20130902-NEWS--1-NAT-CCI-CL_--
8/30/2013
3:25 PM
Page 1
Vol. 34, No. 35
$2.00/SEPTEMBER 2 - 8, 2013
Entire contents © 2013 by Crain Communications Inc.
INSIDE
Honing their craft Software Craftsmanship Guild students are getting a crash course in a field that is very much in demand. PAGE 3
Jobs take a hit as mortgage rates rise STAN BULLARD
The former May Co. department store on Public Square could be turned into an apartment complex as part of a $100 million redevelopment project.
May Co. may see apartments Prominent developers look to cut deal for languishing former department store By STAN BULLARD sbullard@crain.com
Three big names in Cleveland
real estate have set their sights on turning the old May Co. department store on Public Square into about 400 apartments as part of a
$100 million redevelopment project that would look to take advantage of locals’ hunger for downtown living. A joint venture led by David Goldberg, a longtime civic leader and real estate investor, and Landmark Management of Cleveland has reached an agreement with the building’s
Florida-based owner to buy much of the nearly 1 million-square-foot property, according to two people familiar with the situation. The potential deal is subject to multiple contingencies, such as the building makeover receiving crucial federal and state historic
By STAN BULLARD sbullard@crain.com
STAN BULLARD
35
A Ping-Pong table has a prominent place at Tackk’s headquarters.
Go by Brandmuscle’s office any Monday morning and you’ll see 160 employees of the marketing software firm gathered for updates in a huge café. The backdrop: a bank of windows just shy of half the length of a football field with views of the
downtown Cleveland skyline from the fifth floor of Oswald Centre. Drop in at the joint office of Tackk, a website that lets users quickly create web pages, and webbased funeral planner efuneral.com, in recently occupied space above the Agora Theater, and you may see a mini-basketball game, Nerf gun war, shuffleboard or Ping-Pong
game. The Ping-Pongers play 17 feet below a ceiling showing off twofoot-wide concrete beams that provide structural support for the hallowed concert hall below them. Less than two miles separate Brandmuscle’s new home at 1100 Superior Ave. and the Tackk/efuneral.com space on the third floor of 5000 Euclid Ave. However, they show the variety of impact technology companies are exerting on Northeast Ohio’s commercial real estate market. See TECH Page 6
See RATES Page 7
See PROJECT Page 5
0
NEWSPAPER
74470 83781
7
Presented by:
HEALTH CARE SUMMIT
By MICHELLE PARK mpark@crain.com
Despite Bank of America announcing last week that it would be eliminating the jobs of about 700 Cleveland-area employees who process mortgage loans, a number of Northeast Ohio mortgage originators remain bullish on business — and even say they’re hiring. Bank of America’s decision to close its operations in Beachwood and Independence — which together employ more than 1,000 workers — comes amid a 34% increase so far this year in the average interest rate on 30-year, fixed-rate mortgages. In late August, secondary mortgage giant Freddie Mac reported 30-year, fixedrate mortgages averaged 4.58%, up from 3.41% during January. In commenting on the reasons for its actions, which include laying off another 100 “home loan fulfillment” employees in Cincinnati, Bank of America said it was working to “align our cost structure with market realities, including declining (mortgage) refinance volume resulting from rising interest rates.” And it is not alone in blaming a climb in rates for significant job cuts.
Tech companies now big players Businesses in sector have become major tenants in the region’s real estate market
But some Northeast Ohio executives say they’re hiring brokers, are ‘very optimistic’
S E P T 25
Register and learn more: CrainsCleveland.com/HCSummit
20130902-NEWS--2-NAT-CCI-CL_--
2
8/30/2013
1:11 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
DOESN’T HURT TO ASK
COMING NEXT WEEK They mesh well together Crain’s Small Business section will take a look at Rust Belt Welding, a company started by two friends who now are creating a niche in making bike rack art projects.
REGULAR FEATURES Classified ....................18 Editorial ........................8 From the Publisher ........8
SEPTEMBER 2 - 8, 2013
Going Places .................9 Milestone ....................19 Reporters’ Notebook....19
Employers often are willing to negotiate salaries and other details of initial job offers, but nearly half of workers accept the initial offer as given. A new CareerBuilder survey found 45% of companies expect to alter terms of offers they have extended, while 49% of workers accept the offer as-is — and some wind up leaving money on the table. Here are highlights of the survey of nearly 3,000 U.S. jobseekers: ■Experience matters: 55% of workers 35 or older typically negotiate the first offer, while only 45% of those in the 18-34 age group do so. ■So does gender: Men (54%) are more likely than women (48%) to negotiate first offers. ■Professional approach: Professional and business services workers (56%) are the most likely to negotiate salary, followed by information technology (55%) and sales workers (54%). ■Beyond cash: If they’re unable to meet the job candidate’s salary requirements, a majority of employers are willing to provide alternative benefits. Employers said they would offer the following: flexible schedule, 33%; more vacation time, 19%; telecommute at least once per week, 15%; pay for mobile device, 14%. ■Source: www.careerbuilder.com
-JGFUJNF "DIJFWFNFOU "XBSE 8JOOFS Presented by:
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) Associate publisher/editorial: John Campanelli (jcampanelli@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editor: Kevin Kleps (kkleps@crain.com) Sports 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) Energy, steel and automotive Tim Magaw (tmagaw@crain.com) Health care and education Michelle Park (mpark@crain.com) Finance Rachel Abbey McCafferty (rmccafferty@crain.com) Manufacturing and energy Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing director: Lori Yannucci Grim (lgrim@crain.com) Events Manager/Promotions & Sponsor Relations: Jessica Snyder (jdsnyder@crain.com) Advertising director: Nicole Mastrangelo (nmastrangelo@crain.com) Senior account executive: Adam Mandell (amandell@crain.com) Account executives: Dawn Donegan (ddonegan@crain.com) Andy Hollander (ahollander@crain.com) Lindsie Bowman (lbowman@crain.com) John Banks (jbanks@crain.com)
5FSSZ #JDITFM Senior Executive Vice President, Chief Financial Officer, FirstMerit Corporation
Sales and marketing assistant: Michelle Sustar (msustar@crain.com) Office coordinator: Denise Donaldson (ddonaldson@crain.com)
'JOBMJTUT
Digital strategy and development manager: Stephen Herron (sherron@crain.com)
t $IBSMFT "CSBIBN Hitchcock Fleming & Associates, Inc.
t $IFSZM .D,FOOB
t .BSL #FMHZB The J.M. Smucker Company
Community Foundation of Lorain County
t %JBOOF #SFIN United Way of Greater Lorain County
t .BSZ .D.JMMBO Cleveland Zoological Society
t 'SBOL $BSEJOBMF Benjamin Rose Institute on Aging
t "MBO 4JMJLP ka Inc. Architecture
t 4VTBO $BSMTPO ASMGi, Inc.
t .JLF 4UBOFL Hunt Imaging Inc.
t -PSFF 8 $POOPST Vita-Mix Corporation
t 8BEF 4UFFO Cuyahoga County Government
t 4VF $ZODZOBUVT Lutheran Metropolitan Ministry
t 4BN 4UFJOIPVTF OneCommunity
t +PTFQI 'PSOBM The Ganley Management Co.
t .BSMFOF 5FIJ Evolution Capital Partners LLC
t %FOJTF (SJHHT The Burton D. Morgan Foundation
t .JDIBFM 5PLJDI STERIS Corporation
Crain Communications Inc.
t $MBSL -VCBTLJ The Robbins Company
t 1IJMJQ 8FJIF BlueBridge Networks
t 3JDIBSE 5 .BSBCJUP Olympic Steel, Inc.
t #SJBO 8JUIFSPX Cedar Fair Entertainment Company
t +BOF .BSTI Premier Bank & Trust
t +JN 8PKUJMB Mar-Bal Inc.
Keith E. Crain: Chairman Rance Crain: President Merrilee Crain: Secretary Mary Kay Crain: Treasurer William A. Morrow: Executive vice president/operations Chris Crain: Executive Vice President, Director of Strategic Operations Brian D. Tucker: Vice president Dave Kamis: Vice president/production & manufacturing Mary Kramer: Group publisher
t +VMJF .D(SBX National Interstate
AWARDS GALA: <]M[LIa 7K\WJMZ Â&#x152; " " PM LACENTRE CONFERENCE & BANQUET FACILITY, WESTLAKE
CrainsCleveland.com/CFOtix Co-Presented by:
Networking Sponsor:
In partnership with:
Supported by:
Web/Print production director: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Graphic designer: Lauren M. Rafferty (lrafferty@crain.com) Billing: Susan Jaranowski, 313-446-6024 (sjaranowski@crain.com) Credit: Todd Masura, 313-446-6097 (tmasura@crain.com)
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, $2.00. Allow 4 weeks for change of address. For subscription information and delivery concerns send correspondence to Audience Development Department, Crainâ&#x20AC;&#x2122;s Cleveland Business, 1155 Gratiot Avenue, Detroit, Michigan, 48207-9911, or email to customerservice@crainscleveland.com, or call 877-824-9373 (in the U.S. and Canada) or (313) 446-0450 (all other locations), or fax 313-446-6777. Reprints: Call 1-800-290-5460 Ext. 125 Audit Bureau of Circulation
20130902-NEWS--3-NAT-CCI-CL_--
8/30/2013
2:46 PM
Page 1
SEPTEMBER 2 - 8, 2013
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
3
INSIGHT
Clinic-CHS partnership is bulking up Acquisition of Akron General only adds to reach, intrigue of alliance between nonprofit and for-profit powerhouses By TIMOTHY MAGAW tmagaw@crain.com
The looming acquisition of financially stressed Akron General Health System paves the way for a dramatic entrance into the Akron
market by one of the nation’s largest — and most controversial — for-profit health care companies, Community Health Systems of Nashville, Tenn. Adding intrigue to the health care giant’s planned acquisition of Akron
General is its burgeoning partnership with Northeast Ohio’s most well-known health care juggernaut, the Cleveland Clinic. As part of the deal, the Clinic would become a minority partner in the new joint venture, which would transition Akron
General, a nearly century-old institution, into a for-profit enterprise. Once the deal is done, Akron General Medical Center, a 532-bed hospital, would become the largest hospital in Community Health Systems’ growing portfolio in Ohio, which also includes a total of four hospitals in Youngstown, Warren and Massillon. With the added clinical muscle and branding power of the Clinic, local health care ob-
servers suggest another giant could be in the making. Akron General CEO Dr. Thomas “Tim” Stover said the acquisition should give the health system, which posted a $4.8 million loss on $588 million in operating revenue last year, the healthy injection of capital it needs to compete with its larger rival, Summa Health System. See CLINIC Page 18
THE WEEK IN QUOTES “They need space for employees to touch down rather than sit and work. They need a lot of parking. They have big power requirements. We’re lucky we have the infrastructure to accommodate them in existing or updated buildings.” — Tom West, an office broker at Cresco. Page One
“There’s still a lot of people who haven’t taken advantage of it (low interest rates) and still can. We’re still very bullish on the opportunity to gain market share. We’re still hiring mortgage bankers.” MCKINLEY WILEY
Eric Wise instructs students during a recent class at the Software Craftsmanship Guild in Akron. The group Mr. Wise is teaching includes, clockwise from top left, Doyle Simpson, Lindsay Parker, Chase Penelli and Ryan Luby.
GETTING WITH THE PROGRAM Akron guild is schooling students on being successful software developers
“They (buyers) breathe a sigh of relief because they know the likelihood of that deal closing is much higher if the owner has not just prepared the business but prepared personally and financially.”
By CHUCK SODER csoder@crain.com
I
t doesn’t matter that the students coming out of the Software Craftsmanship Guild had almost no experience writing code three months ago. CardinalCommerce wants them anyway. The guild — a new, for-profit school set up by Akron software consultant Eric Wise — has spent the summer trying to turn water into wine, in a digital sense. Demand for software developers is huge, and the guild believes it can convert students with little-to-no development experience into productive programmers after just three months of intense instruction. See PROGRAM Page 10
Raises remain steady in Northeast Ohio ERC survey shows pay hikes projected in 2014 similar to levels of past four years By DAVID PRIZINSKY clbfreelancer@crain.com
Employers in Northeast Ohio are holding the line when planning for pay increases. Local companies surveyed by the
Employers Resource Council in Mayfield Village project 2014 pay increases averaging 2.9%, a figure that matches exactly the size of the actual hikes implemented this year. Recent ERC surveys have shown that wage hikes peaked in 2004
A SLIGHT DECREASE IN PAY INCREASES A look at the average annual pay increases for workers in Northeast Ohio, according to the Employers Resource Council: Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 Projected 3.3% 3.3 3.3 3.3 3.3 2.7 2.8 2.8 2.9 Actual
3.4%
3.4
3.5
3.4
when they averaged 3.6% and ranged from a little more than 4% for top management to a little less
3.1
2.7
2.8
3.0
— Bill Emerson, CEO of Quicken Loans. Page One
2.9
than 3% for unionized production, maintenance and service jobs. See RAISES Page 10
— Christopher Snider, president and CEO of the Exit Planning Institute. Page 11
“People are learning that working as a group, you’ve got more horsepower and brainpower around the table than if you’re going out as a lone wolf.” — Michael G. Cain Sr., chairman of the Kansas-based Angel Resource Institute. Page 16
20130902-NEWS--4-NAT-CCI-CL_--
4
8/30/2013
2:45 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
SOLD 12580 DARICE PARKWAY, STRONGSVILLE, OHIO
As the steel market softens, GrafTech is strong elsewhere By RACHEL ABBEY McCAFFERTY rmccafferty@crain.com
Newmark Grubb Knight Frank is pleased to announce we represented the seller, Hackman Capital, in the sale of the 170,550 square foot building.
Visit
TerryCoyne.com Or Call Terry at
216.453.3001 1350 Euclid Ave, Suite 300 Cleveland, Ohio 44115
TUESDAY, SEPTEMBER 10, 2013 11:30am Registration • 12 Noon Lunch & Program
MICHAEL BENZ
JERRY SUE THORNTON
TERRY STEWART
Moderated By
LOU MAGLIO
For more info: www.ExecutiveCaterers.com and click on Corporate Club or call 440.449.0700
SEPTEMBER 2 - 8, 2013
GrafTech International Holdings Inc.’s new Engineered Solutions plant in Sharon Center is a clear example of the company’s emerging modern priorities. The 127-year-old graphite material maker headquartered in Parma has been laying off employees in its primary business serving the steelmaking industry even as it expands the part of its business that serves makers of smart phones, LED lights and the shale gas mining materials. GrafTech’s engineered solutions segment has been “growing rapidly,” said Craig Shular, chairman, president and CEO. The segment, which GrafTech broke out on its own in 2006, serves industries from aerospace and defense to consumer electronics and alternative energy. In 2002, the segment had about $80 million in sales. This year, Mr. Shular expects the segment to reach $250 million in sales, which would represent about 21% of GrafTech’s total sales. About onethird of the segment’s sales are made up of products that didn’t exist three years ago, said Kelly Taylor, GrafTech’s director of investor relations. The engineered solutions segment saw double-digit percentage sales growth last year, and Mr. Shular said he expects it to reach $500 million in annual sales within five years. “It will become a much larger portion of our total company,” he said. Employees at GrafTech’s new Sharon Center plant use equipment such as furnaces and fabrication machines to create graphite thermal management materials for consumer electronics. Production of the ultra-thin components that keep devices such as smart phones and e-readers from overheating has been a key source of growth at GrafTech’s Lakewood plant in recent years. The rapid growth in Lakewood — the plant is filled now — drove the need for a second plant to produce the same materials. GrafTech last year paid about $3 million for the land and 125,000square-foot building in Sharon Center. Production at the plant began in May.
