Piedmont Office Realty Trust Inc./PDM 11695 Johns Creek Parkway, Suite 350 Duluth, Ga. 30097

(770) 418-8800 www.piedmontreit.com

Donald A. Miller

187,000

239.3

(18.9)

612.0

(2.5)

2,617.9

Office

Monmouth Real Estate Investment Corp./MNR 3499 Route 9 North, Suite 3-C Freehold, N.J. 07728

(732) 577-9996 www.mreic.com

Eugene W. Landy

164,085

9.2

(19.7)

43.2

5.9

283.4

Industrial

National Retail Properties Inc./NNN 450 S. Orange Ave., Suite 900 Orlando, Fla. 32801

(407) 265-7348 www.nnnreit.com

Craig Macnab

135,443

96.9

(32.0)

245.4

4.4

2,177.2

Retail; Other

Entertainment Properties Trust/EPR 909 Walnut St., Suite 200 Kansas City, Mo. 64106

(816) 472-1700 www.eprkc.com

David M. Brain

98,052

4.9

(96.8)

271.8

(6.0)

2,204.4

Specialty

Realty Income Corp./O 600 La Terraza Blvd. Escondido, Calif. 92025

(760) 741-2111 www.realtyincome.com

Thomas A. Lewis Jr.

51,102

190.4

2.7

327.6

(0.7)

3,996.2

Retail; Other

Source: SNL Financial, Charlottesville, Va., (434) 977-1600, www.snl.com/real_estate. To qualify for this list, a company must be a publicly traded U.S. REIT that owns commercial property in the Northeast Ohio area. Mortage REITs are not included. Hospitality Properties Trust (HPT), HCP Inc. (HCP) ,UMH Properties Inc. (UMH), Equity LifeStyle Properties (ELS), Nationwide Health Properties (NHP), Getty Realty Corp. (GTY), Ventas Inc. (VTR), LTC Properties Inc. (LTC), ProLogis (PLD), and Health Care REIT Inc. (HCN) reported exposure to the Northeast Ohio area but did not report square footage data. Property count and square footage reported include properties with both majority- and minority-owned equity interest. Square footage has been reported by total building size, and not adjusted for minority ownership interest. Revenue figures are for calendar year. Executives may have additional titles. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all responses to our lists and will include omitted information or clarifications in coming issues. Business lists and The Book of Lists are available to purchase at www.crainscleveland.com. (1) Includes the following counties: Ashland, Ashtabula, Cuyahoga, Erie, Geauga, Huron, Lake, Lorain, Mahoning, Medina, Portage, Stark, Summit, Trumbull, and Wayne. (2) Based on most recently reported square footage figures for properties owned as of Dec. 13, 2010. Average size for multifamily units has been estimated at 900 square feet. (3) Figures have not been adjusted for discontinued operations in 2009. (4) As of market close on Dec. 13, 2010. (5) As of Dec. 13, 2010. Includes properties under development.

RESEARCHED BY Deborah W. Hillyer

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CRAIN’S CLEVELAND BUSINESS

WWW.CRAINSCLEVELAND.COM

JANUARY 24 - 30, 2011

Solon LED specialist triples sales with help from acquisition Energy Focus ‘a radically different company’ By CHUCK SODER csoder@crain.com

Energy Focus Inc. is about to break its losing streak, according to CEO Joseph Kaveski. An acquisition helped the Solonbased producer of energy-efficient lighting make money from its continuing operations during the third quarter of 2010, which Mr. Kaveski cited as a major turning point for the company. Energy Focus has been losing money for years. The publicly traded company, formerly known as Fiberstars Inc., used to focus on selling

fiber-optic lighting systems for pools and spas. It changed its name in 2007, however, as part of an effort to broaden its customer base and product lineup. Today, the company focuses mostly on developing lighting systems powered by lightemitting diodes. The company, which employs 80, further broadened its capabilities on Dec. 31, 2009, when it bought lighting services firm Stones River Cos. of Nashville in a deal valued at $5 million. With the acquisition, Energy Focus’ balance sheet immediately changed for the better. Stones River,

which retrofits public buildings with energy-efficient lighting, was profitable when it was acquired. That income stream helped Energy Focus generate $600,000 from its continuing operations during the third quarter of 2010, enough to make it cash flow positive for the year. The acquisition also helped Energy Focus triple its sales: The company brought in $26.4 million in revenue during the first three quarters of 2010, up from $8.8 million during the first nine months of 2009, which Mr. Kaveski described as a “horrendous” year. “We are a radically different company than we were in 2009 and earlier years,” he said.

The company still lost $1.56 million in the third quarter on $9 million in sales. Mr. Kaveski would not say when the company expects to reach profitability, but it does have a plan to get there. Energy Focus is working to expand Stones River’s retrofitting business into new parts of the country. The acquired company previously focused on the southeastern United States. The expansion also will help Energy Focus sell more of the technology it develops because Stones River now sells the company’s products. New products scheduled for release this year should help boost sales as well, said Energy Focus president John Davenport.

Though the company has just $2.7 million in cash reserves, in March 2010 it struck a stock purchase agreement with Lincoln Park Capital Fund LLC of Chicago. Through the agreement, Energy Focus can direct Lincoln Park Capital to purchase up to 20,000 shares of its common stock every five business days, according to a registration statement the company filed in April 2010 with the U.S. Securities and Exchange Commission. Energy Focus can direct Lincoln Park Capital to buy a total of 3.65 million shares, which excludes other shares and warrants the Chicago investment firm will receive as part of the agreement. The company’s stock closed at $1.10 on Friday, Jan. 14. Energy Focus has used the purchase agreement “sparingly,” Mr. Davenport said. That shouldn’t change, unless Energy Focus decides to acquire another retrofitting business to speed up its expansion, Mr. Kaveski said. “We believe that we have sufficient capital,” he said.

In with the new Over the long term, the company is focusing on what it believes is the product with the greatest potential: The Intellitube, an LED tube designed to replace the fluorescent tube lights that illuminate most offices. The Intellitube would use only one or two LEDs that would shoot light into an acrylic tube, which would distribute the light evenly across its surface. Using so few LEDs would make the Intellitube less expensive than typical LED tube lights that use dozens of them. A similar tube Energy Focus developed for the military was installed on a Virginia Class submarine in early January. The company aims to offer it for sale in about a year, though Mr. Davenport admits it will take longer for LED costs to come down to the point where it would be a massmarket product. “A year will open up certain markets that will keep us busy … while costs drop further,” Mr. Davenport said. The Navy plans to install its version of the technology on additional submarines after testing it on the first one, said Edward Markey, lighting life cycle manager for the Navy’s Ship Systems Engineering Station in Philadelphia. The Navy wanted to use LEDs instead of fluorescent tubes partly because they last longer and are mercuryfree, he said. The product was “competitively priced” and passed a grueling series of tests that judged it on durability and performance, Mr. Markey said. “It bodes well that their hardware is working as well as it is,” he said. The military, however, is not your typical consumer, said Terry McGowan, director of engineering and technology for the American Lighting Association in Dallas. Today, LED tubes cost far more than fluorescent tubes and produce “nowhere near the output of a fluorescent tube of the same size,” Mr. McGowan said. It would be difficult for a company to sell a cost-competitive LED tube light anytime soon, he said. Over time, however, LEDs are projected to improve dramatically, Mr. McGowan said. “The potential for this stuff is still remarkable,” he said. ■

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CORPORATE GROWTH and M&A

S-2 January 24-30, 2011

LETTER FROM THE PRESIDENT

ACG Cleveland: Education, networking for dealmakers By THEODORE A. WAGNER

“I

t was the best of times, it was the worst of times …” The current economic environment feels a little like a Dickens novel. We face an exhausting list of challenges that includes high levels of unemployment, massive government deficits, soaring health care costs and lingering real estate troubles, just to name a few. But as businesses and employees

adjust to this “new October issue of The normal,” there are some Deal Magazine, these rays of hope on the businesses are unique horizon in Northeast assets of the region and Ohio. valuable resources to be In addition to the tapped to drive economic much-publicized stories growth. of the new medical mart, With more than convention center and 13,000 members worldTHEODORE casino development, wide, the Association for WAGNER transaction activity Corporate Growth (ACG) ACG PRESIDENT conducted by the area’s is the pre-eminent orgaprivate equity and professional nization where mergers-andservice firms picked up in 2010. acquisition professionals who As elegantly showcased in the work in public and private

Why trust Benesch for your corporate legal needs? We could tell you about our years of experience, our impressive team of attorneys, our focus on client service. But perhaps you’d rather hear it from someone else: • Best Lawyers® ranked Benesch first in Corporate Law in Cleveland for the past two years.