‘Megatrend’ participants Mr. Shular told a small crowd gathered at the company’s official grand opening on Friday, Aug. 23, that the Sharon Center plant was designed to take advantage of the “megatrend” of consumer electronics. “You all have our products already,” he told the group, citing smart phones, flat-screen TVs and e-readers as examples. There already have been 45 new hires at the plant, and Mr. Shular expects that figure to rise to 50 by the end of the year. GrafTech is using about 30% of the new building now, leaving “plenty of room” for expansion in the future, Mr. Shular said. And there are no plans to consolidate the Lakewood and Sharon
Parma company’s engineering solutions business has been ‘growing rapidly’
RACHEL ABBEY McCAFFERTY
GrafTech chairman, president and CEO Craig Shular speaks during a grand-opening ceremony at the company’s Sharon Center plant on Aug. 23. Center plants — the company needs both for production. “Our business is that strong,” Mr. Shular said. Of late, though, GrafTech’s overall business has weakened somewhat. GrafTech’s net income in 2012 was $117.6 million, or 84 cents per diluted share, down 23% from earnings of $153.2 million, or $1.05 per diluted share, in 2011. Sales last year fell by about 5%, to $1.2 billion. Mr. Shular said since the fourth quarter of 2008, GrafTech has laid off about 18% of its employees globally, mostly in the steel-related segments of the business. At present, GrafTech employs about 3,000 people worldwide. There are about 450 employees in Ohio. Earlier this month, Moody’s Investors Service reaffirmed its credit ratings for GrafTech, including the company’s Corporate Family Rating of Ba1, but lowered its outlook on the company to “negative” from “stable.” Moody’s said it made that revision on the expectation that credit measures — important financial ratios such as cash flow — would “weaken significantly” and that a downgrade could follow if results don’t improve. Mr. Shular acknowledged that the company monitors ratings such as Moody’s, but said he was pleased the current ratings had been reaffirmed. The global steel industry, which currently makes up about 75% of GrafTech’s end users, has been going through a “major recession,” he said. “Steel is in a very tough space,” Mr. Shular said. GrafTech provides graphite electrodes for use in electric arc furnaces, which melt scrap steel into new steel. “It’s a very good business, but it’s in a brutal recession,” he said.
Analysts weigh in Phil Gibbs, an equity research analyst for KeyBanc Capital Markets Inc., said the market for graphite electrodes is at a cyclical low point, but he thinks GrafTech is putting itself in a strong position for the future by reducing its costs and
inventory. Michael Gambardella, managing director in charge of metals and mining equity research at J. P. Morgan, said the majority of GrafTech’s recent declines in the graphite electrode business have been “beyond their control.” Mr. Gambardella cited reasons such as a slowdown in demand from Europe, increased competition from Japan and erratic pricing in needle coke, a material used to make graphite electrodes. Those factors have depressed people’s earnings expectations for GrafTech for the past few years, Mr. Gambardella said, but he has faith in the future of graphite electrodes. Mr. Gambardella said the electric arc furnace method of creating steel is growing — it has lower capital costs, more variable costs than fixed costs and is more environmentally friendly. About 55% of U.S. steel production is done using electric arc furnaces, he said, compared to about 9% of steel production in China. As China grows and its economy develops, scrap will become more plentiful and electric costs will go down, likely leading to more electric arc furnace use and an increase in demand for graphite electrodes, Mr. Gambardella said. A pickup in the electrode business is important, according to Mr. Gambardella, because while he thinks GrafTech’s engineered solutions segment is interesting, he doesn’t believe it has what it takes to make a huge dent in the company’s bottom line. “It’s just not big enough,” he said. Mr. Gibbs of KeyBanc offers a different take. Mr. Gibbs said he has seen the needle move for GrafTech’s engineered solutions segment. In the second quarter of 2013, the engineered solutions segment had a greater operating profit than the industrial segment side, he said — the first time he can recall seeing that outcome since the segment was separated. “It’s a business that’s growing,” Mr. Gibbs said. ■
Volume 34, Number 35 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of December and fifth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2013 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00. POSTMASTER: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373. REPRINT INFORMATION: 800-290-5460 Ext. 136
20130902-NEWS--5-NAT-CCI-CL_--
8/30/2013
3:02 PM
Page 1
SEPTEMBER 2 - 8, 2013
Wunderlich says Utica shale play is on way to Washington County By DAN SHINGLER dshingler@crain.com
Houston-based Wunderlich Securities thinks it knows where the Utica shale play is headed — to Washington County. The firm, which provides research on companies in a variety of industries in addition to oil and gas, said in an Aug. 19 report that well results indicate Washington County will be one of the next drilling hot spots in the Utica, which it predicts will benefit drillers Magnum Hunter and PDC Energy. Both those companies are expected to soon announce well results from
ON THE WEB To sign up for the weekly Shale and Energy Report, go to: www.crainscleveland.com
the area, Wunderlich stated. “We first wrote about the UticaPoint Pleasant trend on Sept. 7, 2011, before Chesapeake Energy announced its first batch of Utica well results (in Harrison County). … Since then, the activities moved south with Gulfport Energy leading the pack, delivering record test rates from Harrison, Belmont and Guernsey counties,” Wunderlich’s
report states. “We have been writing about the Utica-Point Pleasant play for two years now and a clear trend is emerging: the best wells are lining up like a string of pearls and connecting the dots would lead us to Washington County,” Wunderlich concludes. Whether the firm is correct likely won’t be known for a month or so, assuming test well results are announced in late October, as expected. But Wunderlich is urging its investor clients to act before then. “We expect positive surprises from Washington County,” the firm’s analysts wrote. ■
Project: David Goldberg and Landmark Management would be key cogs in deal continued from PAGE 1
preservation tax credits and city approvals, the sources said. Neither source agreed to be identified because they are not authorized to discuss it publicly. The combination is interesting, for developers John Carney and Robert Rains through their company Landmark Management turned downtown living from occasional project and city dream into enough buildings to establish Cleveland’s Warehouse District as a downtown residential neighborhood. Starting with the Grand Arcade in 1994 and finishing with the Bridgeview Apartments in 2000, they converted six underused or boarded-up office and warehouse buildings to apartments. Mr. Goldberg declined to comment specifically last Thursday, Aug. 29, about the May Co. property. However, he did say, “We are looking at several opportunities downtown. It’s a very exciting time for the city. We wouldn’t have had this conversation a few years ago.”
Wide open spaces Since the department store closed in 1994, it has been pitched as a home for telecommunications companies but never has scored enough tenants to merit the massive investment needed to remake most of it. The building’s ground floor currently serves as the home of Cuyahoga Community College’s Hospitality Management Center and the restaurant Pura Vida. A restaurant and bar, Cadillac Ranch, that also
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
was on the ground floor, closed last fall. With the equivalent of about 17 acres of space under roof, the building is largely empty; the CoStar online real estate data service reports the property is just 3% leased. The building lost a big tenant in 2007 when KeyCorp moved its data operations to the nearby Higbee Building, vacating space that had provided rents for the building’s owners since the late 1980s. Now called the Public Square Tech Center, the landmark building is owned by Euclid of Cleveland LLC, an investor group led by Ariel Holdings LLC of Miami Beach, Fla., which paid $11 million for it in 2007. Last year, the Ariel-led group acquired the adjoining building at 2021 Ontario St. that also had served as Key’s operations center and connects to the old department store. That deal gave the complex a door opposite the Horseshoe Casino Cleveland. One insider said Euclid of Cleveland LLC would retain the first-floor retail space, sell part of the property to the Goldberg and Landmark joint venture and may sell other space to a third-party parking operator. Ariel has had multiple bidders through the building recently to consider it for use as apartments or hotels, one source said.
Join the crowd If the building sells and the apartment project becomes a reality, the terra cotta-faced structure would join other former retail buildings
nearby that now are residential properties. Those buildings include the former Grant’s Department Store and the one-time McCrory Department Store, both of which sit between Public Square and East Sixth Street. The Park Building, a former office building just west of the May Co. building, was converted to residential condominiums. The May Co. building was constructed in 1912 as a six-story structure designed by famed Chicago architect Daniel Burnham. It was expanded with two more floors in 1931, and its ornate clock clothed in terra cotta was lifted to the new top of the building. The “Guide to Cleveland Architecture” calls the building’s clock and parapet “one of the most visible and striking architectural details in the city.” Messrs. Goldberg and Carney are members of the Downtown Cleveland Alliance and have been involved in civic efforts to revive downtown. They also have been behind real estate ventures downtown for decades. Part of the family that owned the former AmTrust Bank, Mr. Goldberg worked at the financial concern and operated the family’s private real estate investments, which included several downtown buildings at various times. Mr. Carney did not return three calls by Crain’s deadline last Friday, Aug. 30. An executive at Ariel Holdings who refused to give his name declined comment on the Goldberg and Carney joint venture’s status as a potential acquirer of the complex. ■
GET DAILY NEWS ALERTS FROM CRAIN’S ! Register for free e-mail alerts and receive: ■ The Morning Roundup: The day’s business news from Ohio’s daily papers ■ Breaking news alerts ■ Daily headlines: Crain’s-produced news and blog items from the day ■ Dealmaker Alert: A weekly guide on M&A trends and recent transactions in Ohio. Published Wednesday.
■ Real Estate Report: A weekly guide to real estate news. Published Monday. ■ Small Business Report: A weekly guide to small business news. Published Thursday. ■ Shale and Energy Report: A weekly guide to the energy industry. Published Friday. ■ Work Force Report: A weekly guide to help companies attract and retain the best talent. Published Tuesday.
SIGN UP NOW AT: CrainsCleveland.com/register
Job Creation!
How the shale boom is fueling employment Keynote Speaker: The Wall Street Journal’s Stephen Moore
Wednesday, September 11, 2013
Noon to 1:30 p.m. EDT – Program Location: McDonald Hopkins, Fifth Third Center 600 Superior Ave., East, Suite 2100, Downtown Cleveland RSVP: mcdonaldhopkins.com or call: 216.348.5400 to register. There is no charge for this program.
McDonald Hopkins LLC 600 Superior Avenue East, Suite 2100, Cleveland, OH 44114 • 216.348.5400
Carl J. Grassi, President Shawn M. Riley, Cleveland Managing Member Chicago • Cleveland • Columbus • Detroit • Miami • West Palm Beach
mcdonaldhopkins.com
Join us at the 2013 Ingenuity Fest! The 2013 Festival will take place on September 20 – 22 at the docks on the lakefront north of FirstEnergy (Browns) Stadium. Nesco Resource is a proud corporate sponsor of this celebration of Cleveland’s Art and Technology community. Nesco Resource is Cleveland’s largest national staffing firm. Our award winning services can help you improve your overall staffing experience and your bottom line. www.nescoresource.com
www.talentalley.com
5
20130902-NEWS--6-NAT-CCI-CL_--
6
8/30/2013
2:45 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
450-470 White Pond Drive, Akron 2IÀFH 6XLWHV $YDLODEOH IRU /HDVH • 1,657 - 5,525 SF Suites • Below Market Rents • New Construction
• Convenient Parking • Plenty of Windows • Private Entry
• Park-Like Setting • I-77 & White Pond • Easy Freeway Access
FOR MORE INFORMATION, CONTACT: Kevin J. Kuczynski 216-861-7200 www.ostendorf-morris.com
Office 28,300 Sq. Ft. Close to Airport, I-480 & I-71
Furnished -- Priced far below market -- One story building Former PNC/National City Comptroller Building Office Ceilings 9 ft. - Bottom of Deck 18’9” (1) Dock
CALL 216-469-6170
wesleyrberger@aol.com
SALT • SALT • SALT • Water Softener • Industrial • Food • Ice Melt • Sea Salt
Call For Pricing!! Minimum Delivery: 1Pallet
1-800-547-1538 Salt Distributors Since 1966
SEPTEMBER 2 - 8, 2013
Tech: It’s ‘all about speed and growth’ continued from PAGE 1
As the market shook off the long downturn, tech companies emerged from a footnote to a major theme in Northeast Ohio’s real estate story. Companies with a technology focus are energizing the downtown office market, filling long-empty suburban office buildings and providing a key source of construction in an office market that has been largely silent for a decade, except for new corporate headquarters complexes. Hyland Software, the region’s largest software developer, has displayed a ravenous appetite for buying or leasing buildings in suburban Westlake. Its most recent target was the Five Seasons Sport Club near Hyland’s headquarters; it was an operating indoor tennis club with country club amenities, but closed after Hyland shelled out $11 million for the building and 22-acre site. Hyland is hardly alone in gobbling up space, as tech companies of various sizes seek new or expanded quarters to accommodate their growth. Robert Roe, managing director in charge of Jones Lang LaSalle’s Cleveland brokerage office, said the last two years reflect the growth of companies that were startups a decade ago, as well as the flowering of efforts to grow tech-oriented companies that now are gaining infusions of capital. “Tech companies have made a flight to quality in our market,” Mr. Roe said. “They are going into newer buildings or updated ones. Tech is all about speed and growth. These companies occupy the better buildings because they have what they need: a better footprint (for designing offices), extra space for meetings and other features such as floor risers” to accommodate cabling requirements.
Feeding ‘social animals’ Philip Alexander, CEO of Brandmuscle, said colleagues thought his firm, which moved last December from Beachwood, was crazy for using so much downtown office space to create a café and meeting area for employees. “When you spend this kind of money, it’s all about the people,” Mr. Alexander said. “There’s no other reason to do it.” He said the Brandmuscle offices were designed with the firm’s young work force in mind. “They are social animals. You don’t want to take a new college graduate and put him or her in an office alone,” Mr. Alexander said. “They want collaborative space.” He noted that new graduates even reap the benefits of coaching from overhearing experienced colleagues work with clients. At the Agora, Kyle Stalzer, Tackk president, said the office’s collaborate design and untethered setting is crucial. Mr. Stalzer, a veteran of Progressive Insurance Co. and American Greetings Corp., said the best candidates for a firm such as Tackk would be leaving a high-paying corporate job. They seek the kind of tech and startup environment Tackk offers. “They want energy because they are doing this to make a mark,” Mr. Stalzer said.
Wave of the future In the early 1990s, David Brown-
TECH COMPANIES PROVIDE A NEEDED JOLT ■ Dakota Software, a software maker, leased 13,200 square feet in the Idea Center in the downtown Theater District for about 30 employees as it doubled the size of its former Beachwood office. ■ OverDrive Inc., a software provider for digital books, this year opened a headquarters in Valley View with 95,000 square feet for 250 employees ■ Remedi Health Care LLC, a pharmaceutical provider to long-term care providers, leased 32,000 square feet in an office warehouse building that will launch development of Bluestone Business Park in Euclid by Ray Fogg Building Methods Inc. It will
move about 100 employees to Euclid from Eastlake. ■ TMW Systems Inc., a producer of software that allows fleet operators to track their vehicles, leased two floors covering 58,000 square feet in the Eastpoint I building in Mayfield Heights. The new office will combine 500 workers from two different area offices. ■ Urbancode, a software developer, leased 14,000 square feet in the Halle Building to have room to expand as it planned to add staff beyond the 50 workers it moved to the Theater District from a building near Cleveland State University. — Stan Bullard
ing, managing director of CB Richard Ellis’ Cleveland brokerage office, pooh-poohed the influence of tech companies on the region’s office market. But now things are far different, and he sees them as a key growth factor. “Before, tech was just a computer company, either software or hardware,” Mr. Browning said. “Now it’s social media and web design that are impacting business. There are also technology firms that are impacting various industries, from MRI (which provides software for realty property management firms) to medically related tech companies.” Nothing reveals the evolution of technology companies in the real estate market as well as discussing it with Fred Geis, a principal of developer Geis Cos. which has pioneered flex-office construction in Cleveland’s MidTown Technology Center, a property filled with nonprofits and Cleveland Clinic spinoffs. He also led Geis’ Agora project, a joint venture with the MidTown Cleveland local development corporation that bought the property with an often-overlooked office component from longtime owner and concert impresario Hank LoConti as a home for growing startups. “There is a whole app wave coming,” Mr. Geis said, referring to companies creating applications for smart phones. “The entire world realizes that software development and IT are quick-turnaround undertakings. Developing medical-related technology and hardware takes five to 10 years.” The affable, opinionated Mr. Geis should know; his firm has built, renovated or leased about 300,000 square feet of commercial space in MidTown in five years, a goal that stymied other developers.
firm is, and that is the order of the day at the Agora. “Thanks to MidTown’s involvement, we have a financial situation that allows us to house young, energetic, scrappy companies that need 600 to 1,200 square feet of space,” Mr. Geis said. He said many of the deals are on a month-to-month basis because the startups lack the financial strength to sign long-term leases typical in the commercial market. He notes the building also provides free conference space and all utilities except for high-speed Internet services.
Flexibility valued Working with tech companies requires some very different approaches, said Mr. Geis, who now talks about emerging technologies with the insight he devoted a decade ago to the region’s manufacturingoriented industrial market. One factor is flexibility. Mr. Geis noted that he first discussed space needs of HeartLab Inc., a Cleveland Clinic Health System spinoff, two years before the firm in 2011 leased 30,000 square feet at MidTown Tech Center to house about 100 employees. “When I first met them, we discussed 8,000 square feet for 10 employees,” Mr. Geis said. Also important is easy terms, depending on how established the
Power hungry The necessary flexibility is available at only a handful of locations for startups, according to Christopher Celeste, CEO of Tackk. “At a true tech company, you lie if you sign a one- or two-year lease,” Mr. Celeste said. “A true startup cannot say it will be here in two years. Moreover, with customers and investors who are friends and family or angels, they are what come first in his (or her) mind, not the landlord.” Mr. Celeste said Mr. Geis understands the situation and gets into the details of the companies to which he rents. Tackk, for instance, went from three people in a 650square-foot office to its current 17,000-square-foot loft. And talk about found space: The area above the theater was not included in specifications for the building when it was sold, but was discovered later and opened up to the building by the Geis team. Another reason tech companies are exerting influence on the market is significant in a job-hungry region. While most established companies in the office market are pushing to slash real estate costs by shrinking the amount of space they need per employee, fast-growing tech companies are adding people. They need more space to house more people, even if it is little square-footage per person. Tom West, an office broker at the Independence-based Cresco real estate brokerage, said most of the tenant representation prospects he works with now are technology companies that are growing and need space. “They need space for employees to touch down rather than sit and work,” Mr. West said. “They need a lot of parking. They have big power requirements. We’re lucky we have the infrastructure to accommodate them in existing or updated buildings.” ■
20130902-NEWS--7-NAT-CCI-CL_--
8/29/2013
3:38 PM
Page 1
SEPTEMBER 2 - 8, 2013
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
7
Rates: Home sales in region jumped 23.5% in July continued from PAGE 1
The spurt in rates is cited in letters three mortgage lenders sent in less than one month’s time to the state of Ohio, informing it that they are laying off employees: ■ On July 10, Nations Lending Corp. in Independence said it was uncertain on the number of employees who eventually may be affected, but counted 48 layoffs to date. The company cited an “unanticipated, dramatic and sudden increase in interest rates” and a dramatic decline in the residential market for mortgage loan products sold by it. ■ Wells Fargo is cutting 2,300 mortgage jobs across the country, and the company in an Aug. 7 letter to the state revealed it is closing its Wells Fargo Home Mortgage Northeast Retail Fulfillment group in West Chester, near Cincinnati. It is laying off 63 people — most of them loan underwriters. ■ JPMorgan Chase & Co. on Aug. 8 informed the state that Mortgage Bank, a business of JPMorgan, “is taking a number of steps to align our mortgage business support activities to the current market environment,” and will close its Production Operations business unit in Columbus. A total of 97 layoffs is expected, the company stated. Recent quarterly earnings, too, reflect a cooling of the market. For instance, Columbus-based Huntington Bank reported its mortgage banking income dropped 12% in the second quarter of 2013 from a year earlier, in part because mortgage origination and secondary marketing income declined by $2.3 million.
A short-term ‘crimp’ Even though their refinances also have dropped, executives with Third Federal Savings & Loan in Cleveland, First Federal Lakewood and Quicken Loans say they continue to hire on a rolling basis. Third Federal’s refinance closings in Northeast Ohio were down 17% in the fiscal third quarter that ended June 30 compared with the yearearlier period, but its home purchase closings in Northeast Ohio were up 39% over the same periods, and rose 36% across its 14-state footprint, according to a company spokesman. “We’re very, very optimistic about the future,” said Marc A. Stefanski, Stefanski chairman and CEO of Third Federal Savings, which primarily lends for singlefamily, owner-occupied homes and counts $11.4 billion in assets. “Will that (rising interest rates)
stop the housing market? No,” Mr. Stefanski continued. “It might throw a crimp in the growth for a while. Are we seeing trends that things are getting better in the purchase market? Yes. Are we seeing things that still can promote the refinance industry? Yes.” Indeed, home sales in July 2013 in Northeast Ohio and statewide climbed 23.5% and 25.8%, respectively, from July 2012, according to the Ohio Association of Realtors. Average sale prices increased roughly 7% locally and statewide, too. When interest rates rise, the eligibility for and the motivation to refinance disappears for some, Mr. Stefanski acknowledged. However, when property values rise, the higher values open the door for some homeowners to refinance because their equity increases, which can motivate some to take out home equity loans and to sell their properties, he noted. Bill Emerson, CEO of Detroitbased Quicken Loans, which employs about 350 people in Cleveland, shares the optimism. “There’s still a lot of people who haven’t taken advantage of it (low interest rates) and still can,” Mr. Emerson said. “We’re still very bullish on the opportunity to gain market share. We’re still hiring mortgage bankers.”
‘Overblown’ fears So, too, is First Federal Lakewood, which in the second quarter closed more residential home loans than in any quarter during its 78year history; its loan volume climbed 23% to $277 million from $225 million in the second quarter of 2012 and was up 26% from $220 million in the first quarter of 2013, according to Rich Swerbinsky, vice president of residential lending. Five mortgage positions were listed as current opportunities on First Federal Lakewood’s website early last week. The composition of First Federal Lakewood’s loan pipeline has changed, however: It now is roughly 83% home purchases to 17% refinancings, compared with 54% purchases and 46% refinances for all of last year, Mr. Swerbinsky said. James Thurston, spokesman for the Ohio Bankers League, thinks fears about the rising rates derailing the housing bounce are “overblown.” “Just look at the boom in the ’80s, when rates were rarely below 10%,” he said. “The rising rate market will likely spur a lot of buyers who were on the fence to take action,” Mr. Thurston continued. “Initially, as rates start to go up, a lot of the potential buyers who’ve been sitting on the sidelines will jump into the market out of the
If your business needs up to
$250,000 Ask about our MATRIX EXPRESS loan*
216.359.5597
*Great interest rates & most current terms are
available, subject to credit approval & program terms
fear of missing the boat. They will not want to miss this confluence of low rates and low prices.”
May the best price win First Federal’s Mr. Swerbinsky calls this new mix of business the “new normal,” and believes loan volumes of July are “likely indicative of what we’re going to see for the rest of the year.” Expectations published by the Mortgage Bankers Association are more dramatic. In a forecast dated Aug. 22, it projected that refinances will drop in the third quarter by 40% from the second quarter of this year, to $189 billion from $316 billion. It also projects they will drop every quarter through the end of 2014. The association expects home purchase lending to increase slightly in the third quarter but drop in the fourth quarter before rising again in early 2014. The group’s full-year projection for 2013 places purchase loans 23% higher than they were in 2012 and refinances nearly 22% lower. Most lenders hesitated to predict whether interest rates will keep rising, though Quicken Loans’ Mr. Emerson said: “The opportunity for them to be higher than they are to-
day is greater than for them to be lower.” And, he added, “I don’t think purchases will increase as quickly as refinances drop.” Some media have reported lenders may start qualifying more people for mortgages due to the drop-off in refinance demand, but the Federal Reserve System’s Beige Book published in July reported “no changes were made to loan-application standards” in the Cleveland district. The Beige Book did note, however: “Some bankers in the Cleveland, Chicago and Dallas Districts noted competitive pressures to reduce loan pricing.” Pricing is key, Third Federal’s Mr. Stefanski said. “Usually, whoever has the best price gets the most business,” he said. “Since mortgage lending is the only thing we do, if the inventory’s not there, we have to create more inventory,” Mr. Stefanski added. “If the sales aren’t there, we have to figure out how to get a bigger share of the sales. “We’re not standing still as a company,” he noted. “If the business isn’t coming in, we’re going to go out and get it.” ■
PRICE NO LONGER RIGHT? A look at interest rates for fixed-rate, 30-year first mortgages: July 2013 June 2013
4.07
May 2013
3.54
April 2013
3.45
March 2013
3.57
February 2013
3.53
January 2013
3.41
July 2012
3.55
July 2011
4.55
July 2010
4.56
July 2009
5.22
■ Source: Federal Reserve Board, Primary Mortgage Market. Survey data provided by Freddie Mac.
How to Create Epic Content That’s True to Your Brand AND Drives Business
A FREE Webinar September 11 - 12:00 - 1:00PM
Discover:
• EPIC TRENDS: What the latest research shows regarding
business trends, and where the opportunity lies for the smartest small businesses • THREE KEYS to creating marketing that doesn’t feel like marketing • IDEAS you can steal from small businesses leading the way (and large businesses you can get inspiration from)
Presented by: Ann Handley, Chief Content Officer of MarketingProfs, monthly contributor to Entrepreneur magazine, & co-author of “Content Rules”
Member
,*I)
Register today at CrainsCleveland.com/Webinars Hosted by:
4.37%
Presented by:
20130902-NEWS--8-NAT-CCI-CL_--
8
8/29/2013
4:20 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
SEPTEMBER 2 - 8, 2013
PUBLISHER/EDITORIAL DIRECTOR:
Brian D. Tucker (btucker@crain.com) ASSOCIATE PUBLISHER/EDITORIAL:
John Campanelli jcampanelli@crain.com) EDITOR:
Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:
Scott Suttell (ssuttell@crain.com)
OPINION
Wrong road
H
ow long will this generation keep adding to the bill future generations in Northeast Ohio will be stuck with paying to repair and replace the infrastructure we create in our unabated push outward from the urban core? It is the height of selfishness — and, might we add, stupidity — to ignore the long-term economic and financial consequences of the decisions we make today about where to build our roads, bridges and sewers. Those who act as though there is no cost to those decisions display astounding levels of shortsightedness and foolishness. People who argue in the name of private property rights that they should be able to build their homes, office buildings, shopping centers, warehouses or factories wherever they want miss an important point: The exercising of their rights creates obligations that local, state and federal governments must pay to maintain the infrastructure extended to those properties. And who is the source of the money those public bodies must shell out to meet those obligations? It is other private citizens through their tax dollars. It is ironic that many of the people who use the private property defense to justify their contributions to urban sprawl also are vocal opponents of big government. They are among the first to complain about rising taxes and out-of-control government spending, yet they don’t stop to consider how their actions add to the burden government must carry. They also don’t think about what Hunter Morrison, the city of Cleveland’s former planning director, calls “the cost of abandonment” of the urban core. The harsh reality for Northeast Ohio is that even if another road weren’t paved or a sewer weren’t laid, its infrastructure already is overbuilt. “We built the region we planned,” Mr. Morrison told Crain’s last March, but the population is 1 million short of the 5 million people that were projected decades ago would be here by 2000. All this infrastructure in a region — as well as a state — with a stagnant population is creating a costly dilemma that already is stretching government budgets for roads and bridges beyond their limits. The squeeze that is on the state’s transportation budget because of the volume of big road and bridge projects — including Cleveland’s Inner Belt Bridge — waiting for money led Gov. John Kasich to push this year for a bill expanding the authority of the Ohio Turnpike Commission so that turnpike tolls could be used to cover bonds issued for nonturnpike infrastructure investments. However, even the turnpike golden goose can give only so much revenue. The real need is to hold down the growth of infrastructure expenses by keeping urban sprawl in check. It’s why we support the Northeast Ohio Sustainable Communities Consortium, an initiative Mr. Morrison heads that is working to develop a smart-growth strategy for the region. In the meantime, we advocate a small hike in the state gasoline tax, with the extra proceeds dedicated only to improvements in existing roads and bridges. It is an overdue act.