Cleveland Columbus Indianapolis Philadelphia Shanghai

• Best Lawyers® named Benesch attorneys Corporate Lawyers of the Year in Cleveland for the past two years: IRA KAPLAN in 2010 and GEORGE ARONOFF in 2011. • Chambers USA 2010 cites clients who say “[Benesch Corporate & Securities] lawyers really learn our business and understand our motives.” We’ve earned their respect. We’re ready to earn yours too.

companies, private equity, corporate and investment banking, finance, accounting, law, and related service fields come together. ACG Cleveland is one of the largest and most vibrant chapters in ACG, and 2010 was a busy year for our chapter. In addition to strong attendance at our regular programs, the Deal Maker Awards event was again sold out in January, and the second annual Great Lakes Capital Connection held in September attracted more than 650 M&A professionals from across the country. We also joined 22 other ACG chapters in playing host to an MBA case study competition involving more than 100 top MBA programs. The winners of Cleveland’s competition received scholarships to attend ACG’s national conference in Miami. This was a tremendous learning opportunity for these students and a strong recruiting tool for the region. Members join ACG Cleveland for two primary reasons:

1 2

For the opportunity to network with a diverse and influential community of business people. Chapter membership includes access to the full suite of ACG Global benefits and services. If this sounds like an organization for you, we encourage you to attend one of our events or to apply for membership. Visit www.acg cleveland.org or call me at 216-373-2500, and I’ll be happy to talk with you.

Theodore A. Wagner President, ACG Cleveland Shareholder Libman, Goldstine, Kopperman & Wolf

Wilmington

MY BENESCH MY TEAM

Best Lawyers compiles its lists by conducting peer-review surveys. Chambers selects its sources on the basis of submissions put forward by law firms, interviews during the course of research and its own database resources.

Serving the global middle market for over 20 years, Brown Gibbons Lang & Company offers a broad range of ﬁnancial advisory services including: s M&A Advisory s Capital Raising

FEBRUARY 8 Dinner Richard Smucker, president & Co-CEO, J.M. Smucker Co. FEBRUARY 17 Breakfast Dan Hurwitz, president & CEO Developers Diversified Realty Event is at DDR

MARCH 17 Breakfast Awaiting confirmation APRIL 14 Breakfast Awaiting confirmation MAY 5 Afternoon Panel Discussion Topic to be announced The Ritz-Carlton, Cleveland MAY 19 Breakfast James F. Kirsch, chairman, president & CEO, Ferro Corp. JUNE 14 Evening Social & Networking The Shoreby Club

-ERGERS !CQUISITIONS s $EBT %QUITY 0LACEMENTS s &INANCIAL 2ESTRUCTURINGS

Delivering Solutions to the Global Middle Market

All events at The Union Club unless otherwise noted

To attend educational events that help them build value in their companies and for their clients;

White Plains

www.beneschlaw.com

2011 ACG Cleveland events

SEPTEMBER 12-13 Great Lakes ACG Capital Connection JW Marriott – Indianapolis

s Restructuring s Fairness Opinions

As a leading independent investment bank advising middle market companies in the U.S. and internationally, BGL provides strong negotiating skills, specialized industry experience and a shared entrepreneurial spirit that can help you increase and preserve your company’s value throughout the transaction process. SEPTEMBER 26 6th Annual Golf Outing Firestone Country Club

#,%6%,!.$ s #()#!'/ MICHAEL E. GIBBONS Senior Managing Director & Principal mgibbons@bglco.com

SCOTT T. BERLIN Managing Director & Principal sberlin@bglco.com

ANDREW K. PETRYK Managing Director & Principal apetryk@bglco.com

EFFRAM E. KAPLAN Director & Principal ekaplan@bglco.com

KEVIN H. SARGENT Director & Principal ksargent@bglco.com

216.241.2800 or visit www.bglco.com Transactions involving securities are completed through Brown, Gibbons, Lang & Company, Securities, Inc., an afﬁliate of Brown Gibbons Lang & Company LLC and member FINRA.

Crain’s Cleveland Business Custom Publishing

JANUARY 26, 2012 Deal Maker Awards Dinner Marriott at Key Center

For more information contact ACG Cleveland at 216-696-8484 or www.acg.org/cleveland

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CORPORATE GROWTH and M&A

January 24-30, 2011

Hot in Cleveland Region’s middle-market private equity activity gathers steam By CHERYL HIGLEY

haking off the doldrums of the past two years, private equity nationally is poised to shine in 2011, and Cleveland will be no exception. Citing a pickup in activity toward the end of 2010, a continued economic turnaround and availability of capital, dealmakers are forecasting a robust year for M&A opportunities — particularly in the middle market. “Across the country, there is a lot of positive buzz that deals are starting to flow again,” says Greg Fine, vice president of marketing and communications for the Association for Corporate Growth (ACG). “It’s nowhere near 2007

levels, of course, but 2010 was better and we are very optimistic about 2011.” The second annual Great Lakes Capital Connection, hosted by ACG Cleveland in September, proved a harbinger of the turnaround. More than 650 attendees (two-thirds from outside the area) converged to exchange ideas, network and stimulate the flow for potential deals. Northeast Ohio is home to a substantial number of private equity firms and a disproportionately strong deal community — a legacy of its history. “Northeast Ohio has a strong, well-developed private equity See OUTLOOK Page S-10

Attendees gathered in September to network and exchange ideas during the opening reception of the second annual Great Lakes Capital Connection, hosted by ACG Cleveland. The event was held at the Rock and Roll Hall of Fame and Museum.

Nominate your favorite Deal Maker Nominations for the 2012 ACG Cleveland Deal Maker Awards may be submitted at any time during the year. The deadline is November 1, 2011. For a nomination form, contact ACG Cleveland at (216) 696-8484 or admin@acgcleveland.org.

Calfee is proud to join ACG in recognizing our long-standing client,

Mal Mixon

for all he has accomplished for Invacare and Cleveland We also congratulate our other client winners

Fairmount Minerals, Ltd. Shearer’s Foods, Inc. Wall Street Execution for Main Street Businesses Mergers & Acquisitions

Restructuring

Corporate Finance

• For healthy, good performing

• Distressed M&A; Sec. 363,

• Valuations

companies • Sell side and buy side advisory • Private placement of debt and equity, including bank loans, subordinated debt, and various forms of equity

Article 9, Receivership • Financial restructurings • Private placement of debt and equity, including DIP and other financings

Cleveland 10 ½ East Washington Street Chagrin Falls, Ohio 44022 440.247.2800

• Fairness opinions • Joint venture and alliance

formation • Board advisory services

New York 477 Madison Ave, Suite 1220 New York, NY 10022 212.546.6822

www.candlewoodpartners.com

and all the other 2011 Deal Maker Award Winners We are proud to have participated in decades of deal-making with these well-deserving winners, including Mal Mixon’s original buyout of Invacare and the incredible 2010 transaction by Fairmount Minerals. We salute these entrepreneurs. Calfee, Halter & Griswold LLP | Calfee.com

1400 KeyBank Center, 800 Superior Avenue, Cleveland, Ohio 44114 1100 Fifth Third Center, 21 East State Street, Columbus, Ohio 43215

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S-3

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CORPORATE GROWTH and M&A

S-4 January 24-30, 2011

Companies find pride in “Made in Ohio” Expanding markets, strong employees help businesses thrive in down economy By CHERYL HIGLEY

ortheast Ohio has taken its share of hits during the recent economic downturn. But Ohioproud middle-market companies from the Amish countryside to Youngstown and Mentor are far from down and out. They are thriving, thanks not only to the high-quality, innovative products they deliver, but also to their employees, whose vision, pride in workmanship and relationship building are making all the difference.

Turning Technologies As the world’s largest manufacturer of audience response system technology (think “ask the audience” on Who Wants to be a Millionaire), Youngstownbased Turning Technologies constantly has to be in tune with technological advances in its industry.