FROM THE PUBLISHER
Restraint called for in Buckeye Land been charged with creating a fundameno awkwardly borrow from Art tally new model of financing universities, Linkletter, businesses do the which requires stronger relationdarndest things. OK, so ship-building strategies and imyou might not remem- BRIAN portant face-to-face engageber that 1960s host of a TV show TUCKER ment of partners.” Joseph Alutto, that interviewed kids who said the university’s interim presi“the darndest things,” but you’ll dent, said he would “be surstill marvel at this latest headprised if (Mr. Chatas) didn’t go.” scratcher from Ohio State UniThat’s stunning nonsense. As versity. a former state university Recently, the Dayton Daily trustee, I can say travel of that News reported that OSU’s chief sort is defensible only for the financial officer, Geoff Chatas, university president, and those spent $121,000 of the universiwith whom I’ve worked at Kent State ty’s money on a two-year travel schedule have had a high consciousness for apthat took him to, among other places, propriate spending limits. I don’t believe Iceland, Paris, India and China. He flies Carol Cartwright or Lester Lefton would first-class and sometimes uses the OSU have spent $1,264 for a couple nights at private jet. He recently spent two nights a Florida hotel. at a Naples, Fla., luxury hotel at a cost of It could be OSU paid this $121,000 in $1,264 for two nights, according to the CFO travel out of raised funds rather newspaper. than the general budget, but it still Keep in mind Mr. Chatas’ annual means the money could not be used for salary is $650,000, and he’s eligible for as scholarships or other purposes more much as $162,500 in yearly bonuses. central to OSU’s mission of educating When the Dayton newspaper sought young people. comment from the university, an assistant This just underscores that Ohio State vice president told them the CFO “has
T
has grown so big some administrators appear to have lost sight of what’s most important in how they spend money. ***** If Gov. John Kasich has designs on another run for the White House, he undoubtedly will boast of creating jobs and trimming state government, two things dear to Republican voters and donors. The problem will be the one messy reality that a big part of those cuts in government meant slashing — again — budgets for local school districts, which drives the responsibility for raising money back to property owners in those communities. Voters lash out when they have a choice on taxes, and we all know what has happened to school levies across Ohio. School boards cut reading specialists, and trim — or drop — advanced placement offerings and language courses, both of which are key to college success. Property values drop, even in communities long known for what had been excellent schools. The end result could be the governor alienating more voters than he pleases. ■
TALK ON THE WEB Re: Plain Dealer changes ■ Crain’s is correct in describing the new online edition of (The Plain Dealer) as being off to a “rocky start.” The e-edition — the so-called new and improved version — runs with a host of idiosyncratic misfires, fails to display properly on my Android tablet and offers a frozen view of the news at the time the paper was printed. The last item is of particular significance since updates have to be found on a separate website, cleveland.com. — Daniel Yurman
Re: Shakeup at WKNR ■ Sports talk in Cleveland is very tired and has been that way for quite a while. It is fraught with over-analysis and speculation when often it isn’t called for. The days of Pete Franklin will never come back again, and the ratings will not improve if teams are winning or not. — Melvin Gaines
Reader responses to stories and blogs that appeared on: www.crainscleveland.com
■ Hey ESPN 850, bring back Jim Rome and you’ll get me (and many others, I’m sure) back. Even if the Browns were top dog, I wouldn’t listen to two hours of daily coverage of them. Very shortsighted thinking on your part. … Why do/did you need three guys in the booth for one show anyhow? Rizzo, (sledge)Hammer and Fedor(k)? Hooley, Brinda and Fedor(k)? Seems like a waste of salary when one good host is more than sufficient. — Frank Bisesi
Re: Dillard’s closing Euclid clearance center ■ My heart sunk. I am a regular there. — Sujit Datta
Re: Scene is up for sale ■ Cleveland absolutely needs an alternative newspaper, so let’s hope that whoever acquires Scene will focus on building it and not tearing it down. It could be the last independent voice left in Northeast Ohio. — Neil Dick
Re: Medicaid expansion ■ I have asked this question of acquaintances who are dead set against the ACA: Can you walk away from someone lying on the street in pain and in need of medical care? Most of them say no. Yet they don’t want their tax dollars to pay for someone else’s health care. … I would rather pay for someone’s health care with my tax dollar than for subsidies to wealthy companies that don’t really need a helping hand. — Nancy Kosewick Comments may be edited for length and clarity.
20130902-NEWS--9-NAT-CCI-CL_--
8/29/2013
2:47 PM
Page 1
SEPTEMBER 2 - 8, 2013
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
GOING PLACES JOB CHANGES CONSTRUCTION RUHLIN CO.: George Seanor to general manager, Industrial Division.
Completing the Vision
CONSULTING BIGGINS LACY SHAPIRO & CO.: Michelle Comerford to project director and industrial and supply chain practice leader.
Seanor
Comerford
Bower
The Galleria & Tower at Erieview are pleased to welcome the following new tenants:
Dugan
PRADCO: Ron Bower to director of talent management.
160,000 SF of New Tenants & Renewals
EDUCATION GRAND RIVER ACADEMY: Glenn Singer to director of admission.
Esswein
Crouch
Chenkus
$5 Million Dollar Renovation Elevators & Lobby
Caudill
FINANCE
lifeaterieview.com
CHARTER ONE: Megan Crespo to branch manager, 11501 Buckeye Road.
Live, Work, Play For Leasing Information, Contact:
David C. Wagner - 216.360.0009
FINANCIAL SERVICE SCHLABIG & ASSOCIATES: Paul R. Dugan to senior associate.
Bilancini
Singh
SS&G: Tina Salminen and Floyd Trouten to co-office managing directors; Marc Rabinovich to associate, tax.
GREEN CITY GROWERS COOPERATIVE: Joy Pellek to director of sales and marketing; Jason Grimmett to head greenhouse grower.
HEALTH CARE METROHEALTH SYSTEM: Craig Richmond to associate chief financial officer. PRIORITY HOME HEALTH CARE INC.: Cori Wallace, Karen Graham and Ines Maldonado-Ramos to client service representatives; Victor Oddo to systems technician; Tina Kurianowicz to billing assistant; Vicki Kemp to QA/AI nurse.
INSURANCE WELLS FARGO INSURANCE SERVICES USA INC.: Carolyn Esswein to vice president, employee benefits; Lisa Crouch to employee benefits team leader; Andrew Chenkus to account executive.
Sarbinoff
Schulz
OSTENDORF-MORRIS CO.: Kathleen S. Folk to assistant property manager; Cathy J. Schulz to vice president and Allen W. Hagan to operations manager, Real Estate Management Services.
WESTERN RESERVE PARTNERS: Lisa M. Barber to marketing specialist.
FOOD
www.ChartwellGroup.com
1301 E. Ninth St., Cleveland, OH
Hagan
Prenatt
LEGAL CALFEE, HALTER & GRISWOLD LLP: Kevin R. Caudill to associate. FAUVER, KEYSE-WALKER & DONOVAN: Darrel Bilancini to counsel. SCHNEIDER, SMELTZ, RANNEY & LAFOND: Drew R. Barnholtz to associate.
MANUFACTURING PMI INDUSTRIES: Tyler Burger to mechanical engineer. ROLL-KRAFT: Sanjay Singh to executive vice president.
REAL ESTATE MARCUS & MILLICHAP REAL ESTATE INVESTMENT SERVICES: Ryan Sarbinoff to sales manager, Cleveland.
RE/MAX CROSSROADS PROPERTIES: Jaime Prenatt to sales associate.
SERVICE CSR (COLORTONE STAGING & RENTALS): Andrew Kramer to director of production, company-wide; John Monroe to director of production, Cleveland Convention Center; Dave Netzel to event producer.
TECHNOLOGY STREAMLINK SOFTWARE: Emily Turza to sales associate; Derek Hannah to web interface developer.
AWARDS ARNOLD P. GOLD FOUNDATION: Debbie Plate, D.O., (Northeast Ohio Medical University) received the 2013 Leonard Tow Humanism in Medicine Award.
BOARDS AMERICAN ADVERTISING FEDERATION CLEVELAND: Tony Weber (Glazen Creative Studios) to president; Jean Gianfagna to vice president, programming; Julie Telesz to vice president, membership. LAKEWOOD CHAMBER OF COMMERCE: Lucinda Einhouse (Beck Center for the Arts) to chair; Julie Warren, Bill Craighead and Nicole Farley to vice chairs; Steven R. Clark to treasurer.
1HHG ÀQDQFLQJ" We’re OLVWHQLQJ Choose CBS UD O\OGH ZDVR DK GH EVM=FMOT DR OHX IMHGH DK HJVMIPHOU \OF VOFHRSU\OF the power of collaboration.
SOCIETY FOR MARKETING PROFESSIONAL SERVICES NORTHEAST OHIO CHAPTER: Vanessa Aron (Arcadis U.S.) to president; Matt Danis to immediate past president; Stephanie Cieszkowski to president-elect; Liana Lake to secretary; John Rach to treasurer; Adam Kilbourne and Mandy Phelan to directors-at-large.
DOWHOUMDO\= \OF / O\OGMOT \W\M=\E=H
RETIREMENT MALTZ MUSEUM OF JEWISH HERITAGE: Lynda Bender, executive director.
Send information for Going Places to dhillyer@crain.com.
Providing Commercial Loan Financing in Partnership with Area Credit Unions SM
Jonathan Mokri
440-526-8700 jmokri@cbscuso.com
www.cbscuso.com
9
20130902-NEWS--10-NAT-CCI-CL_--
10
8/29/2013
2:14 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
SEPTEMBER 2 - 8, 2013
Program: CardinalCommerce expects to extend ‘multiple offers’ continued from PAGE 3
Sound far-fetched? Not to CardinalCommerce. The software company in Mentor aims to hire multiple members of the Software Craftsmanship Guild’s first graduating class, which consists of seven students taking classes at the Akron Global Business Accelerator, said Erik Enright, vice president of technology services at CardinalCommerce. “I would be very surprised if we don’t have multiple offers extended to these candidates,” he said. The company is willing to plunk down good money to get first dibs on the guild’s students. CardinalCommerce is one of two local companies that have joined the guild’s network of businesses, which gives them right of first refusal to interview students in the guild. For each student they hire, they’re required to pay the guild $10,000 — just enough to reimburse the student’s tuition bill. Mr. Enright doesn’t mind paying extra to get access to the students. For one, they focus on learning software development methods CardinalCommerce and many other companies use today. The first class focused on Microsoft’s .NET programming tools, and in September the guild will teach two classes, one on .NET and another on Java. Although Mr. Enright considers himself a fan of college computer science programs, he said those programs often focus too much on the fundamentals of software development and too little on practical knowledge that students can use on the job. Plus, the guild tends to attract ambitious, passionate students, he said. “There’s something different
MCKINLEY WILEY
Lindsay Parker of Lakewood was unemployed when she joined the Software Craftsmanship Guild. She is now working on software designed to help her stay nourished during the North Coast 24-Hour Endurance Run at Edgewater Park. about a type of person … who invests in themselves in this way,” Mr. Enright noted. The Software Craftsmanship Guild didn’t reveal the name of the other company in the network because it could not get permission to do so by Crain’s deadline last week. However, more businesses are interested, according to Mr. Wise and his partner in the effort, Jennie Zamberlan.
Passion project Employers often focus on hiring developers from other companies because they don’t want to spend several months training a student straight out of college, said Ms. Zamberlan, who owns Avantia Inc., a custom software developer in Valley View. Executives who hear the Software Craftsmanship Guild’s pitch spend
a lot of time nodding, she said. “I think the one guy probably walked out of here with a headache,” she said with a laugh. For years, Northeast Ohio companies have complained that there aren’t enough software developers in the region, and that students with fresh computer science degrees often aren’t ready to do the job. Eric Wise experienced those problems firsthand during his six years as director of application development at Hartville Group, a pet insurance company in Canton. He had such a hard time finding qualified developers that he eventually
are proud to have represented
in the leasing of 22,946 sq. ft. at 1111 Superior Avenue Cleveland, OH
CBRE, Inc. 950 Main Avenue, Suite 200 Cleveland, OH 44113 T +1 216 6871800 www.cbre.com/cleveland @ TenantRepCLE
worked for a medical device company, was unemployed when she joined the Software Craftsmanship Guild. Inspired by her computerprogrammer husband, she already has taken free online courses through Codecademy, but the guild has helped her learn “things I need to be a developer, other than just speaking the language,” she said. “It’s been really intense. I’ve been learning a lot,” Ms. Parker said.
Food for thought
Do the right thing
To get into the guild, students had to pass a test designed to measure their abstract reasoning abilities. They spend about 40 hours a week in class and often 20 hours or more working from home, Mr. Wise said. Before they graduate, they are required to create software of their own. For instance, a student on break from classes at Princeton University created a website designed to help Princeton students sift through online menus for each dining hall on campus to figure out where they can find food that fits their diet. Another student, Lindsay Parker of Lakewood, is working on software designed to help her stay nourished during the North Coast 24-Hour Endurance Run at Cleveland’s Edgewater Park. Her crew will use the program to keep track of what she should be eating and drinking during the race, which starts on Sept. 21. Ms. Parker, who previously
To finance the Software Craftsmanship Guild, Mr. Wise liquidated his 401(k) retirement account and took out a small loan from the U.S. Small Business Administration. He raised more cash from Ms. Zamberlan, who’s helping him build relationships with companies that could hire the guild’s students. The guild already brings in enough cash to support itself, though Mr. Wise said he made twice as much as a software consultant. In the future, the guild could bring in more revenue by adding more courses, conducting training for businesses, giving students development work for outside organizations or opening new schools. However, though the guild is a for-profit business, making money isn’t its main goal, Ms. Zamberlan said. “Our objective isn’t to make a jillion dollars and do an exit,” she said. “If you focus on doing the right thing, the money comes.” ■
Raises: Numbers could go up in 2014 continued from PAGE 3
SCOTT HALLORAN & RYAN JEFFERS
decided to train two call center employees to do some programming. One is now a business analyst and another is a test lead, he said. Intelligent, motivated people with no experience can become developers quickly, as long as they learned from people with industry experience, Mr. Wise said. “You just need curiosity, passion, intelligence,” he said. “And if somebody can show you how to do things, you can be very successful.”
Actual hikes first slipped below 3% in 2010 and have been more or less stuck at that level since. ERC surveyed 139 organizations this summer. About half of those contacted were manufacturing companies, and the others were split fairly evenly between nonmanufacturers and nonprofits. The majority had between 51 and 200 employees. ERC’s 1,100 members use the annual survey results to gauge compensation trends that may be relevant to their operations and competitive positions, according to Margaret Brinich, manager of surveys and research at the human resources association. This year’s survey revealed fewer organizations are freezing pay. For instance, 14% of the companies indicated they wouldn’t increase salaries for executives and 6% said they would freeze pay for supervisory and management personnel. That is an improvement from last year, when the numbers were 16% and 8%, respectively. The percentage of companies projecting wage and salary increases in excess of 3% next year for various employee categories was generally higher than last year’s percentage, especially for supervisory and management workers as well as clerical, technical and nonunion production and maintenance employees. “Employers are still hovering right around that 3% mark as they have for that past several years,” Ms. Brinich said. “One bright spot is that the overall percentage of employers giving these increases has continued to be on the upswing.”
In line with the times In general, projected raises are somewhat higher at manufacturers for all five job classifications covered by the survey than at nonmanufacturers. The projected hikes are smallest at the nonprofit organizations. Raises tend to be higher at organizations with between one and 50 employees that at larger companies. Although increases are modest, they may be slightly better than the cost-of-living index. The Consumer Price Index rose about 2% from July 2012 to July this year. The increase was the result of higher costs for shelter, gasoline, clothing and food. WorldatWork, a global human resources management association based in Scottsdale, Ariz., did a survey of compensation and benefits managers at large companies that showed national projections of 3.1% wage hikes next year, up from an average 2.9% increase this year. “Salary budgets generally reflect what is going on in the national economy,” Kerry Chou, a compensation expert at WorldatWork, said on its website. WorldatWork also provided a global perspective. Wage increases in 2014 are projected to be 3% in the United Kingdom and Germany. The number is 2.8% in France and 2.5% in Japan and Spain. The actual hikes this year in these countries fell below what had been projected, suggesting the economic improvement there did not meet expectations.