Yet, CEO Michael Broderick says, it’s the people — not the product — who define the nine-year-old company’s success. Turning Technologies, which was acquired in 2010 by Brockway Moran & Partners, Inc., a Florida-based private equity firm, in partnership with the company’s management, says Turning Technologies is Ohio. “We are a technology company with teams of engineers, developers and specialists who live in and are committed to Northeast Ohio. We wouldn’t be the same company without them,” Broderick says. “This company’s intellectual talent is its greatest asset.” That talent faced its biggest test during the fourth quarter of 2008, when Turning Technologies — which quadrupled its revenue from 2005-2010 — experienced its only year-over-year sales decrease in its history. Broderick says Turning Technologies learned to better communicate its value proposition to

Mentor-based Libra Industries says it has weathered the recession by emphasizing relationships with its customers and by continuing to invest in its business. its markets (primarily education, but also businesses and government agencies worldwide) and to expand its customer base. The

What dealmakers can expect from lenders in 2010 and beyond.

result was 20% growth in 2010. “Kids today expect to be engaged in ways that traditional education hadn’t done, and it seems schools are finally getting past implementing ‘technology for technology’s sake’ and looking at technology that can make a difference,” Broderick says.

Libra Industries Building strong customer relationships is key for Mentor’s Libra Industries, which is celebrating its 30th year in business. Those relationships, says President and CEO Rod Howell, were instrumental in helping the company weather the recession fallout. “As an electronic manufacturing service, we own no intellectual property — our customers own it. Our success comes from our ability to work with our customers, to listen and to understand their needs and challenges,” Howell explains. “Everyone looks at our manufacturing technology because it’s cool and fascinating. But it is our people who are the core of who and what we are. Our most successful relationships are forged when clients view us not just as a manufacturer, but as an extension of their business.” That’s not to say the technology isn’t important, of course. Rela-

tionships will only get you so far, Howell says, which is why Libra Industries continually reinvests millions in state-of-the-art robotics, software and IT systems. “Everything is centered around becoming more lean,” he says. “The only way we can justify our business is if we can do it better and provide solutions that make our customers more profitable. If we don’t do that, we cease to exist.” Striking a balance between people and machine was instrumental in helping Libra turn the page on 2009, when business declined about 35% as its customers suffered through the economic meltdown. “We thought our diversification would make us recessionproof, but we were wrong,” Howell says. “But as we saw the recession coming, we focused our efforts on expanding our customer base and looking at new regions and markets.” Libra’s existing customer base has since been revitalized, and with the addition of the new business, the company grew almost 75% last year and has added 65 jobs. “By holding onto our existing customers (even at reduced levels) and nurturing new prospects, we were able to weather the storm,” Howell says. See SPOTLIGHT Page S-9

The tumult in the banking industry has changed the face of private equity deal-making. Lenders will be performing more due diligence than ever before, and firms that are well-positioned stand to benefit the most. In addition, an increasing number of distressed deals are expected to come down the pike, creating opportunities to buy debt that can be converted into equity when the company is restructured. Grant Thornton offers you a broad perspective for private equity firms with an enlightening new whitepaper, The debt effect, which explores the current environment of private equity dealmaking, including dealmaker expectations from lenders in 2010 and beyond. To get a copy, contact Tom Freeman, Partner, Tax and Transaction Advisory Services, at 216.858.3700 (Tom.Freeman@gt.com) or visit GrantThornton.com/PEWhitepapers.

www.chikol.com

Find out how it feels to work with people who love what they do!

Grant Thornton refers to Grant Thornton LLP, the U.S. member ﬁrm of Grant Thornton International Ltd, an organization of independently owned and managed accounting and consulting ﬁrms.

Chikol is a leading middle market consulting firm to companies facing critical organizational, financial and operational challenges . Our teams of professionals provide consulting services in all financial & operational areas and can assist in the changes needed to preserve and enhance enterprise value. In these critical times , there is no substitute for detailed analysis providing a roadmap for immediate action and an experienced team in support that has been there before.

Crain’s Cleveland Business Custom Publishing

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CORPORATE GROWTH and M&A

January 24-30, 2011

Private equity honing industry focus By STEWART KOHL

hen Riverside started out in 1988, everyone in the private equity industry seemed to be a generalist investor. Today, most every firm in the country seems to be a specialist — or at least has specialized areas of focus. So what changed? Many factors drove the trend toward specialization. We’re confident it will continue, and we’ve been active in building out our specialized areas of focus. Most of our peers in Northeast Ohio have industry specializations that both mirror ours and include other verti-

ACG lauds top deal makers

CG Cleveland will honor the area’s top dealmakers during the 15th annual Deal Maker Awards ceremony

Jan. 27:

A. Schulman, Inc. A. Schulman, Inc. (ASI) is a publicly traded international supplier of high-performance plastic compounds and resins used as raw materials. In 2010, ASI closed three strategic acquisitions to support its growth: McCann Color, Inc.; ICO Polymers, Inc.; and Mash Compostos Plasticos.

cals like manufacturing ment bankers increasingly and retail. look for sponsors with A cynic might see industry experience. specialization as the new ■ Deals and target “special sauce” for private companies are getting equity, but it’s far from a more complex. Many ingimmick. We have great dustries involve challengreasons for building ing regulatory, technical teams of highly trained and legal aspects. In a STEWART experts with unsurpassed fast-moving bid process, KOHL industry experience. we need people who RIVERSIDE CO. These reasons tend to understand those issues feed into one another: from the start to get to the ■ More experience means closing. But specialties don’t end smarter bids, more growth, higher there. We need them on board as margins and/or more clever exits. experts and operating partners In short, it means better returns. providing guidance. ■ Investors, lenders and investAfter completing nearly 250

acquisitions, we still consider ourselves industry-agnostic but we’ve become experts in health care (50-plus acquisitions) and training and education (20-plus acquisitions), and have had considerable and repeated success in areas like franchising and software. Industry specialization permeates everything we do. We market our skills and focus deal origination efforts in these verticals. Our transactors become specialists and our operating partners bring industry experience to complement our investment experience and drive growth. Riverside operates as a set of

specialties operating within our generalist framework. This allows us to “comparison shop” and make sure that our industry specialty buys are at appropriate valuations and with equally attractive risk-reward propositions. As the private equity industry continues migrating toward greater specialization, we’ll keep honing and expanding our own specialties. It’s an increasingly competitive and complex world, and we need to keep up. But considering that specialization helps drive growth, create jobs and make investors more money, we’re believers. ■

Stewart Kohl is co-CEO of The Riverside Company. Contact him at 216-344-7614 or e-mail skohl@riversidecompany.com.

ACG Cleveland congratulates the winners of the 15th Annual Deal Maker Awards

Fairmount Minerals Ltd. Fairmount Minerals is one of the largest producers of industrial sand in the U.S. In August 2010, Fairmount sold a majority interest, which included an equity contribution, plus senior debt financing of $775 million, to American Securities.

Shearer’s Foods, Inc. Shearer’s is an international manufacturer and distributor of snack foods. In March 2010, Shearer’s acquired Snack Alliance, Inc. Since 2006, Shearer’s has increased revenue more than 300% and added over 1,000 employees.

2011 Award Recipients BUYOUT FIRM The Riverside Company

CORPORATE A. Schulman, Inc. Fairmount Minerals Ltd. Shearer’s Foods, Inc.

LIFETIME ACHIEVEMENT AWARD A. Malachi Mixon, III

The Riverside Company The Riverside Company is the world’s largest global private equity firm focused on the smaller end of the middle market. Since 1988, Riverside has grown to manage more than $3.4 billion in nine funds and has completed more than 200 deals. Over the last two years, Riverside has completed 36 acquisitions, and has realized 14 investments, including three of the five largest gains ever for the firm.

A. Malachi Mixon, III

216-696-8484 • 216-696-2582 [fax] 1120 Chester Avenue, #470 • Cleveland OH 44114 www.acg.org/cleveland • admin@acgcleveland.org

SPONSORS

Mixon is chairman of the board of Invacare Corp. He has led the company since 1979. During his tenure, Invacare has grown to 30 factories, 6,000 associates and net sales of $1.7 billion.

Crain’s Cleveland Business Custom Publishing

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CORPORATE GROWTH and M&A

S-6 January 24-30, 2011

Whether it’s a buy-side transaction, sell-side transaction, recapitalization, or reﬁnancing transaction, SS&G has the experience to see you through to a successful outcome. In our continuing commitment to provide the best client service, SS&G welcomed Scott McRill, CPA, as director of our transaction advisory services (TAS) practice. McRill has nearly 25 years of experience, including more than a decade of full-time, dedicated transaction experience, and oversees TAS activities throughout SS&G.

To learn more about how our dedicated, full-time TAS team can assist you, contact Scott McRill at 440-248-8787 or via e-mail at SMcRill@SSandG.com.

Robert Littman, CPA, MT Floyd Trouten, CPA

Scott McRill, CPA

Paul Woznicki, CPA

Carol McNerney, CPA Mark Mussig, JD

Patty Rubin, CPA

Ken Levine, CPA

Steve Goykhberg, MBA, CBA

Starting up is easy; starting up right is key to success By JOE JUSTER

mericans are entrepreneurs at heart, starting a new business about every 10 seconds. While starting a business is easy, starting a business right is hard. Approximately 25% fail within two years, and 75% fail within 10. Entrepreneurs must take into consideration a range of legal issues involved in starting up right.