A ‘steady’ hand Jim Dudziak, director of finance for the International Institute of Akron, said his nonprofit is on pace to provide a total compensation in-
crease this year of 4%. The institute uses a somewhat different approach in order to get to that number, he said. The group’s 28 employees, who provide immigration and translation services, received a 1% pay increase at the start of the year and are likely to receive an end-of-the year “bonus” of 3%, assuming revenues meet current projections, a repeat of last year. Mr. Dudziak said revenues come from both government programs and the private sector. “We take an approach that is similar to a profit-sharing program because we don’t want to get ahead of ourselves” when it comes to pay hikes, he said. One area company that is maintaining consistency when it comes to wage hikes is Fastener Industries Inc., a Berea-based manufacturer with operations that include Ohio Nut and Bolt Co. Fastener Industries will raise wages and salaries by 4% next year, a figure that matches the size of increases that were effective this year. “Business is good, but not quite as good as it was last year,” said Patrick Finnegan, the company’s president and CEO. Mr. Finnegan said business is off about 4% from last year, but he added he expects improvement in the second half this year. “We try to be steady” when it comes to pay increases, he said. When commenting on the ERC survey last year, Mr. Finnegan reported record sales, partly the result of the recession that weeded out competitors. Fastener Industries, which has 190 employees, was forced to freeze wages in 2009 because of the poor economy. ■
20130902-NEWS--11-NAT-CCI-CL_--
8/29/2013
2:15 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
SEPTEMBER 2 - 8, 2013
INSIDE
16 ANGEL INVESTORS CAN SPEED UP GROWTH.
11
NEO DEALMAKER How it can all go kaput Local dealmakers detail mistakes that often result in talks coming to an end By CHRISSY KADLECK clbfreelancer@crain.com
I
JENNIFER KEIRN
Instead of launching yet another business, Denise Easterling joined the faculty at Kent State University in 2010 to teach entrepreneurship. A year later, she started Launch in Day, an online subscription-based service.
DEALING WITH IT Life after selling a business can be less stressful, but more confusing By JENNIFER KEIRN clbfreelancer@crain.com
W
hen the agreement’s signed and the cash has transferred, you’d expect a business owner who has just sold his or her
INSIDE: Five questions business owners should ask themselves before making the jump. Page 15 company to give a whoop of joy and a sigh of relief. But it also can bring a sense of loss and some tough questions — what should
“life after” look like? We talked with five business owners who have navigated the transition and found fulfillment on the other side. These are their stories. See DEALING Page 13
t starts as love at first sight of projected financials, and grows into a full-blown commitment with two sides willing to compromise and close a deal. The anticipated union approaches the 11th hour. The celebratory end is so close, and the hardearned dollars are a few signatures away from being deposited into the bank accounts of those involved. But a few days before a final signing of legal documents means two companies become one, the seller experiences a gut-wrenching pang of remorse — a feeling that he or she had been able to ignore through the process. Almost instantaneously, the deal — so carefully crafted and expertly negotiated — is dead, and the buyer is effectively out thousands in expenses and left at the altar, so to speak. Many such nightmares go untold because nobody likes to talk about failure, especially when it’s tagged with a lot of lost dollars, according to local advisers. Yet the often-unpublicized truth of the mergers and acquisitions world is that plenty of deals fail, and fail for reasons that can be avoided, advisers say. We asked local dealmakers to reveal the most common reasons deals fail and how they try to head them off. ■ Deal killer: Seller remorse Sellers who haven’t planned for the “third chapter” of their life — the one that starts when their business changes hands — and haven’t aligned their personal, financial and business goals can sabotage a potential deal by finding fault at every turn, said Christopher Snider, CEO and president of the Exit Planning Institute, which is headquartered in Chicago. “It’s one (deal killer) that’s the most feared by the private equity companies and the investment bankers,” he said. “It’s because the owner starts acting very irrational,” Mr. Snider said. “I learned this firsthand. It would get to the end of the deal and we were on the verge of closing — the due diligence is completed, the financing is approved — and the seller would say something like ‘I don’t know if I like this buyer’ or ‘I think we should be getting more money for the business.’” See KAPUT Page 12
20130902-NEWS--12-NAT-CCI-CL_--
8/29/2013
2:15 PM
Page 1
NEO DEALMAKER
12 CRAIN’S CLEVELAND BUSINESS
Kaput: Sellers may not grasp process continued from PAGE 11
Mr. Snider said he works with sellers to prepare for the transition long before the business goes on the market. Then he makes a point to assure an interested buyer that the deal will not be derailed because of indecision on the owner’s part. “We tell them not only is the business ready, our owner knows what they are going to do next,” he said. “They have met with a financial planner. They have met with an estate planner. They are ready to make that move. “They (buyers) breathe a sigh of relief because they know the likelihood of that deal closing is much higher if the owner has not just prepared the business but prepared personally and financially,” Mr. Snider said. ■ Deal killer: Business owners who don’t trust the process or appreciate what the deal looks like in writing Sellers new to the M&A world may not grasp fully all the steps, stages and/or deal terms and timetables. “Once lawyers come in, and you put these points on papers, it’s very different,” says Marie C. Kuban, partner at Ulmer & Berne LLP in Cleveland.
For instance, a buyer may tell a seller that he expects to hire all the employees and continue to run the business in its current fashion. Flash forward to the purchase agreement, and the seller requests a legal covenant that states that the buyer is going to hire all the employees of the company. “From the seller’s perspective that’s what they talked about, (but) the buyer is like, ‘Whoa, hold on a minute. I am not going to contractually obligate myself to hire every single employee and give them certain employment terms that I don’t even give to (my) current employees,’” Ms. Kuban said. Then the perception — or misperception — is that the buyer wasn’t being honest about his intentions. “There has to be trust between the advisers and also trust between buyers and sellers,” she said. “It’s helpful if lawyers can be involved earlier rather than later because you can help provide the legal perspective to owners who are not used to doing serial deals.” ■ Deal killer: Mismatched expectations and ‘rusted’ systems Many sellers tend to have unrealistically high expectations on value, and buyers tend to be very
conservative on value, said Mark A. Filippell, managing director at investment banking firm Western Reserve Partners LLC in Cleveland. “That’s the classic problem. A seller will get hooked on a number and they don’t know why, or buyers don’t want to put a value on certain elements of the business,” said Mr. Filippell, author of “Mergers & Acquisitions Playbook: Lessons from the Middle-Market Trenches.” “You can’t sell a company like it’s a Cadillac if you’ve got a control system like a rusted out Chevy,” Mr. Filippell added. “Cast this in stone: You cannot get buyers to pay premium value for a company if it does not have excellent accounting systems, control systems and information systems. On a third of the deals we work on with privately held companies, it’s an issue and it either stalls or kills the deal.” Mr. Filippell said his firm encourages every company looking to sell to bring in independent auditors such as accountants and lawyers to review systems, filings and reports prior to going on the market. ■ Deal killer: Lack of clarity around price and earnings “One of the reasons why deals fall apart is the seller might not realize
Proven & Measureable Way to Help Employees Manage Inevitable Stress
SEPTEMBER 2 - 8, 2013
that a $5 million purchase price means $2 million after everybody gets paid,” said Joe Pease, president and head of the merger and acquisition group at Pease & Associates Inc., a Cleveland accounting firm. “We want them to have a clear understanding of what they are going to net and put in their pocket after everything gets paid off.” It’s best to avoid letters of intent that are vague, lack details and don’t address important issues, Mr. Pease said. “We try to put in as much into the letter of intent to get as much of this resolved upfront as possible,” he said. “It’s time-consuming and costly when deals fail. The last thing you want is a competitor being allowed to come in and look at things and then the deal gets killed.” The first thing Mr. Pease’s firm does is develop a financial model that illustrates how much a seller will have after they pay off their bank, plus bills, income tax and expenses of a sale. Also related to price, low valuations can hurt a deal’s progress, so Mr. Pease suggests all his sellers get audited financial statements. “Deals can get killed during this phase when people come in and do their jobs and find out the company is not accounting for certain items correctly,” he said. “Maybe their books are kept on a non-GAAP (generally accepted accounting principles) basis, and so what was believed to be profits of $1 million are really $600,000 because of the way they are accounting for certain items. “You want (sellers) to be ready and make sure they are properly accounting for earnings so that a buyer’s representative can’t come in
and challenge the earnings,” he added. “This audit will identify and allow sellers to fix some of the issues that could arise in the due diligence phase and derail the deal.” ■ Deal killer: Lack of research Sellers may be so immersed in the day-to-day running of their businesses that they lack the bigger picture view of their companies and how they fit in an everchanging marketplace. “Research pre-transaction by the seller can prove very useful in helping a transaction get to close, assuming it’s a good company with good management and a well-intentioned buyer who wants to get a good ROI (return on investment),” said Bert Smyers, partner at New Heights Research LLC in Mayfield Heights. Mr. Smyers’ business research firm plays the role of an insurance policy for buyers — usually private equity companies that are looking to kick the tires on a potential investment or to understand the potential impact of a new product. The “No. 1 reason why we help kill deals” is a company’s competitive position turns out to be less favorable than the investment bank and management indicated it was, Mr. Smyers said. Critical pre-sale research would reveal any red flags, such as changes in market share and dissatisfied customers, he said. “Every dollar you would invest in a piece of research on the sell side before the transaction would pay off handsomely in terms of ROI because you would probably get a better multiple, and people would discount less the types of projections that you are making about what future revenues could be,” Mr. Smyers said. ■
Is your business ready for 2014?
Developed by experts at the Cleveland Clinic, Healthy Performance with Stress Free Now is a clinically based employee stress management program that is practical, affordable, scalable and proven to work. Give your business every opportunity By participating, your employees will: Learn how to manage stress Become more productive ,PSURYH WKHLU KHDOWK Increase the energy levels they bring to work daily
Find out why it works
92% of program participants experienced a significant reduction in stress.
to thrive by investing in good, solid tax planning.
216.241.3272 meadenmoore.com
Call us at 1-888-820-3605 ClevelandClinicWellness.com/CorporateStress
What are the 5 Tax Strategies Every Business Owner Should Know?
Same-day appointments available at Cleveland Clinic. Scan the QR code or go to: http://bit.ly/143pviu
20130902-NEWS--13-NAT-CCI-CL_--
8/29/2013
2:16 PM
Page 1
NEO DEALMAKER
SEPTEMBER 2 - 8, 2013
CRAIN’S CLEVELAND BUSINESS 13
Dealing: Easterling teaches at Kent, launches another endeavor continued from PAGE 11
Back to school A serial entrepreneur finds post-sale gratification in teaching Denise Easterling has never made it more than a few months after selling a business before the itch to start a new one returns. It’s a routine she has repeated three times, starting with medical equipment supplier North Coast Medical Products, which she started in 1993 at age 25 and sold five years later. “I didn’t have any aspirations to start another company, but I was only in my early 30s and thought, ‘Now what do I do?’” said Ms. Easterling, an accountant by training. “I could have gone back to being a CPA, but I got that sick feeling in my stomach just thinking about it. I knew I didn’t want to do that.” The relief she said comes with selling a business turned into boredom quickly, and within three months she was writing a business plan for her second company, American Table Manufacturing. She and a partner developed and manufactured high-end surgical tables, then sold their technology to Steris Corp. in 2001. That brought an even tougher post-sale transition. “I had to sign a non-compete and stay out of the medical industry for five years,” Ms. Easterling said. “Then I really had to figure
out what to do.” Next up was a custom luxury homebuilding business, launched at the right time to cash in on the real estate boom. She sold her interest to her partner just a year before the real estate bubble burst in 2008. “I wasn’t in the mood to start a fifth” — she shuttered, not sold, one venture — “and I was out of ideas,” she said. Even if Ms. Easterling’s supply of ideas had dwindled, what she did have was a healthy inventory of stories and lessons gleaned from two decades of serial entrepreneurship. It was great raw material to fuel Ms. Easterling’s current post-sale venture — joining the faculty at Kent State University in 2010 to teach entrepreneurship. “I tell my students, I get to live vicariously through them,” she said. “There is adrenaline (to entrepreneurship) and it is addictive.” Despite holding each of her businesses an average of only four years, selling them was no less emotional for her. She uses the oft-repeated analogy of a business becoming like a baby, and a sale being akin to sending that baby off to college. “They exist, but they exist without you,” she said. “It’s good, but there’s a void … a few weeks, a few months, then I’m moving on to the next thing.” Even though she’s teaching full time, she just couldn’t help but
start a fifth business. In 2011, she started Launch in a Day, an online subscription-based service that walks new entrepreneurs through the startup process. “There will be a time when I don’t have the energy to have a business,” she said. “But I’m not there yet.”
A change of pace
attractive,” Mr. Keithley said. “I’m ambivalent about it, but I’m learning to have a good time where not every minute of every day is scheduled.” That’s not to say that Mr. Keithley has opted for a life of post-sale leisure. He currently sits on the boards of three public companies, including Westlake-based Nordson Corp. and
Materion Corp. in Mayfield Heights. He’s been involved in technologydriven efforts including Magnet, the Manufacturing Advocacy & Growth Network; the tech-focused economic development nonprofit, NorTech; and the Wright Center for Sensor Systems Engineering at Cleveland State University. continued on PAGE 14
Free from the bustle of running a public company, one CEO enjoys time for reflection
W
hile he was CEO of a publicly held company, Joe Keithley’s schedule was booked solid — meetings, travel and endless interactions with customers, employees and shareholders. Keithley Instruments Inc. started as his family’s busiKeithley ness, founded by his father in 1946. Mr. Keithley joined in 1976 while in his mid-20s and became CEO of the Aurorabased rapid-growth developer of electrical testing instruments and systems in 1993. But when Keithley Instruments was sold in 2010 to Danaher Corp., all of the bustle stopped. For the first time in his career, he could choose his next step. “To have some time to reflect is
. . . . .
$235,000,000
WHEN A BANK LOOKS DEEPER, BUSINESSES GO FURTHER.
$57,000,000
Senior Secured Facilities Sole Lead Arranger & Agent
Funds Provided by Fifth Third Bank
$60,000,000
$50,000,000
Senior Secured Credit Facilities
Senior Unsecured Revolving Credit Facilities
Syndication Agent
Sole Lead Arranger & Bookrunner
$10,000,000
$12,250,000
Line of Credit
Floor Plan Line of Credit/ Term Loan
Senior Lender
Floor Plan Financing
$2,475,000
$7,000,000
Senior Secured Credit Facilities
Senior Secured Credit Facilities
Senior Lender
Senior Lender
At Fifth Third Bank, our bankers take the time to get up close and understand your business from the inside out. So not only do they share your vision, they’re part of it. And they stand ready with the solutions to turn that vision into reality. Curious? Contact Dave Dannemiller at david.dannemiller@53.com or call (216) 274-5136.