Protect your idea Companies rise and fall on the strength of their ideas. Trade secrets, copyrights, patents, trade names, trademarks and web site domain names can protect those ideas, as well as your brand and corporate identity. A patent will protect an invention if it is truly new or “novel,” but patents require complete public disclosure of your invention and take time and money to obtain and defend. Trade secret laws protect ideas that cannot be patented or that you do not want to disclose. Registered copyrights for written material, trade names and trademarks for corporate and product names and logos, and domain names for web sites are not as expensive to obtain as patents and are usually a good investment.

C-corp or LLC? When organizing an entity, the primary concerns are avoiding personal liability for business obligations, minimizing taxes and raising capital. Profits are taxed twice in a C-corporation (at the corporate level and the shareholder level). Limited liability companies combine one level of taxation at the member level with limited liability. If your business can be financed by friends and family, a limited liability company is a good choice. But if you foresee multiple financing rounds, choose the C-corporation.

When to organize If you will operate largely within Ohio with a few owners, incorporate in Ohio. Ohio corporate laws are sufficiently established and deferential to the decisions of officers and directors. Organize as soon as possible to facilitate contracting in the name of the corporation so as to avoid personal liability. Early incorporation also will justify a low value on your company shares, helping you avoid being taxed on “cheap stock.”

Money matters Banks generally will not finance startups because of their speculative nature. Therefore, you’ll need to sell equity to family, friends and, perhaps, “angels” — wealthy individuals who invest in and advise startups. Be sure to comply with, or get an exemption from, federal and state securities laws. In all instances, you must fully disclose the risks of the investment, including the very real possibility that everybody could lose their money.

Getting out The demands of running a business leave little time for planning your exit, but you must do so to maximize your company’s value. Run your business as if it were always for sale. This mindset will help you focus on doing those things that will drive the highest value if and when you decide to sell. ■

Joe Juster is chair of the General Corporate group at Calfee, Halter & Griswold LLP. Contact him at 216-622-8433 or e-mail jjuster@calfee.com.

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Sellers should monitor management, business Certainly, the industry in which the company ne of the most operates will dictate some frequent quesrange of value; but by tions posed by focusing on MPG, mancompany owners agement can influence over the last two years is, greatly the outcome of a “When will be a good business sale, regardless time to sell my company?” MICHAEL of external conditions. PAPARELLA Each company is unique, The reality is that even CANDLEWOOD and the answer will dein today’s difficult ecoPARTNERS pend on the characterisnomic environment, the tics defining its situation. Fortune 500 companies Underneath the surface of the collectively have more than question, however, lies the fear of $1 trillion in cash on the balance the unknown as it relates to the sheets, and U.S. private equity uncertainty of the economy, the funds have more than $450 billion industry, the credit markets and in uninvested capital. These buyers M&A cycles. are looking for good companies to For most healthy, goodacquire and are willing to pay for performing companies, those quality. unknowns should not greatly Indeed, the top five transactions impact the value of a business. As for each of the past three years Ralph Waldo Emerson once said, (down years for M&A and transac“Can anybody remember when tion values) have occurred in 10 the times were not hard and industries (pharmaceutical, telemoney not scarce?” com, and oil and gas are the When selling a business, value repeat industries), with a transactends to be driven not by the tion value range of 5.5x EBITDA vagaries of tertiary markets and to 32.9x EBITDA, an average economies but by three controlEBITDA multiple of 12.8x and a lable attributes: quality of the median multiple of 10.1x. Management team, historical These numbers compare Performance of the business and favorably to the overall transacthe three-year Growth plan for tion values for deals in the same the business (collectively MPG). See SELLERS Page S-9 By MICHAEL F. PAPARELLA

Fairmount Minerals would like to extend a sincere thank you to our Fairmount family members, our valued partners in business and community and to the Association for Corporate Growth/Cleveland Chapter for the 2011 Deal Makers Award Fairmount Minerals is committed to exceeding customers’ expectations while fulfilling our economic, social and environmental responsibilities. We work to ensure that our actions positively impact all three pillars of our sustainability focus: People, Planet, Prosperity

800-237-4986

•

www.fairmountminerals.com

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January 24-30, 2011

S-7

Buyer beware: Don’t be Three mistakes not to make star-struck by every deal when conducting due diligence By LLOYD BELL

n an environment with low interest rates, changing demographics and what hopes to be an improving economy, buying a business can be a life-changing experience. With apologies to The Miracles, “Try to get yourself a bargain, son … Don’t be sold on the very first one …” Good advice for the aspiring business owner: You’d better shop around. ■ Profile: One of the biggest mistakes an aspiring owner can make is to look at every possible deal. Buyers should take the time up front to define the profile of the companies they will target. Profile includes the industry, the size of the company, the location and, most importantly, what skills the buyer brings that will increase the value of the target. ■ Purchase price in multiples: Published multiples are averages. Ignore the multiples and work with your advisers on developing an accurate financial model. The company’s expected performance will dictate the multiple, not the other way around. ■ Due diligence: Even when buyers are familiar with an industry, other professionals — be it legal, financial, operational or technological — need to be brought in to conduct due diligence. Buyers

need to be prepared to spend money on the investigation with the understanding that it is not uncommon to spend time and money and still have no deal. ■ Financing: Getting a deal funded is easier now than it was a year ago, but it still can be a difficult undertaking. An experienced adviser can point the buyer to financing sources more likely to fund a particular transaction. ■ Patience: Buying a company can be frustrating for an individual used to things following a strict timeline. Expect that the process will take longer than expected, and that the deal may seemingly die once or twice but eventually come back and get closed. If that business for sale does not fit the profile established or something serious gets discovered during due diligence, it’s better to look for a better fit than to change the acquisition plan to fit the target. “Pretty girls come a dime a dozen … I’ll try to find you one who’s gonna give you true loving.” ■

Lloyd Bell is the director of the corporate finance practice at Meaden & Moore. Contact him at 216-241-3272 or e-mail lbell@meadenmoore.com.

By ELIZABETH EVANS

n any merger or acquisition, a buyer needs to conduct due diligence before it commits to purchasing a target company. Due diligence assists in testing and proving the economics of a transaction. A buyer needs to receive accurate and adequate information so that it can negotiate a promising transaction, and most importantly, avoid surprises. Items uncovered through the duediligence process — such as purchase price adjustments, negotiating different representations and warranties, or requiring specific indemnities or escrows — can have a serious impact on a transaction. The following are common mistakes that buyers should avoid when conducting due diligence:

Not asking the right questions. Beginning with a basic duediligence request list is not enough. A buyer must tailor the request list to the target company and industry. A buyer and its team should research the target company

and the industry in which it operates — particularly any regulatory or other critical customer information. The due diligence request list should then be revised based on what is applicable to the target company. Knowing what to ask is key to conducting effective due diligence. If the request list is either too general or too broad, the seller may not understand what the buyer is looking for. Be more specific in order to obtain the right information.

Not asking the right people. Due diligence should consist of more than asking for and reading documents from a target company. Visit the target company and talk with management. Knowing which members of management to reach out to regarding specific due-diligence requests not only will assist a buyer in obtaining the information, but the buyer may also receive more accurate — and more timely — information. Due diligence also should incorporate interviews and interactions with management. The people of a target company are an integral part of its history and information. A buyer should understand the objectives of each party it interacts with and extract the key information from the person and situation.

Not having the right team. Each transaction is different and, as such, a buyer must determine which team members are essential in analyzing the specific transaction. Generally speaking, a team would consist of legal, business, accounting and tax specialists. It may also be necessary to retain outside consultants, such as regulatory, insurance or environmental specialists. The team members should provide a buyer with expert guidance on due diligence that is uncovered and assist in exploring potential liabilities or risks. Failure to do so may result in overpaying for the target company, delaying the closing, or incorporating inadequate provisions in the purchase agreement. Having the appropriate team in place will allow a buyer to feel confident and comfortable that the transaction is being properly evaluated. A well-organized due-diligence process can help prevent a buyer from unhappy surprises post-closing and lay the foundation for a successful acquisition strategy. ■

Elizabeth Evans is an associate in the Corporate & Securities Practice Group of Benesch’s Cleveland office. Contact her at eevans@beneschlaw.com.

POWER OF ATTORNEY? Make that a double yes.