Fifth Third and Fifth Third Bank are registered service marks of Fifth Third Bancorp. Member FDIC. Lending subject to credit review and approval.
20130902-NEWS--14-NAT-CCI-CL_--
8/29/2013
2:16 PM
Page 1
NEO DEALMAKER
14 CRAIN’S CLEVELAND BUSINESS
Dealing continued from PAGE 13
Mr. Keithley is an adviser to venture capital firm, Early Stage Partners in Cleveland, and is on the board of the public space design nonprofit Land Studio in Cleveland. Some of these opportunities presented themselves immediately to him, as companies and nonprofits sought his newly freed-up time. He had to make quick decisions about which he would take. “You may well have an opportunity present itself in the first six months that would cause you to stay at the frantic level you were before,” Mr. Keithley said. “You
have to choose right then and there, because after 12 months, your tempo will have changed enough that you no longer will be asked.” One of the biggest challenges for him post-sale was parting with employees and customers. He recalls the time when a group of Keithley employees was meeting with a research lab in the United Kingdom when they were interrupted by a phone call — the head of the lab had just been nominated for the Nobel Prize. “Those were the kind of wonderful experiences we had, that’s the kind of company I got to lead,” Mr. Keithley said. “It was tough to give that all up.” At 65, he’s busy, but gratified by his contributions and still doesn’t
Colliers International is the exclusive listing agent for 200 Public Square, Cleveland’s premier business address. Contact us today for a tour. Get in on the ground floor and build your brand to the top! We know it’s all about location, location, location. And setting your sights Brian A. Hurtuk SIOR on the next move. At Colliers International in Cleveland, we have the real estate expertise and strength to lead you into new territory Managing Director | PrincipalCleveland locally, around Ohio or around brian.hurtuk@colliers.com | + 1 216 239 5060 phone the world—taking you to new heights. www.colliers.com/ohio
envision a time when his days will be spent swinging a golf club. “I’m curious, I’m healthy and lifelong learning is very satisfying,” he said. “For the next 10 years, I will always be like this. I much prefer this.”
Need for speed Selling two businesses inspires entrepreneur’s new accelerator
C
harles Stack’s history of starting and selling companies reads like a thriller on the fast-track to a Stack movie option. “The story of selling (my second company, online bookstore Books.com) has drama, pathos, people put in prison, crime,” he said. “It was like the Enron story, but three years earlier.” It should be said that Mr. Stack was on the right side of the law, but that drama-filled sale was chock-full of lessons that carried him through a subsequent sale, four other startups and his current venture, FlashStarts Inc., a teambased accelerator for software startups he founded last year. It was 1992 when Mr. Stack started Books.com, the first online bookstore. At the time, Internet commerce was still a rarity, and the site could accommodate only two simultaneous customers. The business was successful, and he had no intentions of selling when he was approached in 1996 by CUC International, which later was found to have been manufacturing its earnings. “It was obvious I was on to something huge, but I was having this struggle of growing the business fast enough,” Mr. Stack said. “I had grown past the ability to
Since 1995, the Partners of Signet Enterprises have united an entrepreneurial vision with the experience to turn opportunities into realities.
x x x
Real estate private equity for healthcare, higher education and public private partnerships Portfolio company acquisitions in manufacturing, materials and business services Venture/growth capital in business services, healthcare technology and manufacturing
Our accredited investors participate with us in our real estate development, acquisition and venture portfolio transactions. Call to learn more about our history: Edward Matuszak
SEPTEMBER 2 - 8, 2013
fund our growth.” Despite the fantastic potential of Books.com — it was sold to Barnes & Noble in 1998 — Mr. Stack had no regrets about selling. “A lot of entrepreneurs have a very maternal or paternal feel for their startups and are reluctant to see them go,” Mr. Stack said. “Not me. I’ve never had any second thoughts, and I think that’s unusual.” His second sale of web services firm, Flashline Inc., to BEA Systems in 2006 proved a tad more sentimental. “It was a hard team of people to leave,” he said. “We went through great lengths to make sure the CUC thing didn’t happen again and that everyone would end up in a good place.” Since then, the process of determining what he wants from his post-sale life hasn’t been difficult for Mr. Stack. With FlashStarts, he’s doing what he loves — being a catalyst for new startups. “My favorite thing is starting companies,” he said. “Now I’m starting 10 companies instead of one.” His 12-week summer program gives 10 early-stage IT startups funding, hands-on consulting and temporary office space in exchange for equity. He predicted that this will be the way he spends every summer. “The chances of me playing golf (in retirement) are zero,” Mr. Stack said. “I’m doing what I love, so retirement and non-retirement look pretty much the same to me.”
A different sort of leadership Sale of family business leads one CEO to swap boardroom for mayor’s office
T
here were plenty of hints throughout Mike Summers’ life as to what he might choose to do when his time at Summers Summers Rubber Co. came to an end. Even back in his high school days, he had an interest in government. While serving as the thirdgeneration president and CEO of the 64-year-old Summers Rubber, he sat on the school board and ran campaigns in his hometown of
Lakewood. A future in local government seemed inevitable, but the opportunity to trade his corner office for city hall came sooner than Mr. Summers expected. In January 2011, he agreed to take on the unexpired term of Lakewood mayor Ed FitzGerald when Mr. FitzGerald became Cuyahoga County executive. Later that year, Mr. Summers ran and won a campaign to stay in the mayor’s office, all while retaining his position at Summers Rubber. “I found no time to work on Summers Rubber but I spent a lot of time worrying about it,” he said. “I didn’t realize how much I was worrying about it until I didn’t have to worry about it anymore.” With no fourth generation of Summers poised to continue the business, Mr. Summers hired in new leadership for the company and began considering buyers. “I had the sense that I had taken the company as far as I could and wanted to go,” Mr. Summers said. “I was ready for a change, and the company needed its next generation of leadership.” So after two years of serving simultaneously at Summers Rubber and Lakewood City Hall, Mr. Summers accepted an offer on the business in a deal that closed Dec. 31, 2012. The emotions he expected would come at the moment those papers were signed never arrived. “I had prepared myself for that drama,” he said. “But I did not have any remorse, and I knew it was absolutely the right thing to do. That surprised me.” He also didn’t have much time to linger over that life-changing moment. “The irony was I came right back to the mayor’s office because I had stuff to do,” said Mr. Summers, who hasn’t decided whether he’ll run again in 2015. “My day-to-day life didn’t change … but it made it infinitely easier.” When Mr. Summers gets the chance to talk to other business owners preparing to sell their companies, his advice is to avoid too abrupt a change in daily life. “Most people who are very active, as most CEOs are, you can’t go cold turkey on that without a bad outcome,” he said. “It’s common to feel really dislocated, and I’m grateful I didn’t have that experience.” continued on PAGE 15
Customized Solutions Superior Execution Unparalleled Results
President Signet Equity Partners, LLC 330.762.1950 ematuszak@signet-enterprises.com www.signet-enterprises.com
Mergers & Acquisitions .
Capital Raising
.
Restructuring & Bankruptcy
.
Financial Opinions & Valuations
For more information, please contact Ralph Della Ratta, Managing Partner, at (216)-589-9557 or rdellaratta@wesrespartners.com
$ SURXG PHPEHU RI WKH SUHPLHU LQWHUQDWLRQDO DOOLDQFH RI LQYHVWPHQW EDQNLQJ ÀUPV
20130902-NEWS--15-NAT-CCI-CL_--
8/30/2013
1:12 PM
Page 1
NEO DEALMAKER
SEPTEMBER 2 - 8, 2013
Dealing continued from PAGE 14
Don’t fear fun A business owner gives back — and golfs — post-sale
N
eal Van Duyn isn’t ashamed to say it: He’s spent a lot of time on the golf course since selling his business in January 2012. “It’s OK to have fun, and that’s really hard to learn,” he said. “I spent the Van Duyn last 40 years working hard and fun was what you did when everything else was done. Now fun is way up there.” When Mr. Van Duyn and his wife bought Cleveland Bottle & Supply Co. in 1992, it was a $2 million packaging distributor operating at a loss. Over 19 years, they grew the company to $10 million in sales by creating a reputation as a packaging company that would serve the small-run customer. The couple’s children had established careers in medicine, so they knew there wouldn’t be a second generation to assume the company. When they were approached by two potential buyers offering attractive deals, they chose to sell. The Van Duyns spent their final days with Cleveland Bottle &
QUESTIONS TO ASK BEFORE TAKING THE LEAP Think it might be time to sell and move on to your next chapter? Here are questions local entrepreneurs say you should ask yourself first. ■ How will it impact your sense of identity? “Can you create a different identity that still provides a feeling of selfworth?” said Mike Summers, former president and CEO of Summers Rubber Co. who’s now mayor of Lakewood. “Can you duplicate the part you will miss elsewhere through hobbies, interests, volunteerism or civic engagement?” ■ What about the next generation? Said Mr. Summers: “With three children, I had to work through the logic of are any of them interested? If interested, are they competent? And knowing the job and the child, is it a good match?” ■ What do you want the future to look like? “My thought process involved what hadn’t I done yet that I said I’ve ‘always wanted to do,’” said serial Supply at an industry conference, saying goodbye to longtime colleagues. Afterward, Mr. Van Duyn headed straight to Augusta, Ga., to watch the Masters. “That was a pretty good first day,” he said. Mr. Van Duyn is a former board member of the Council of Smaller Enterprises (COSE) who’s been active in that organization for more than 30 years, and he hasn’t
entrepreneur Denise Easterling, who sold her last company in 2008 and now teaches entrepreneurship at Kent State University. “What do I want to spend more time doing or less time doing? When I think about doing them, what activities make me feel enthusiastic and give me energy?” ■ How old are you? Selling the majority of shares in Keithley Instruments Inc. at 62 prompted a much different thought process for Joe Keithley than it would have earlier in life. “If you’re 50, you can think about doing something different, then doing something different yet again,” said Mr. Keithley, whose father founded the company in 1946. ■ What does your family think? “My wife has been supportive, but on the other hand, she said, ‘Joe, I’ve been waiting for you for 35 years. Don’t book yourself up so we can’t do those things,’” said Mr. Keithley with a laugh. “You have to consider what your wife would like you to do.” — Jennifer Keirn strayed from his involvement in Cleveland’s small business community. Today, he hosts free lunchtime roundtables for small business owners called “Here’s the Deal with Neal Van Duyn” at COSE’s offices and is part of the team of teachers in COSE’s Strategic Planning Course, which he’s been doing for 30 years. “It’s my way of giving back,” Mr.
CRAIN’S CLEVELAND BUSINESS 15 Van Duyn said. “We’ve had a lot of ups and downs, but we ended on an up note. I want to help them (business owners) through the pitfalls.” The emotions of that post-sale period came slowly — no intense thrill or feeling of relief, he said. The transition came with some natural apprehension about the next phase of life, he said, but managing those feelings comes down to attitude. “When you find yourself with
nothing to do, don’t look at it as ‘I have nothing to do today,’” he said. “I say, ‘I choose to do nothing today.’ It’s a difference in attitude.” The Van Duyns now split their time between Cleveland and Florida, and Mr. Van Duyn plans to continue his coaching and teaching as long as he’s able. “I’ll do it until the people close to me tell me I’m not effective anymore,” he said. “That’s the deal I’ve made with my friends.” ■
Eliminate Surprises Serving private equity groups nationwide, BMF Transaction Advisory Services provides thorough due diligence and quality of earnings assessments that help you better evaluate the value of a target company so there are no surprises down the road.
Mark B. Bober, CPA/ABV, CFF, CVA Partner, Practice Leader, Transaction Advisory Services bobermarkey.com • 330.255.2425
Ready for a closer look at private equity? At Deloitte Growth Enterprise Services, we help middle market clients assess operations, evaluate options, and determine the right solution for their culture, market, and capital needs. In other words, we help them see much more than dollar signs. For more information, contact Kevin Murphy, Director, Merger and Acquisitions Services, Deloitte & Touche LLP at (216) 589-1471 or kevinmurphy@deloitte.com.
As used in this document, “Deloitte” means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, and Deloitte Tax LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2013 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited
20130902-NEWS--16-NAT-CCI-CL_--
8/30/2013
1:12 PM
Page 1
16 CRAIN’S CLEVELAND BUSINESS
NEO DEALMAKER
SEPTEMBER 2 - 8, 2013
Startups sometimes turn to angel investors Networks serve as ‘a system of support for entrepreneurs’ By KIMBERLY BONVISSUTO clbfreelancer@crain.com
I
n 2009, startup StreamLink Software of Cleveland needed more money than friends and family could afford to give to drive for-
ward the producer of software for managing boards of directors and the grant application process. The same year, DecisionDesk, a Lakewood provider of applicant tracking software, needed mentoring and money to mature as a company.
has been acquired by
Farmers National Banc Corp.
The undersigned initiated this transaction and served as financial advisor to National Associates, Inc.
BRUML CAPITAL CORPORATION Investment Bankers
1801 East Ninth Street, Suite 1620, Cleveland, OH 44114 216.771.6660 www.brumlcapital.com
Both ultimately turned to angel investors — a decision that’s becoming increasingly common as entrepreneurs connect with more experienced business professionals through angel networks to grow their companies. In Northeast Ohio, the ARCHAngel (Akron Regional CHange Angel) Network and North Coast Angel Fund in Mayfield Heights have financed nearly 115 companies since 2006. Angel investing in Northeast Ohio has been ramping up in the last five years thanks to the Ohio Third Frontier, the state’s technology-based economic development initiative, and to regional entrepreneurs looking to give back, according to Dominic M. Brault, managing director at Carleton McKenna & Co., a Cleveland investment banking firm. Another driver is the nonprofit venture development organization JumpStart Inc., which makes seed investments in promising enterprises. JumpStart created a base of investment activity that has encouraged angels to put their money in local and regional companies, said Claiborne R. Rankin, manager of North Coast Angel Fund. “Angel investing is a crucial form of capital for startups,” said Todd Federman, the fund’s executive director. The 33 companies financed
INVESTMENT EXPECTATIONS From investor’s perspective: ■ Return on investment ■ Company involvement: As adviser; Seat on the board; Part of management (Some prefer to be passive, however.) From company’s perspective: ■ Find or provide follow-on investments ■ Introduction to potential partners or customers ■ Very little interaction Source: Angel Resource Institute through North Coast Angel Fund since 2007 have created more than 400 jobs at an average salary of $85,000 and more than $25 million in annual payroll, according to Mr. Federman. Added Mr. Rankin, “What’s been accomplished in Ohio is a real success, in terms of creating a system of support for entrepreneurs and a coordination system for investors.”