We’re not your typical law ﬁrm. Sure, we’re a Fortune 500 “Go-To Law Firm,” a member of the 2011 BTI Consulting Group “Client Service A-Team,” a 2010 U.S. News & World Report - Best Lawyers “Best Law Firm,” and our attorneys are routinely ranked as “Best Lawyers in America” and “Super Lawyers.” But more importantly, we’re passionate dot connectors who know the power of relationships. We like to get to know you and your business. Imagine that. PETER ROME

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ulmer.com

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S-8 January 24-30, 2011

Tax legislation to the rescue The operating assets of

By SEAN KELLY and TOM FREEMAN Akron, OH have been acquired by

East Liverpool, OH

Total Distribution, Inc.

has been acquired by

a subsidiary of

Newell, WV Canton, OH The undersigned initiated the transaction, assisted in the negotiations, and served as financial advisor to Terminal Warehouse Incorporated.

The undersigned initiated the transaction, assisted in the negotiations, and served as financial advisor to The Hall China Company.

The operating assets of

The assets of

Thayer Power & Communication Line Construction Co., Inc. Fairview, PA have been acquired by

STERIS Corporation’s Hausted® Patient Handling Business Montgomery, AL have been acquired by

Pittsburgh, PA

Bloomfield Hills, MI The undersigned initiated the transaction & acted as exclusive financial advisor to Thayer Power & Communication Line Construction Co., Inc., Debtor-in-Possession, in this sale transaction.

The undersigned initiated the transaction, assisted in the negotiations, and served as financial advisor to STERIS Corporation.

n the wake of the economic downturn over the past two years, many companies revamped growth plans as a means of cutting costs to ensure their continued existence. As cost-cutting measures have taken hold and the economy has begun to rebound, many companies are re-evaluating growth opportunities. With additional liquidity available on companies’ balance sheets, plus slowly increasing access to credit, decisions will be made evaluating organic growth and growth-byacquisition strategies. Several passed and proposed tax law changes have been enacted during the past year that will impact the landscape of growth and acquisition decisions, including:

Tax breaks MelCap Partners is an investment banking advisory firm specializing in providing high quality and innovative financial advisory services to middle market companies. For more information on the above transactions, or how we may be of assistance, please contact:

Al Melchiorre President

al@melcappartners.com

Sean Demlow Vice President

Tim O’Toole Vice President

sean@melcappartners.com tim@melcappartners.com

Bob Pacholewski Vice President

bob@melcappartners.com

Marc Fleagle Analyst

A cornerstone of the 2001 and 2003 tax breaks was a reduction in the capital gain tax rates to a maximum of 15% for individuals. The tax cuts, set to expire at the end of 2010, caused a flurry of merger and acquisition activity in

the final quarter. However, President Barack Obama on Dec. 17 signed into law the sweeping 2010 Tax Compromise, which extended capital gain rate reductions through 2012. Business owners will look to liquidate their investments prior to 2013 to take advantage of the low capital gains rate.

100% depreciation This provision permits businesses to expense 100% of “qualifying” property purchased from Sept. 8, 2010, through Dec. 31, 2011. While this should spur some companies to increase capital expenditures during 2011, many companies already have capitalexpenditure restrictions in place by their lenders and may look for outside equity to fund these purchases.

of $1 million. The 2010 Tax Compromise provides an estate tax rate of 35% and $5 million exemption through 2012. Like the capital gains rate extension, business owners may look to transfer investments to the next generation to take advantage of the low estate and gift tax rates. These types of transfers often require outside capital and should provide an opportunity for private equity.

Estate and gift taxes

Another pending legislative change of note is that Congress has had repeated discussions surrounding taxing carried interests as ordinary income. If passed, this measure would subject these interests to a much higher rate of tax. While nothing has been passed at press time, the issue will likely resurface. Industry experts fear that such legislation, if passed, will discourage future investment. ■

While death and taxes are certainties, they shouldn’t necessarily coincide. Before the passage of the 2010 Tax Compromise, estate and gift tax rates were set to return to 55% with an exemption

Sean Kelly is tax manager at Grant Thornton LLP. Contact him at 216-858-3717 or e-mail Sean.Kelly@us.gt.com. Tom Freeman is tax practice leader at Grant Thornton LLP. Contact him at 216-8583700 or e-mail Tom.Freeman@us.gt.com.

marc@melcappartners.com

Managing legal costs of M&A

www.melcappartners.com Securities offered through Burch & Company, Inc. Member FINRA / SIPC. MelCap and BurchCo are not affiliated entities.

5164 Normandy Park Drive • Suite 285 • Medina, Ohio 44256 Phone 330/721-1990 • Fax 330/721-1991

By JEFFREY A. FICKES and TERRENCE H. LINK II

“H

ow much is this deal going to cost me in legal fees?” Many executives

Creating Value.

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and business owners have asked this question, often receiving the answer “It depends.” This answer is impractical when creating budgets or advising shareholders, investors and other stakeholders. To obtain a more comprehensive, useful answer, consider the following: Where are the warts? While proper due diligence is critical to investigating a seller’s organization, it also can be used to estimate legal fees. An environmental remediation business, for example, is heavily regulated, requiring a significant amount of due diligence. An initial review of the seller’s permits and licenses and other environmental compliance matters provides counsel some level of predictability regarding legal fees. Additionally, product recalls, lawsuits, tax disputes and other business “warts” that increase legal costs can often be found, and related legal costs estimated, in early stage due diligence. Attitude is everything. Buyers, sellers and their attorneys often directly correlate the purchase price of a deal to the anticipated legal fees. Instead, the sophistication and attitude of the buyer, seller and their respective counsel should be indirectly correlated to estimating legal fees. A buyer experienced in M&A transactions can perform due diligence on the seller’s business with less involvement from outside counsel. An attorney without M&A experience may not be efficient or effective in representing a seller in negotiating key purchase agreement concepts. While this attorney should be involved in the transaction as the seller’s trusted adviser, he or she should not have primary negotiating

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and drafting responsibility. The seller could reduce legal costs and likely receive more qualified legal counsel by engaging M&A counsel. Finally, the parties’ relative motivation to complete the transaction and level of trust is important. Lack of trust or professionalism can prolong or terminate deal negotiations. Third parties. Banks, investment bankers, consultants, regulatory agencies, landlords, customers and other parties may be involved in any deal. Typically, counsel negotiates the terms of those arrangements, so the extent to which third-party contracts or consents are required affects fees. Finally, the negotiation of non-competition and/or employment agreements with the seller’s employees and others impacts fees. Alternative fees. Alternative fee arrangements allow the buyer or seller to manage M&A fees, particularly when the buyer or seller has multiple planned acquisitions or dispositions. Some examples include fixed/flat fees, capped fees and discounted hourly billing rates with a “results-based” fee or “success fee.” Alternative fee arrangements are often fluid in nature, requiring open lines of communication between counsel and client. While there may be additional factors specific to each deal that affect M&A legal costs, an analysis of the above factors with your attorney will help you plan for and better estimate your legal fees. ■

Jeffrey A. Fickes and Terrence H. Link II are partners for Corporate and Business Services, Roetzel & Andress. Contact Fickes at 330-849-6613 or e-mail jfickes@ralaw.com, or Link at 330-8496755 or e-mail tlink@ralaw.com.

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Public marketplace ripe for private opportunities By DANIEL G. BERICK and GREGORY K. GALE

rivate equity investments in publicly traded companies are nothing new. Private Investment in Public Equity (PIPE) transactions have been around for years, and hedge funds long have used private funds to invest in publicly traded securities. More recently, though, we have been seeing traditional private equity sponsors — even sponsor groups that do not have significant experience with investments in public equity — find creative ways to take advantage of opportunities with public companies. Many of these investment opportunities are found in publicly traded companies that are relatively thinly traded and have credit facilities that are in default or are nearing maturity. Even with the thawing credit markets and a relatively robust high-yield market, many of these companies do not have access to debt on attractive terms and are not readily able to make new public offerings of equity or debt. In addition to traditional PIPE investments and subordinated debt transactions, private equity sponsors can purchase outstanding debt or equity, which may better position the target public company to raise replacement or additional

financing. We have recently seen private equity funds provide backstop commitments for rights offerings. In these transactions, the public company distributes rights to purchase additional equity to its stockholders, and the private equity fund commits to purchase any equity that is not acquired by the stockholders through exercises of the rights. In this way, the public company issuer has assurance that it will be able to raise the financing even if there is a limited or uncertain market for the rights being offered. In exchange, the private equity fund can receive transaction fees and an equity stake (and a position of influence) in the target. This equity position is often either freely tradable immediately or subsequently registered to allow the private equity sponsor liquidity. In an increasingly efficient marketplace for the sale of private companies, investments by private equity funds in public companies provide another avenue to achieve returns to limited partners. ■

size range for all of 2006 (9.9x) and 2007 (10.7x), the so-called high-water marks for recent M&A values. Further research shows that the acquired companies boasted a good MPG. In addition to a good MPG, the one trait each of those transactions likely had in common was a good transaction team, including an accounting firm,