Lone wolves no more Angel communities began formalizing into networks and organizations about 15 years ago, according to Michael G. Cain Sr., chairman of the Kansas-based Angel Resource Institute, a nonprofit dedicated to education, mentoring and research
in the field of angel investing. “People are learning that working as a group, you’ve got more horsepower and brainpower around the table than if you’re going out as a lone wolf,” Mr. Cain said. North Coast Angel Fund has 180 investors in two funds and invests an average of $250,000 to $500,000 in its companies. Mr. Federman and Mr. Rankin said the group has considered investing in about 1,200 companies in almost seven years, brought 85 companies through the due diligence process and invested in 33 of them, with another company recently approved. Likewise, the ARCHAngels Network, a loose network of about 600 angel investors through the University of Akron Research Foundation, has financed 80 companies since 2006 that have attracted $300 million in follow-on money. The foundation, which is charged with managing the University of Akron’s intellectual property, hears entrepreneurs pitch their companies at membership meetings with the hope of securing money from interested angel investors, along with gaining financial analysis support, marketing support and legal advice. “Our goal here is clearly to increase engagement, increase contributions (and) increase productivity of university research in technology commercialization,” said Barry Rosenbaum, a foundation senior fellow. See INVESTORS Page 17
Your instinct is to lead. Ours is to listen and deliver. Together we succeed. Alternative Investment and Investment Management Banking and Commercial Finance
Finding innovative and creative solutions to legal and business challenges begins with meaningful dialogue. That’s what you can
Corporate Restructuring & Creditors’ Rights « Þii i iwÌÃ E ÝiVÕÌ Ûi «i Ã>Ì Health Care
expect from Ulmer & Berne LLP. Helping our clients achieve their
Intellectual Property & Technology
goals starts with listening, understanding and responding to needs,
International
and then delivering effective solutions. Working together, our focus is on your success.
Mergers and Acquisitions Real Estate Private Equity and Venture Capital Securities/Capital Markets />Ý
ulmer.com
20130902-NEWS--17-NAT-CCI-CL_--
8/30/2013
1:13 PM
Page 1
NEO DEALMAKER
SEPTEMBER 2 - 8, 2013
Investors: Funds can provide big boost continued from PAGE 16
Angel groups aren’t just at work in Northeast Ohio. The state also is home to Toledo’s CoreNetwork and Ohio TechAngels in Columbus. In January, X Squared Angels, a Columbus-based angel network, formed to concentrate on womenowned businesses.
Zero to 60 Startups find that development of their businesses ramps up quickly upon accepting angel money. John Knific, co-founder and CEO of DecisionDesk, and his partners, Eric Neuman and Marc Plotkin, were Case Western Reserve University classmates when their business model won the attention of local investors. The young company uses cloud-based software to enable clients to process high volumes of video applications by automating the submission and review process. Of particular help was North Coast Angel Fund, which provided the founders with an early-stage crash course in how to raise money, build a pitch, plan out and achieve milestones and communicate with investors, Mr. Knific said. “If you get the right angel in the deal, it can be very powerful,” he said, noting that DecisionDesk has raised $1.5 million in angel capital to date. “Angels provide access to a network, industry-specific insight and a vote of confidence. We went from zero to 60 very fast.” Angel investors brought to StreamLink Software invaluable connections to mentors and other
angels who helped define the company’s mission and focus, said Adam Roth, president and CEO. The North Coast Angel Fund, he said, provided StreamLink with a sense of professionalism, added a formal board to the company and helped the founders understand their market and opportunities. North Coast Angel Fund also helped StreamLink build out the company enough to make it attractive to other angel investors, Mr. Roth said. StreamLink, which makes software that helps nonprofits and public sector clients manage their boards and the process of applying for and tracking the use of grant money, raised $1 million in its initial round of investments through the Great Lakes Innovation & Development Enterprise at Lorain County Community College, North Coast Angel Fund and individual angels. Of course, that money doesn’t come without some strings attached. The minute a company takes someone else’s money, that company is never the same, Mr. Knific said. “You have shareholders, stakeholders in your business, and you have a fiduciary responsibility to them,” he said. Mr. Roth agreed that the expectation levels climb for a business after accepting outside money. “The disadvantage of angel investing is you have to manage multiple relationships and you have to have a system in place to manage those relationships,” Mr. Roth said, adding that those relationships often lead to unsolicited advice.
High-risk ‘village’ Both angels and entrepreneurs need to communicate and have an understanding of a relationship before entering into a deal, said Diana Kander, a senior fellow with the Missouri-based Ewing Marion Kauffman Foundation, which is devoted to entrepreneurship through grant awards and education. Entrepreneurs need to realize that angels are not donors, Ms. Kander said, noting that most angel investors are looking to triple their money in three to seven years. They also are seeking open lines of communication, said Scott M. Lewis, administrative partner with Meyers, Roman, Friedberg & Lewis in Woodmere. Entrepreneurs must recognize that even privately held companies need to communicate consistently with their stakeholders, even when the news is unfavorable. “Particularly if there are working capital shortfalls being experienced or clearly on the horizon, the first written communication coming from the company in many months, if not longer, should not be a cash call notice for a K-1 reporting a substantial loss,” Mr. Lewis said, citing an IRS form for reporting a partner’s share of a profit or loss. Angels need to understand their investments are very high risk, and should not invest money they cannot afford to lose. Due diligence, Ms. Kander said, is something to be taken seriously. “When buying a house, you do a home inspection. You need to do
CRAIN’S CLEVELAND BUSINESS 17 the equivalent on a business,” Ms. Kander said. “Never go with your gut. There might be fundamental structural issues you would never know about.” Doug Weintraub, an active angel investor and serial entrepreneur, is a partner of Hatch LLC, a Cleveland-based group of angel investors. Mr. Weintraub said all the Hatch members have “been there, done that” and are interested in coaching, connections and capital. The exciting part of being an angel investor, he said, is the oppor-
tunity to wear multiple hats. “It’s just nuts sometimes — in a given day you could be advising an investor, raising money as an entrepreneur or coaching. Any given day you don’t know what it’s going to be,” said Mr. Weintraub, who also is the outgoing chairman of JumpStart. “It takes a village to raise a child. The village is JumpStart and groups like ours. It takes all of these things to create this movement toward funding an idea and turning that idea into a successful exit.” ■
MelCap Partners, LLC is an independent, private investment-banking firm providing financial advisory services to middle market companies with sales between $10 million and $200 million. “We are creating the most significant liquidity event in the history of our clients’ lives … and we take that responsibility very seriously.” Albert D. Melchiorre President al@melcap.co
Robert T. Pacholewski Vice President bob@melcap.co
Marc A. Fleagle Associate marc@melcap.co
Kevin W. Bader Associate kevin@melcap.co
www.melcap.co 1684 Medina Road • Suite 102 • Medina, Ohio 44256 Phone 330/239-1990 • Fax 330/239-1991 Securities offered through M&A Securities Group, Inc. Member FINRA/SIPC. MelCap and MAS are not affiliated entities.
We’re looking for 50 great bankers.
Love your
banker but not your
bank?
If you love your banker but not your bank, maybe it’s time for a change. Talmer Bancorp, Inc. and its subsidiary, First Place Bank, are seeking to hire 50 great bankers in the Ohio region. As one of the country’s fastest-growing banks, we’re committed to helping local businesses succeed as well. You and your banker deserve to be part of something great — a service-minded community bank focused on your success. Ask your banker to call Jamie Lynch at 440-349-7576, and you may soon love your bank as much as your banker.
®
A subsidiary of Talmer Bancorp, Inc.
Interested candidates are invited to apply online for a Commercial Banker position at www.talmerbank.com/careers.
440-349-7576 | www.firstplacebank.com
EQUAL HOUSING
Equal Opportunity Employer
20130902-NEWS--18-NAT-CCI-CL_--
18
8/30/2013
1:13 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
SEPTEMBER 2 - 8, 2013
Clinic: Hospital giant says feds’ investigation of partner is ‘standard’ continued from PAGE 3
Summa itself is in the process of finalizing a sale of 30% of its enterprise to the state’s largest health system, Catholic Health Partners in Cincinnati. “With a very successful hospital operator on one arm and the Clinic’s clinical expertise on the other, if we don’t (compete), that’s our own fault,” Dr. Stover said. “We’re going to be a formidable competitor.” That said, Community Health System’s latest foray in Northeast Ohio hasn’t come without questions. The company, which operates or leases 135 hospitals in 29 states, is under investigation by the U.S. Department of Justice for possible Medicare admissions fraud. Also, in late July, the publicly traded company reported a sharp drop in operating income due to declining patient admissions and higher-than-expected debt loads. Community Health Systems also has been embroiled in heated contract negotiations at its Northeast Ohio hospitals. For instance, hours before Community Health Systems announced on Aug. 22 it had struck a deal with the Clinic to acquire Akron General, National Nurses United, a pro-labor nursing group, installed a billboard three miles east of the company-owned Affinity Medical Center in Massillon taking aim at the hospital. It states: “Affinity: Protect our patients, don’t silence our nurses. Owned by CHS, an $11 billion Wall Street corporation.”
Cause for concern? Nah Asked whether the federal investigation was of concern, officials at both the Clinic and Akron General brushed off the question. Akron General’s Dr. Stover said the issue at hand in the investigation is something with which hospitals nationwide have grappled. The Clinic chalked up the investigation as the product of an increasingly complex regulatory environment. “If you look around the country, every hospital and health system is in the process of some sort of investigation,” said Ann Huston, the Clinic’s chief strategy officer. “We’ve had them in the past. We’ll have them in the fu-
CONTRIBUTED PHOTO
National Nurses United paid for this billboard in Massillon that takes aim at Community Health Systems. ture. It’s something that’s become standard.” Given that the Clinic is highly protective of its brand, some groups leery of for-profit health care providers, including National Nurses United, have questioned why the well-respected nonprofit would link arms with an investor-owned group under investigation by the feds. Michelle Mahon, a local organizer for National Nurses United, suggested in an interview with Crain’s, “Wouldn’t they want to be sure the company is not defrauding taxpayers prior to entering into a business agreement?” Community Health Systems maintains it’s cooperating with the federal investigation. As for the labor dust-ups, the company said the only contract dispute that remains unresolved is with the Ohio Nurses Association at Northside Medical Center in Youngstown. Since November, ValleyCare — the entity that oversees its three Youngstown-area hospitals — has reached agreements with five bargaining units. Bill Ryan, president of the Center for Health Affairs, an advocacy group for local hospitals, cautioned that the Clinic doesn’t enter lightly into business arrangements. Mr. Ryan said Community Health Systems appears to have ameliorated the Clinic’s concerns had there been any in the first place.
“As much as there are issues with regard to for-profit hospitals and how they run their hospitals and what their relationship is with their community, the Clinic is certainly not in the business of damaging its brand,” Mr. Ryan said. “If there were behaviors that need to be moderated, they will be moderated. It’s just that simple.” Community Health Systems wants to dispel any notion that because it’s a large, forprofit operator, it isn’t interested in doing what’s best for the hospitals, and thus the communities they serve. On the contrary, the company maintains it is interested in pumping resources into the financially stressed hospitals it has acquired, and has pledged to do so at Akron General. Since acquiring ValleyCare in 2010 — then known as Forum Health — out of bankruptcy, Community Health Systems said it has invested more than $70 million in its three hospitals. The company also recently invested nearly $30 million at Affinity in Massillon for a new emergency department and cardiac catheterization lab. “I think our hospitals benefit by the operational strength we’re able to bring them,” said Marty Bonick, vice president of operations at Community Health Systems.
Deepening relationships Their plans jointly to acquire Akron General remain the biggest move Community Health Systems and the Clinic have made since the two organizations announced in March they had formed a “strategic alliance.” Both organizations stressed they didn’t join forces from the outset to buy hospitals. Instead, they characterized the planned acquisition as a natural evolution of a partnership intended to build on their respective strengths. The Clinic, for one, will have access to the Community Health Systems’ massive footprint, while the Nashville-based company will be able to tap the Clinic’s medical expertise and reputation. “As we look at the Cleveland Clinic, they add a level of sophistication to what we do, at least in the public’s eye, and how we are able
to relate to potential new partners as we move forward,” Mr. Bonick said. “Our size and scale is incredibly important to (the Clinic) as well.” The Clinic becoming bedfellows with Community Health Systems certainly isn’t the first immersive relationship between a renowned academic medical center and a for-profit hospital giant. In 2011, Duke University Health System and LifePoint Hospitals of Brentwood, Tenn., launched a joint venture with the acquisition of a large medical center in Henderson, N.C. Since then, the group has added hospitals in Roxboro, N.C., and Galax, Va. The Duke-LifePoint joint venture took on nationwide ambitions last year when it inked a deal to acquire a hospital on Michigan’s Upper Peninsula. Neither Community Health Systems nor the Clinic would say whether they had similar ambitions, although Community Health Systems CEO Wayne T. Smith said in a news release announcing the Akron General deal that the blossoming relationship between his company and the Clinic had garnered interest from other health care organizations. Frank Morgan, a health care analyst with RBC Capital in Nashville, said he wouldn’t be surprised if the joint venture results in the acquisition of more hospitals. Less than a week after the Akron General announcement, Community Health Systems said it planned to buy Sharon Regional Health System in Sharon, Pa. and that the Clinic would be involved in its clinical operations, though it wouldn’t have an ownership stake in the enterprise. “There is certainly an opportunity to do future transactions,” Mr. Morgan said. “I think this can be a very interesting and mutually beneficial partnership.” Historically, the Clinic had preferred to do acquisitions on its own rather than with a partner. The Clinic acquired eight community hospitals in Northeast Ohio in the 1990s and 2000s, though it appears the health system is eyeing new ways to expand its footprint. “There’s a trend in the industry that you don’t have to buy everything,” the Clinic’s Ms. Huston said. ■
REAL ESTATE CLASSIFIED Phone: (216) 522-1383 Fax: (216) 694-4264 Contact: Denise Donaldson E-mail: DDonaldson@crain.com COMMERCIAL SPACE CRANE BUILDING FOR LEASE TWINSBURG, OHIO 44087 120,000 SQ. FT, INCLUDES 12,000 OF OFFICE THREE 60 FOOT WIDE BAYS 8 CLASS D OVERHEAD CRANES 10 TO 35 TON CAPACITY WITH MAGNETS PLUS JIB CRANES EASY ACCESS TO INTERSTATE AND OHIO TURNPIKE OFFICES RECENTLY UPDATED CONTACT: JIM FLEMING 440-821-5830 OR KIRK MOONEY 330-221-4640
OFFICE SPACE
Copy Deadline: Wednesdays @ 2:00 p.m. All Ads Pre-Paid: Check or Credit Card BUSINESS FOR SALE
FOR SALE OR LEASE Contractor’s Building 8,210 sq. ft. Office 2,870 sq. ft. Shop & warehouse 4,050 sq. ft. Leased 1,290 sq. ft. Lot .86 acre. Wickliffe, Ohio
216-469-5097
Fairport Harbor
How Safe Are Your Forklift Tires?
65,000 +/- SF Two (2) story office/lab Near Lakeview Bluffs development. $499,900.
We can install new cushion, non-marking & pneumatic tires at your place of business. Used forklifts, all makes.
216-641-STYS www.stysinc.com
Contact Geoff Dougherty at 440-951-2430
BUSINESS SERVICE OWNERS!