Continued from Page S-4

Amish Mills For Chris Karman, chairman of Amish Mills, surviving the recession was only half the battle. The company had to reinvent itself to survive a “dying” industry. Karman and his brother, Ted, bought the company — then called Country Curios — from owners David and Daniel Yoder in 2003. Craftsmanship was never in doubt; in fact, it is the company’s biggest selling point. It was perception (‘country’ and ‘curios’) that was thwarting growth. The challenge was to tell its “handcrafted by Amish” story and to find the right markets for a small player in a $50 billion furniture industry to showcase its made-in-Ohio talent. “When people think of Amish furniture, they often think of sturdy but big, chunky furniture. But ‘Amish’ isn’t a style, it’s the pride in

Daniel G. Berick is a partner with Squire, Sanders & Dempsey. Contact him at 216-479-8374. Gregory K. Gale is a partner with Squire, Sanders & Dempsey. Contact him at 216-4798098.

Amish Mills has gained market share over the years by creating quality furniture through hand craftsmanship. hand craftsmanship,” Karman says. A name change to Amish Mills was the first step in the company’s transformation from bit player to industry dynamo. Amish Mills, which sells to more than 700 independent dealers across the U.S., expanded its line to include bedroom and office furniture, and sells kitchen cabinets through its Amish Mills Cabinetry line. Its strong Amish craftsmanship niche, diversified product line and well-honed sales message have paid off. In three short years, Amish Mills has grown from 12 employees to 90, built a

new three-acre manufacturing facility in Millersburg and captured nearly $12 million in sales. “We never want to lose track of quality and our customers, so we’re carefully managing our growth,” Karman says. “We are blessed to be in Ohio where there are so many fantastic craftsmen, who are respectful and fun — that is reflected in their work. It’s what sets us apart. We really believe the sky is the limit.” ■

Cheryl Higley is a freelance journalist based in Cleveland and serves as a section coordinator for Crain’s Cleveland Business Custom Publishing.

Based in Cleveland With a Window to the World Riverside has been investing in and building small businesses since 1988.

legal counsel and an investment banking firm that believed in their story and could drive value no matter how difficult the times were or how scarce money was supposed to have been. ■

Michael F. Paparella is managing director for Candlewood Partners, LLC. Contact him at 440-264-8007 or e-mail mfp@candlewoodpartners .com.

To learn more about Riverside’s strategies to grow companies with $1 million $30 million in EBITDA, visit riversidecompany.com or contact Scott Gilbertson, Principal, Origination at sgilbertson@riversidecompany.com.

19 offices 13 countries 4 continents

riversidecompany.com | phone: 216 344 1040

Helping to write success stories in the middle market for more than four decades Our passion is partnering with management teams to build top performing businesses. That’s why we’re proud to recognize our investment in one of Northeast Ohio’s most innovative industrial companies,

Focused on investments in high value manufacturing and proprietary business services companies with transaction values from $25 - $250 million.

S-9

Spotlight: ‘Made in Ohio’ a selling point for local firms

Sellers: Solid team a benefit Continued from Page S-6

January 24-30, 2011

5 0 P u b l i c S q u a r e , 2 9 th f l o o r, C l e v e l a n d , O H 4 4 1 1 3

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S-10 January 24-30, 2011

MCM Capital Partners Would Like To Congratulate One Of Its Founders:

A. Malachi Mixon III On His Lifetime Achievement Award MCM was founded in 1992, with the support, guidance, and vision of Mal Mixon, one of northeast Ohio’s premier business leaders.

ABOVE, BELOW: Attendees gathered in September to network at the Great Lakes Capital Connection, hosted by ACG Cleveland, at the Rock and Roll Hall of Fame and Museum.

Outlook: Market presents value Continued from Page S-3

MCM Capital Partners is a Cleveland, Ohio based private equity firm focused on acquiring niche manufacturers, value added distributors and specialty service companies that generate up to $75 million in annual revenues and having enterprise values of less than $50 million.

216-514-1840 | 216-514-1850 [fax] 25201 Chagrin Blvd. Suite 360 | Cleveland, OH 44122 web: www.mcmcapital.com | email: info@mcmcapital.com

that were set to expire. The tax compromise passed in December clarifies the picture, and should help stimulate additional activity, Melchiorre says.

sector,” says Stewart Kohl, co-CEO of The Riverside Company. “It’s a great place to do business. The firms continue to become better owners and help drive performance and provide valuable resources and assistance to their portfolio companies.”

Middle market popularity

Banks coming back in. Lenders are conservatively venturing back into the market. “Banks have done a good job of cleaning up their portfolio and are looking to add assets to the balance sheet, but the amount of leverage is still conservative,” Melchiorre says. “You may be able to borrow a little less than you’d like and pay a bit more than you’d like, but debt is available for good deals,” Kohl adds.

According to ACG’s Fine, the overwhelming majority (60%) of private equity deals completed in the last two years were in the middle market, with 85% of the deals valued at under $1 billion. The middle market, he says, is a breeding ground for smart, entrepreneurial companies. Kohl agrees: “High-quality companies that performed well through the downturn are in growing industries and have some competitive advantage that the business will continue to grow and perform are prime candidates for deals.” Middle-market private equity is attractive, particularly in today’s economic climate, to both sellers and buyers. Private equity firms can leverage their size to benefit the individual companies within their portfolio — from purchasing to consulting and access to capital that might otherwise be out of reach for a company on its own. “Companies that are owned by private equity have an advantage,” Kohl says. “Of the 72 companies we own, they have access to resources that similar companies of their size would never have access to — that is significant.” Whether a seller is looking to exit the business or just take it to the next level, private equity can make it possible. More private equity firms are holding onto assets longer, according to the ACG-Reuters survey. That requires a different investment and management strategy and shows that the firms aren’t in the deal for a quick flip on the investment. “Private equity provides nontraditional, non-banking capital resources that can help companies stimulate growth, which creates jobs and other opportunities in Northeast Ohio,” Melchiorre says. ■

Clearer tax picture. Some 2010 activity was spurred by the uncertainty of whether the federal government would act on tax breaks

Cheryl Higley is a freelance journalist based in Cleveland and serves as a section coordinator for Crain’s Cleveland Business Custom Publishing.

Keys to activity Local private equity firms such as Riverside and investment banking firm MelCap Partners cite several factors that are coming together to spark a resurgence in M&A activity: Dry powder surplus. With close to $500 million committed to private equity that has yet to be invested, the improving economy

Go for it. We’ve got your back. At Roetzel, our attorneys are like our clients - entrepreneurial, innovative and results-oriented. Just ask Al Salvatore.

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will have firms looking for good deals. Riverside’s Kohl already is seeing the pipeline opening. “We closed 11 acquisitions in fourthquarter 2010,” he says. “We anticipate a bit of a pause in the first quarter, but we expect 2011 to be a very good year for Cleveland private equity.” Healthy deals returning. Al Melchiorre, president of MelCap Partners, says the firm had a record year in 2010 by focusing on healthy M&A transactions. “While we continue to see activity in the distressed market, we’re seeing healthy deals starting to come back, in large part due to the improving economy,” he says. While deals are starting to ramp up, unrealistic expectations on the part of the seller could throw a hiccup into the recovery. According to the ACG-Thomson Reuters year-end 2010 DealMakers survey, the greatest drag on M&A activity continues to be the seller’s unwillingness to sell at multiples offered.

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Social media part of new age of deal origination By ROBERT KINGSBURY

s I was responding to posts on my Facebook page last week, I began to contemplate the impact social media have had on our lives. Become a fan, like us, follow me, friend me, tweets, posts, tagging, news feeds, status updates … it seems that’s all kids are worried about these days. Then I balked at my thought process … kids? Social media (blogging, podcasting, online video, social networking and wikis) are no longer just for teenagers and college students. More than 112 million users on Facebook are between the ages of 25 and 64, and LinkedIn has grown to more than 80 million professional profiles (35 million in the U.S.) indicating social media have penetrated all aspects of the business world and are transforming the ways in which we communicate. The Center for Marketing Research at the University of Massachusetts Dartmouth’s most recent study of the Inc. 500, a list of the fastest-growing privatelyheld companies in the U.S., found that most businesses are beginning to recognize the importance of leveraging social media, with 91% reporting the incorporation of at least one social media service or tool in 2009. Respondents believe social media provide a competitive advantage. Below are five compelling reasons to consider using social media tools to promote your firm: ■ Find your audience. People are going to find you where they are, not where you want them to be. Your target audience is constantly communicating on social media sites. Find and identify what sites they frequent and develop a social media strategy based upon your research. ■ Brand recognition. Using social media allows your company to reach a broad audience of potential investors and acquisition targets. It augments effective and efficient communication of your brand, which is invaluable for deal flow, fundraising, recruiting and investing.

■ Search engine optimization. Search engines like Google and Microsoft Bing are increasingly using information from social media sites to influence the rankings in search results. Thus, establishing a presence on social media sites will enhance your visibility. ■ Brand management. Having a social media presence allows you to better understand what current and potential clients are saying about your firm. Through active social media monitoring, you have the opportunity to address negative comments and correct false or inaccurate information about your brand. ■ Niche marketing. Social media allow you to cost-effectively reach specific subsets of individuals based on their personal preferences and interests, which allows you to create unique social media profiles and strategies based on your target audience. MCM Capital Partners launched a comprehensive social media campaign about six months ago. Each communication method employed and its content is viewed through the lens of “how does this help our firm?” and “how does this improve the likelihood our targeted audience will find us?” Private equity investing is a relationship business encompassing a relatively small number of LPs, entrepreneurs, executives and intermediaries. As more personal relationships move online, social media become a very cost-effective way to strengthen a firm’s corporate relationships and increase deal flow. Successful deal origination, we believe, will no longer be restricted to attending industry or networking conferences, following up on published reports, marketing meetings with intermediaries, mailings, or cold-call campaigns. Going forward, successful origination will also be measured by number of visits, impressions, comments, connections, subscribes, likes, shares and re-tweets. Is your firm ready? ■

Your target audience is constantly communicating on social media sites.

Robert Kingsbury is a vice president at MCM Capital Partners. Contact him at 216-514-1843 or e-mail robert@ mcmcapital.com.

January 24-30, 2011

ACG Cleveland 2010-2011 Board of Directors PRESIDENT Theodore Wagner Libman, Goldstine, Kopperman & Wolf PRESIDENT ELECT Randy A. Markey Capital Acceleration Partners IMMEDIATE PAST PRESIDENT Patrick Gallagher Fahlgren Mortine EXECUTIVE VICE PRESIDENTS Brand David Hadley Segmint Resources Jeffrey Leonard The Leonard Legal Group Co. Programming Sean McCauley PNC Business Credit Treasurer Joseph F. Maslowski Roetzel & Andress

ASSISTANT TREASURER Scot R. Smiley Scott R. Smiley, CPA

Golf Event Rudy Bentlage Chase Business Credit

Public Relations Brad Kostka Roop & Co.

SECRETARY M. Joan McCarthy MJM Services

Great Lakes Capital Connection

Programs — Regular John Saada, Jr. Jones Day

VICE PRESIDENTS ACG Cup Eric M. Kuhen Marsh Thomas Freeman Grant Thornton Douglas K. Winget First Merit Deal Maker Awards Murad A. Beg Linsalata Capital Partners Economic Development Moses R. Jhirad PNC Bank Donald W. Majcher Ohio Aerospace Institute Thomas Zucker EdgePoint Capital

Al Melchiorre MelCap Partners James M. Hill Benesch, Friedlander, Coplan & Aronoff

Programs — Special Scott Seelbach Primus Capital Funds

Timothy G. Healy Linsalata Capital Partners

Karen Tuleta Morgenthaler

Membership Martin S. Gates Calfee, Halter & Griswold

Women in Transactions Denise Carkhuff Jones Day

James P. Marra Blue Point Capital Partners Henry E. Siebert Porter, Wright, Morris & Arthur Nominations Trent Meteer TriState Capital Bank

When It Gets Down to Business… Solon Gets It! The City of Solon welcomes these new businesses: BIZ Quality Sales Divalicious Boutique Fastenal Greenes Fence Co. Inc. Pile Dynamics, Inc. / GRL Engineers, Inc. Wrap-Tite, Inc.

And thanks these real estate professionals for bringing new business to Solon: Matt Beesley - CRESCO Real Estate Simon Caplan - CRESCO Real Estate Bob Garber - CRESCO Real Estate Joseph Greenberg - Greenberg Real Estate Advisors Eliot Kijewski - CRESCO Real Estate David Stecker - Greenberg Real Estate Advisors

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Crain’s Cleveland Business Custom Publishing

DIRECTORS AT LARGE Guy A. Fabe PricewaterhouseCoopers Wendy S. Neal International Commodity Alliance

The Solon Select is a distinguished group of more than 800 businesses that have chosen to locate in the City of Solon.

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Sales: ‘Market,’ or non-distressed, sales better indicate property value continued from PAGE 3

Market deals are arms-length transactions between willing buyers and sellers. Experts consider market deals better indicators of property values than so-called distressed sales where an owner must shed a property or a lender is unloading it. In 2009, market sales were scarce as distressed sales dominated the day. However, market deals were sprinkled among distressed sales in 2010, with Mr. Pacella and others expecting to see more of the former this year.

For instance, Optima Real Estate of Miami Beach bought Penton Media Center, 1300 E. Ninth St., in downtown Cleveland for $46.5 million last August. Meanwhile, Hilltop Plaza, the grocery-anchored shopping center at 5100 Wilson Mills Road in Richmond Heights, sold to Florida-based Richmond Center LLC in November for $27 million. “We saw market deals resume last year,” Mr. Pacella said of the Penton and Hilltop sales.

Contact: Phone: Fax: E-mail:

The best example of last year’s distressed sales was the $25 million an affiliate of Real Estate Resources of America Inc. of Philadelphia paid for the Bingham Apartments building at 1278 W. Ninth St. in downtown Cleveland. The deal came after the 340-unit apartment slid into default under the prior owner, Chicago-based developer Burnside Construction. REITs also became factors in the commercial market again, Mr. Pacella said. Philadelphia-based STAG Capital bought the Chrysler

warehouse at 9777 Mopar Drive in Streetsboro for $10.9 million last October and Phillips Edison Co. of Cincinnati last month purchased Parma’s Snow View Plaza, 1765 Snow Road, for $12 million as it formed a REIT. However, the pace of deals remains far below what it was before the recession and the real estate credit freeze shut business down. As recently as 2007, there were 175 deals with a total value of $1.3 billion in Northeast Ohio.

REAL ESTATE

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Mr. Pacella estimates there may be $400 million of such sales in 2011, based on the properties already on the market and a continued march toward a better economy and more normal underwriting standards. However, the key factor to the market resuming a shred of normality depends on job creation. Mr. Pacella said the region will need more jobs to boost demand for real estate and push up rents to attract capital from outside the area. ■

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RADIO ADVERTISING SALES An Account Executive position is open at WCLV, Cleveland’s Classical Music Station. Commission-based compensation. Candidate must have outside sales experience; radio sales experience strongly preferred. Knowledge of classical music a plus. Send resume to AE@wclv.com or to WCLV, Idea Center, 1375 Euclid Ave. Cleveland, 44115. Equal Opportunity Employer.

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THEINSIDER

THEWEEK JANUARY 17 — 23 The big story: The latest figures for investment in health care startup companies across the Midwest show 2010 was a better year for venture investment in Cleveland and Ohio than 2009, though still not what it was before the recession took hold. The Midwest Health Care Venture Investment Report produced by BioEnterprise Corp. indicated that $135.1 million was invested in 33 companies in the Cleveland area last year. The dollar figure is double the $66.3 million in investment in 21 health care startups that BioEnterprise reported for 2009. However, it was down 17% from investment of $163.5 million in 31 companies in 2008, and was off 44% from investment of $241.8 million in 28 companies in 2007. (See related editorial, Page 8.) Material event: Brush Engineered Materials Inc. soon will be no more. The producer of beryllium and advanced materials that for most of last century was known as Brush Wellman will change its name once again — this time to Materion Corp. — and will unify all its businesses under the new name effective March 8. The company’s common stock will continue to trade on the New York Stock Exchange, but under the symbol MTRN. Concurrent with the name change, the company also will unveil a new web site and brand identity. At least the price is right: Year-end home sales figures from the Ohio Association of Realtors show 2010 was an even more challenging year than 2009, though prices statewide pushed up slightly. The trade group said 100,980 homes sold statewide in 2010, a decline of 4% from 105,237 homes sold in 2009. The average sale price of the homes, though, rose 2.6% to $132,676 last year from $129,281 in 2009. Results in Northeast Ohio were somewhat better. In what the association calls the Northeast Ohio Real Estate Exchange, there were 31,649 homes sold in 2010, down only 1.9% from 32,262 in 2009. The average sale price in Northeast Ohio shot up 6%, to $126,536 from $119,343.

REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS

Al Ratner remains one engaged octogenarian ■ Albert Ratner, co-chairman of Clevelandbased Forest City Enterprises Inc., says he is optimistic about the future of Northeast Ohio, in part because the recession has so challenged the rest of the country that it gives the region a chance to regain its footing. “Without the recession, we’d have been wiped out. A lot of people have problems now,” Mr. Ratner Ratner told the International Council of Shopping Centers Next Generation group last Thursday, Jan. 20, in Cleveland. Mr. Ratner said he’s enthusiastic about Northeast Ohio business efforts to improve the regional education system, a drive to fight obesity to pare health care costs and efforts to boost lagging foreign immigration in the region. Mr. Ratner said the new Republican state leadership looks ready to reform state laws on education — he disparaged Ohio requiring teaching certification for college grads to teach in public schools — and he expects Gov. John Kasich and House Speaker William Batchelder to remake unproductive education laws in short order. At 83, Mr. Ratner retains his sharp wit. Referring to Cuyahoga County’s decision to put the new medical merchandise mart and convention center at the current Cleveland convention site rather than near Forest

WHAT’S NEW

Out of the woods: Robinson Memorial Hospital in Ravenna proposed that Portage County transfer operational control of the Woodlands at Robinson — a 99-bed county-owned nursing home — to the hospital, which would retain all income generated by the facility. The hospital proposed that the county lease the Woodlands to the hospital for a five-year term with renewal provisions. The annual lease payment to the county would equal the debt payments on the nursing home, which are about $570,000 per year. Branch managers: KeyBank plans to add five branches and about 30 branch jobs in Northeast Ohio during the next 15 months, while also relocating three Northeast Ohio branches into new buildings this year. When completed, Key will have 122 branches in Northeast Ohio, up from 105 branches four years ago.

To keep up with local business news as it happens, visit www.CrainsCleveland.com.

A textbook case of underestimating ■ The number of college bookstores offering textbook rental programs last fall was much higher than originally expected, according to research from the Oberlin-based trade association representing collegiate book retailers. The National Association of College Stores reports that about 2,200 college stores offered textbook rental programs of some kind last fall. The group originally estimated, based on anecdotal evidence, that the number was around 1,500. During the fall of 2009, only about 300 stores offered such programs. Textbook rental programs allow college students to rent course materials for 33% to 55% of the cost of buying textbooks outright, according to the trade association. Many college bookstores in Northeast Ohio offer such programs. Among them are those at Cleveland State University, Kent State University, Lorain County Community College, University of Akron, BaldwinWallace College and Oberlin College.

Ohio stands to gain from Illinois’ taxing problems

COMPANY: Aerodyne, Chagrin Falls PRODUCT: GPC Dust Collector Aerodyne says its new cyclone dust collector is designed for customers with limited floor space or overhead clearance. Unlike conventional cyclones, the GPC Dust Collector “uses an innovative groundplate design that increases efficiency in a more compact unit,” Aerodyne says. The product’s design provides a high-efficiency, compact unit that is available in horizontal or vertical configurations. Aerodyne says the GPC Dust Collector reduces particulate emissions at processing plants, reclaims useful material from air/gas waste streams and serves as a pre-filter in front of baghouse filters. A conventional cyclone dust collector consists of a tangential inlet and a long, tapered body, according to Aerodyne. This design relies on gravitational force to direct the dirty gas stream downward. As the gas stream becomes constrained in the narrow end of the cyclone body, a phenomenon known as “vortex reversal” occurs, in which a secondary inner vortex is generated and moves upward through the center of the dust collector and is exhausted from the top. For more, visit www.AerodyneUS.com. Send new product information to managing editor Scott Suttell at ssuttell@crain.com.

In addition, the trade association said two-thirds of the bookstores surveyed planned to expand the number of titles offered for rent over the next year. Last fall, many of the programs allowed students to only rent books for entry-level courses. — Timothy Magaw

U of Akron’s new Ph.D. isn’t easily mimicked ■ Students involved with the University of Akron’s doctoral degree in integrated bioscience now can focus on biomimicry — a burgeoning field that studies how nature’s proven processes can be applied to the challenges of science and industry. Academics involved with the program believe it to be the first of its kind in the country, and say those who graduate with the Ph.D. and focus their research on biomimicry can be of great value to the business community. “The people would come versed in techniques and paradigm of biomimicry as a source of innovation,” said Peter Niewiarowski, a professor of biology at the University of Akron involved with the degree program. Building on millennia of nature’s own innovations, the idea behind biomimicry is to look to nature to solve problems efficiently and effectively. For instance, scientists have studied gecko feet to design new kinds of adhesives and the bumps on whale fins to produce more efficient wind turbines and fans. “(Biomimicry) is a thread that runs through a lot of research programs,” Dr. Niewiarowski said. — Timothy Magaw

BEST OF THE BLOGS Excerpts from recent blog entries on CrainsCleveland.com.

Howdy, partner: Case Western Reserve University and China National Offshore Oil Corp. signed an agreement to form a bi-national entity to research new energy efficiency techniques and methods of lowering greenhouse gas emissions. The new entity is one of two new EcoPartnership programs between the United States and China that the U.S. State Department announced last week. The new partnership will use the strengths of both Case Western Reserve and China National Offshore Oil to develop research, technologies and green jobs.

City’s Tower City Center, he said, “We can build a city hall for Las Vegas but can’t price a convention center.” Being a CEO is “not a good job today,” Mr. Ratner said, as far-flung operations stretch chief executives thin. As a result, efforts to change Cleveland need to be at a grass-roots level. “Get off your duffs,” Mr. Ratner told the trade group focused on young people in fields associated with the shopping center business. — Stan Bullard

■ Big tax hikes in Illinois are creating opportunities for other states, including Ohio, to grab the mantle of business-friendly destinations in the Midwest. So argued Wall Street Journal columnist Kimberly A. Strassel, who wrote that Illinois is “drifting further into the abyss of tax and spend” while states such as Wisconsin and Ohio try fresher approaches. (Illinois is levying a 50% increase in corporate income taxes.) By the end of this month, Ms. Strassel wrote, “29 GOP governors will sit in office, 17 of them newly elected on promises to end out-of-control spending and grow jobs. In Ohio, John Kasich’s Republican legislature has already introduced legislation to kill the state death tax. Illinois just reimposed its own.” Indiana GOP Gov. Mitch Daniels told Ms. Strassel that the combined force of reformers in Wisconsin, Ohio and Michigan is creating a “divide that could operate long-term in the Midwest’s favor.”

Give him some space to fulfill his dreams ■ There’s probably a little bit of R.J. Musat in all of us. Mr. Musat, a 56-year-old computer systems specialist at Cuyahoga Community College, was among the people featured in an ABC News story about the prospects of a human mission to Mars. Last October, the Journal of Cosmology concluded that such a mission could happen within 20 years, though the complexity, risk and cost of getting astronauts there makes

it exceedingly difficult to do. “So a few scientists proposed an unconventional idea: send astronauts — but simplify the flight by making it a one-way trip,” ABC News reported. “The astronauts would be settlers as well as explorers. A return trip is massively more difficult than the voyage there because every pound of fuel and supplies to get home would have to come from Earth.” Editors of the Journal of Cosmology then received more than 500 e-mails from people around the world offering to be the first Mars colonists. One of those people was Mr. Musat. “It’s going to happen some way or another sometime,” he told ABC News. “It may as well happen now. I don’t see any sense in delaying it.”

Cleveland should be happy about this magazine ranking ■ Cleveland is very gay. So said The Advocate, which ranked Cleveland as the 12th most gay-friendly city in America. It’s a “completely unscientific — but still strangely accurate” ranking based on factors such as the number of gay bars, entries in YellowPages.com with “gay” in the business name or description, and openly gay elected officials, the magazine said. It declared Cleveland “is about to become a major gay stomping ground.” The city won the bid to host the 2014 Gay Games. The Advocate said “things are changing quickly” for gays in Cleveland. “The city council added protections for transgender people to Cleveland’s antidiscrimination laws in housing and employment, and there’s a country line-dancing group, the Rainbow Wranglers, which meets every Thursday at the Mean Bull.”

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