1 Story Office Building 28,300 sq. ft. Furnished, deck 19’9” near airport, I-480 & I-71. Available immediately.
216-469-6170
AUCTION Sept 7 @ 12:00 NOON
OFFICE/WAREHOUSE SPACE For Lease: 200,000’ + Class A Distribution Warehouse midway between Cleveland and Columbus. 17 loading docks, 2 drive-in doors, 27’ cleared ceiling height. Move in condition. Will sub-divide, price negotiable.
Call Larry Evans at: 216 831-3140
BUSINESS SERVICES
832 E 200 St Cleveland Sept 14 @ 12:00 NOON
29250 29106 LakeShore Blvd Willowick All Buildings used as Child Care/Multi Use. Call for Terms Reilly Auctions 216-650-0886 E-mail for details reilly.d@att.net
E-MAIL US YOUR AD... DDonaldson@Crain.com INVESTMENT OPPORTUNITY
BUSINESS OPPORTUNITY
Capital Wanted
OPPORTUNITY
Medical device company in NE Ohio with pending strategic distribution agreement is seeking accredited investors to fund continued growth. Call 216-577-1716 for more information
A wine and liquor importer with a gold-medal product looking for partners and marketing specialist. Send inquiry to ferro55@aol.com
Submit your business card to promote your service.
To find out more, contact Denise Donaldson at 216.522.1383
For daily on-line updates, sign up @ CrainsCleveland.com/Daily
20130902-NEWS--19-NAT-CCI-CL_--
8/30/2013
1:13 PM
Page 1
SEPTEMBER 2 - 8, 2013
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
19
THEINSIDER
THEWEEK
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
AUGUST 26 – SEPTEMBER 1
Merchants promote a holiday from taxes
The big story: Bank of America is closing two
■ Just before the Ohio sales tax went up one-quarter percentage point on Sunday, the Ohio Council of Retail Merchants began a lobbying effort to convince the General Assembly to create a sales tax holiday starting next year on back-to-school purchases. The trade group said a three-day tax holiday before kids head back to classes in August would increase retail sales that month by 4.8% and save the average household $38. Those estimates were based on a study just released by the council’s research affiliate, the Focus on Ohio’s Future. “Every dollar of savings counts,” said Gordon Gough, executive vice president of the retail council. “We hope to explore this idea with state leaders soon.” Eighteen states currently take a similar sales tax holiday and Ohio legislators have pushed similar legislation in the past. Most recently, in 2009, then-state Rep. Kevin Bacon (now a state senator from Franklin County) introduced legislation that would have created two, three-day holidays in August and December. But the potential loss of state revenue killed the effort. The most recent state budget increased the state sales tax from 5.5% to 5.75%. However because of county piggyback taxes, purchasers in Northeast Ohio counties are paying a higher rate — 8% in Cuyahoga County, 7% in Lake and Portage counties, 6.75% in Geauga, Medina and Summit
Cleveland-area operations and in the process is laying off a total of more than 1,000 employees who work in home loan fulfillment and consumer banking services. The two Cleveland-area sites and one in Cincinnati will close by Oct. 31. The local operations are at 25900 Science Park Drive in Beachwood, where 650 employees in home loan fulfillment and about 350 to 400 in consumer banking services will lose their jobs, and at 6100 Oak Tree Blvd. in Independence, where 55 employees in home loan fulfillment will be let go. See related story, Page One.
That settles it:
RPM International Inc. reached a $61 million settlement with the U.S. Department of Justice over allegations that its Tremco Inc. subsidiary overcharged the federal government for roofing products and services. According to the settlement agreement, RPM and Tremco will pay the government $60,958,963, plus simple interest of 2% from May 15, 2013, until the payment is made. RPM said it expects to pay $65.1 million to settle the issues in the case.
Changing hands: The Cleveland Clinic Elyria Family Health and Surgery Center in Elyria was among six medical properties nationwide bought for a total of $59.5 million by CNL Healthcare Properties Inc. of Orlando, Fla. The sale price of the Elyria building was $20.2 million. The 40,000-square-foot, outpatient-focused building at 303 Chestnut Commons Drive in Elyria is 100% leased by the Clinic, which will remain a tenant. The building was constructed in 2008. Close to home: Kindred Healthcare Inc. of Louisville, Ky., agreed to acquire Western Reserve Senior Care of Cleveland, a physician-led primary care practice that delivers care for seniors in their homes. Terms were not disclosed. The purchase will be financed by Kindred’s new, $750 million revolving credit facility. Western Reserve’s physicians, nurse practitioners and nurses provide primary care, specialty care and urgent care services for seniors who cannot leave residential settings.
Think of the children: Cedar Point will be catering to its youngest customers next year, with plans for two new family rides, a revamped Camp Snoopy and renovations to the Hotel Breakers on tap for 2014. The rides are called Pipe Scream and Lake Erie Eagles. The Sandusky amusement park this winter also will start a twoyear Hotel Breakers renovation project. Phase one will include upgrading a portion of the exterior, while phase two will take place over the 2014-2015 winter season and will feature upgrades to both the exterior and interior. Let’s get digital: Digital parking meters are coming to Cleveland. As part of a pilot project, the city installed 49 parking meters that can take credit cards and send information about payments and problems to the division of parking. In addition to taking credit cards, the recently installed meters will help the division of parking monitor how much revenue they bring in, and they will send text messages or emails to staff members when their coin boxes are jammed or full. Forever proud: John Carroll University received a $3 million gift from alumnus David W. Short, and his wife, Elizabeth, who live in Pittsburgh. The unrestricted gift will support initiatives of the recently announced Forever Carroll Campaign. Mr. Short is a 1981 John Carroll graduate who currently serves as chair of the university’s board of directors. He is the retired chairman and co-CEO of the American Funds Group.
counties and 6.5% in Lorain County. — Jay Miller
MetroHealth won’t wait for end of Medicaid debate ■ The MetroHealth System is preparing to renew its experimental Medicaid waiver program in Cuyahoga County, as state lawmakers have yet to sign off on a statewide expansion of the Medicaid program. MetroHealth’s program, known as CarePlus, essentially gave MetroHealth a jumpstart on the Medicaid expansion and so far has extended coverage to 24,477 people in the county since it went live earlier this year. But because of state lawmakers’ reluctance to sign off on a full expansion, MetroHealth officials are planning to extend the program. John Corlett, MetroHealth’s vice president of government relations and community affairs, doesn’t expect the extension would receive any pushback from state or federal regulators. Mr. Corlett noted that September would be a “very telling month” regarding whether the Medicaid expansion moves forward. “My sense is that there are a lot of conversations going on among the legislative leadership to figure this out,” he said. MetroHealth last month served as the backdrop for the ongoing debate over whether to expand Medicaid eligibility when a group of lawmakers visited the Cuyahoga County-subsidized health system to see the CarePlus program in action. — Timothy Magaw
MILESTONE
BEST OF THE BLOGS
COMPANY: Oswald Cos., Cleveland
Excerpts from recent blog entries on CrainsCleveland.com.
OCCASION: Its 120th anniversary
Cottage industry
Oswald Cos. is celebrating its past by looking forward. The insurance brokerage firm, founded in 1893, turns 120 this year. In conjunction with that milestone, Oswald officially has moved into its new corporate headquarters, dubbed “Oswald Centre,” at 1100 Superior Ave. in downtown Cleveland. “This year is historic for Oswald in many ways, and we look forward to recognizing those who have supported our organization over the years,” said Robert J. Klonk, CEO, Klonk Oswald Cos., in a statement. “We know the success of a region relies on a thriving core and we remain committed to the downtown Cleveland community as we continue to expand our global reach.” He said Oswald “has experienced significant growth and expansion in recent years,” which led to the move to 1100 Superior. The space accommodates about 230 of Oswald’s 270 employee-owners nationwide. Oswald occupies 72,000 square feet on the 13th, 14th and 15th floors of the building, plus a first floor conference space. On Sept. 26, Oswald will host an event for government officials, clients, community partners and media to celebrate its anniversary and officially introduce Oswald Centre. The firm also has offices in Akron, Columbus, Detroit and Tampa, Fla. For information, visit: www.oswaldcompanies.com.
■ If you’re wondering what Randy Lerner’s been doing since he sold the Cleveland Browns, The Wall Street Journal has your answer. It turns out he’s working to address a big problem: a “chronic shortage of über-luxury hotel rooms (that) has plagued the Hamptons for generations, narrowing the lodging options for affluLerner ent guests who often have to bed down in hoary motels, weatherbeaten inns and threadbare if charming B&Bs.” The Journal said the post-recessionary hotel market in the Hamptons “has been churning at the high end with over a dozen recent openings and re-openings, expansions and renovations, asset sales and rebranding efforts sweeping across Bridgehampton and Sag Harbor and out to Montauk.” Dizzying prices “are already the new normal,” the newspaper reported. For instance, Mr. Lerner developed a 10room property called The Inn at Windmill Lane in Amagansett, where the paper says a 1,666-square-foot, privately gated duplex cottage with wood-burning fireplaces and a 28-foot-high cathedral ceiling goes for $2,100 a night, plus a 6% service fee. And the inn, which has run at about 89% occupancy this season, “is about to unveil even costlier digs,” The Journal reported. “Construction wraps up this fall on a new four-bedroom cottage that will be priced at $4,900 a night — and require a seven-night minimum stay.” Make your reservations early.
Briteskies sees bright future with Magento ■ Briteskies made the right move three years ago when the company in Independence started developing websites with Magento. Over the past several years, Magento, which is owned by eBay, far and away has become the most popular ecommerce platform in the world: A quarter of the world’s top million websites are based on Magento’s open source software, a number roughly equal to the next three competitors combined, according to statistics from the Tom Robertshaw eCommerce survey conducted last February. So it would make sense that Briteskies considers its Magento development team to be “the rising star in the company,” according to Bill Onion, one of Briteskies’ two managing members. That team is expected to generate roughly 20% of Briteskies’ 2013 revenue, up from less than 10% last year and almost nothing in 2011, Mr. Onion said. The Magento team now employs six of Briteskies’ 25 full-time employees. Magento’s popularity significantly is bolstered by its free edition, but Briteskies for the most part focuses on building websites with Magento’s Enterprise Edition, which is still “stupid cheap” compared to some of the other big-name web development platforms on the market, Mr. Onion said. “Sometimes we fight the battle, ‘Why is it so cheap? It can’t be that good, for only fifteen, sixteen grand,’” he said, adding that other platforms can run in the six-figure range. — Chuck Soder
Good work ■ The Washington Monthly released its unique ranking of U.S. colleges and universities — billed as “college rankings that aren’t ridiculous” — and Case Western Reserve University is in elite territory. The school is No. 4 nationwide on this list, which focuses on three categories: social mobility, research production and commitment to service. Case Western Reserve was No. 7 in both 2012 and 2011. The University of California at San Diego topped the list for the fourth straight year. Case Western Reserve was particularly strong in the service category. The university noted in a news release that it ranked third overall for its institutional commitment to service — a calculation based on the institution’s staff, support and courses focused on such engagement. The university placed 12th in community service participation and hours volunteered, and 13th for the proportion of alumni who enter the Peace Corps relative to overall school size.
Money talks ■ U.S. Rep. Jim Renacci of Wadsworth landed at No. 10 on a Washington Post list of the wealthiest members of Congress. The Republican congressman has a net worth of $35.9 million, derived primarily from founding a company that owns and operates nursing homes. Most of his assets are in funds invested in companies such as Apple, Costco, Google and Inuit, The Post noted. Mr. Renacci is still well off the pace of No. 1 on the list — U.S. Rep. Darrell Issa, R-Calif., a Cleveland native who is worth $355.4 million. One of the story’s commenters offered the following suggestion for a new take on the list: “How about listing the 30 poorest members of Congress so that we can enjoy watching their process and enrichment as they progress as members of the ruling class?”
20130902-NEWS--20-NAT-CCI-CL_--
8/30/2013
1:14 PM
Page 1
Consumer t 8FMMOFTT t 3FGPSN t Affordable Care Act t 0IJP t )FBMUI DBSF DPTUT t $PTU DPOUBJONFOU t 5BMFOU SFUFOUJPO t #FOFรถUT t 1SFNJVN t #SPLFS t $PTU TIBSJOH t )FBMUI DBSF FYDIBOHF t %FEVDUJCMF t &10 QMBO t '4" t 'MFYJCMF #FOFรถUT 1MBO t (SPVQ )FBMUI 1MBO t ).0 t )4" t $P PQ t .BSLFUQMBDF t /FUXPSL t 1SPWJEFS t 0QFO FOSPMMNFOU t 104 QMBOT t 110 t 1SFTDSJQUJPO ESVH DPWFSBHF t 3BUF SFWJFX t 4#$ t 63$ t .BSLFUQMBDFT t Consumer t 1SFNJVN t 8FMMOFTT t 3FGPSN t "รฒPSEBCMF $BSF "DU t 0IJP t )FBMUI DBSF DPTUT $PTU DPOUBJONFOU t 5BMFOU SFUFOUJPO t #FOFรถUT t #SPLFS t $PTU TIBSJOH t )FBMUI DBSF FYDIBOHF t %FEVDUJCMF t &10 QMBO t '4" t 'MFYJCMF #FOFรถUT 1MBO t (SPVQ )FBMUI 1MBO t ).0 t )4" t $P PQ t .BSLFUQMBDF t /FUXPSL t 1SPWJEFS t 0QFO FOSPMMNFOU t 104 QMBOT t 110 t 1SFTDSJQUJPO ESVH DPWFSBHF t 3BUF SFWJFX t 4#$ t 63$ t .BSLFUQMBDFT t WEDNESDAY Consumer t 1SFNJVN t 8FMMOFTT t 3FGPSN t "รฒPSEBCMF $BSF "DU t 0IJP t )FBMUI DBSF DPTUT t $PTU DPOUBJONFOU t 5BMFOU SFUFOUJPO t #FOFรถUT t SEPTEMBER #SPLFS t $PTU TIBSJOH t )FBMUI DBSF FYDIBOHF t %FEVDUJCMF t &10 QMBO TH t '4" t 'MFYJCMF #FOFGJUT 1MBO (SPVQ )FBMUI 1MBO t ).0 t )4" t $P PQ t .BSLFUQMBDF t /FUXPSL t 1SPWJEFS t 0QFO FOSPMMNFOU t 104 t QMBOT t 110 t 1SFTDSJQUJPO ESVH DPWFSBHF t 3BUF SFWJFX t 4#$ t 63$ t .BSLFUQMBDFT t Consumer t 1SFNJVN t 8FMMOFTT t 3FGPSN t Affordable Care Act t 0IJP t )FBMUI DBSF DPTUT t $PTU DPOUBJONFOU t 5BMFOU SFUFOUJPO
HEALTH CARE SUMMIT 25
Just what the doctor ordered. The juryโ s still out on Obamacare, but let our professionals help your business prepare for the controversial lawโ s sweeping changes.
PURCHASE TICKETS: CrainsCleveland.com/HCSummit Presented by:
Premier sponsor:
Moderator sponsor:
Major sponsors:
Supported by: