Crain's Cleveland Business, January 29, 2024

CRAINSCLEVELAND.COM I JANUARY 29, 2024

Medical weed market plateaus

Summa Health System’s Akron campus

Annual sales grew by just 1% in 2023

SUMMA HEALTH

By Jeremy Nobile

A ‘GAME-CHANGER’

Summa Health acquisition could prove revolutionary for the health care industry

By Paige Bennett

The health care industry in Northeast Ohio was stunned by a high-profile acquisition announcement but experts are now expressing cautious optimism about the potential effects that the new partnership could have on U.S. health care.

Earlier this month, Akron-based Sum-

ma Health announced it had signed a non-binding letter of intent with General Catalyst’s Health Assurance Transformation Corp. (HATCo) for the company to acquire the health system.

Under the new structure, Summa will operate as a for-profit, wholly-owned subsidiary of HATCo, a company owned by venture capital giant General Catalyst.

Officials from both organizations hope to finalize an agreement by the end of the year.

And those in the know say there’s reason to view the deal as a potential positive for the industry—even though there are still reasons to wait and see.

See SUMMA HEALTH on Page 28

Ohio’s medical marijuana market plateaued last year in terms of the value of annual sales under one of the country’s most tightly regulated cannabis programs.

There was approximately $484.4 million in medical marijuana sold in the state by licensed dispensaries in 2023, according to figures from the Ohio Department of Commerce.

While that’s a new record for annual sales by dollar amount, compared with sales totaling $478.7 million in 2022, the value of the market increased by just 1.2% over the prior year, according to a Crain’s analysis.

Net sales in Ohio have increased every year since the state’s first medical dispensaries opened to the public in January 2019, but the annual financial growth rate has been dropping precipitously every year since.

By dollar amount, sales increased by 297% in 2020, 72% in 2021 and 26% in 2022 before effectively bottoming out at 1% in 2023.

See WEED on Page 28

Competing Amtrak ideas muddy plans A renewed emphasis on the critical role of public transportation within and between major urban areas—including Cleveland—is gaining steam but competing plans are muddying the waters as to what, exactly, is in store for improvements.

Competing plans from local

and federal officials, though still in the early stages of development, differ on the details—such as an Amtrak hub at Cleveland Hopkins International Airport— that needs clarifying before plans can move forward and residents feel more confident about what’s to (hopefully) come.

The recent bipartisan Infrastructure Act alone accounts

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for a nearly 67% increase in annual funding, not including emergency COVID spending, toward public transportation, compared to 2016-2020 prepandemic levels.

The city of Cleveland is taking advantage of this transit windfall, including $130 million in federal funding to the Greater Cleveland Regional Transit Au-

thority (RTA) for rail replacement cars.

And recently the Federal Railroad Administration, as part of a large nationwide expansion of passenger rail, selected four Ohio Amtrak corridors—including two involving Cleveland— for study.

BLOOMBERG

By Kim Palmer

See AMTRAK on Page 29

ARTS & ENTERTAINMENT New leaders of the Cleveland Ballet are figuring out the next steps for an organization that has been plagued by scandal since last fall. PAGE 2

REAL ESTATE Bobby George’s River Garden concept gets approval, with plans that include dining and games along the Cuyahoga River in the Flats. PAGE 8

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Organization’s new leaders are working to remake the institution

By Scott Suttell

The new leaders of the Cleveland Ballet are figuring out the next steps for an organization that has been plagued by scandal since last fall and now aims for its internal operations to operate as smoothly as its dancers do on stage.

It’s a big task. Among the primary goals for board chair Dr. Michael Frank and interim CEO Larry Goodman are to stabilize the organization’s finances and bring, as Goodman put it in an interview, “a culture of stability and accountability” to the ballet.

Highly regarded new artistic director Timour Bourtasenkov, meanwhile, is responsible for keeping the ballet’s performances at a high level as he succeeds Gladisa Guadalupe, one of the ballet founders who has been removed.

Coming off a December run of “The Nutcracker”—the most important production on the ballet’s calendar, given its popularity with audiences—that Frank in an interview called “the best ‘Nutcracker,’ both financially and artistically, in our history,” the board chair sees a path forward for a thriving organization.

But it will, Frank acknowledged, “require a lot of hard work and the support of the staff, the dancers, the community and the donors,” he said.

The remaking of the ballet comes after the Jan. 10 removal of Guadalupe as artistic director, which followed the Nov. 21, 2023, resignation of then-president and CEO Michael Krasnyansky. Earlier in November, both Krasnyansky and Guadalupe, who are married, were temporarily suspended in the wake of what the ballet at the time termed “serious workplace allegations.” (Guadalupe had been on suspension since November and was not involved in the production of “The Nutcracker.”)

Frank said that when allegations about the conduct of Krasnyansky and Guadalupe first came to the organization’s attention, at the end of October, via an email from a reporter at WKYC-TV, he thought, “This has got to be a bunch of nonsense. But I also knew it would be a huge mistake to ignore it.”

Krasnyansky and Guadalupe were adamant that accusations about their management of the ballet and treatment of dancers were “baseless,” Frank said. Still, he said he and other board members were persuaded that an independent investigation was the best course for determining whether there were serious problems with-

in the ballet.

“We had no inkling that we were going to find anything actionable,” Frank said. “We were stunned by what we found.”

The ballet on Jan. 11 released a summary of a board investigation, conducted by law firm Jones Day and the Marcum accounting firm, that revealed what the organiza-

Cleveland Ballet’s next performance is “Sleeping Beauty,” taking place April 26 and 27 at Playhouse Square. | KAELA KU PHOTOGRAPHY

MARK HORNING & CO. PHOTOGRAPHY

Cleveland Ballet in turnaround mode tion characterized as “egregious misconduct” related to “a pattern of intimidation and retaliation against dancers and staff, sexual misconduct on the part of the former CEO, a toxic work culture, serious operational and financial irregularities, and unauthorized self-dealing.”

The ballet’s board broke down the findings of its investigation into three main categories: “systemic intimidation, nepotism and retaliation;” “alleged sexual misconduct by Krasnyansky” by at least “16 current and former company dancers and staff” who said Krasnyansky “improperly touched them or sexually harassed them;” and “financial irregularities” that included commingling of funds of the ballet and a separate dance school run by Guadalupe, and ballet funds “used for personal expenses of Mr. Krasnyansky or Ms. Guadalupe, including personal car insurance, travel, meals, and lodging.”

Before the public release of a summary of the investigation, there was internal drama.

Frank said Krasnyansky and Guadalupe “were highly agitated” by the initiation of the investigation and, though they were warned not to interfere in any way, addressed dancers directly about it.

(Frank said one dancer recorded Krasnyansky talking with dancers about it; another took notes of a separate conversation between Guadalupe and the dancers.)

The board chair characterized those actions as “open defiance of the board,” adding, “The addressing of the dancers was a big red flag,” even as Krasnyansky and Guadalupe continued to maintain—as they do today—that they had done nothing wrong.

Frank said the board at that point, in early November, determined that Krasnyansky and Guadalupe couldn’t continue to run the ballet while the investigation was ongoing and needed to be suspended. The board was so adamant about that, he said, that at one point all board members determined they would resign if Krasnyansky and Guadalupe

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weren’t suspended. They ultimately agreed to the suspensions, and no board members resigned.

In total, Frank said, 48 people were interviewed in the investigation.

The financial component of the investigation put in sharp relief concerns that Frank said he had “for a while” about the ballet’s financial position.

On two occasions in 2023, he said, there were concerns that the ballet would not be able to meet payroll, and lines of credit were tapped out. Ultimately, Frank said, board members put together a $100,000 loan to the ballet, and then he and former board chair Dick Pogue, personally, made a $120,000 donation.

In talking about that donation, Frank choked up. He and Pogue are friends, and both of their wives—lovers of the ballet—died recently.

Frank said the organization is beginning to put itself on stronger financial footing, helped by a “Nutcracker” run that grossed $1.3 million and netted $1 million.

“We’re not in the black yet, but we’re making progress,” Frank said. He said the organization has started to pay down its line of credit. The projection is that the ballet can operate in 2024 “with a modest deficit” and enter 2025 on solid financial footing.

View from the interim CEO Goodman, a board member since 2015, said he views his first duty in the interim CEO role as “establishing best practices and considering how to shape the culture in a positive direction.”

He takes the challenge seriously. Goodman used to run Andrews Osborne Academy in Willoughby and he learned from that experience that “you can’t just change the culture by saying you have an open-door policy.

You have to get in and demonstrate to people that you’re serious about making change. We have not had a speak-up culture (at the ballet), and we have to have one.”

Goodman acknowledged “we are not the right-size operation,” though he added, “I don’t know that we need to cut a lot” to reach a balanced budget for fiscal 2025. Salaries for the CEO and artistic director positions have been cut by 10%.

He did note, though, that as leadership looks to put the ballet on stable footing, “Nothing is off the table. The company will be different afterward.”

Goodman said the success of “The Nutcracker” was revealing of the character of the dancers and staff at the ballet. “There’s a tenacity, a commitment to the cause and to each other, here.”

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Guadalupe speaks Krasnyansky and Guadalupe are now fully out of this iteration of the ballet, which they cofounded in 2014.

In a statement issued earlier this month, Krasnyansky said, “I want to unequivocally state that these and other allegations about me and my fellow Cleveland Ballet co-founder Gladisa Guadalupe are entirely without merit. We have always been committed to fostering a safe and respectful environment within the organization we’ve built back from the ground up.

We have spent nine years of blood, sweat, tears, and a great deal of our own funds to bring the city of Cleveland back to world-class ballet.”

Guadalupe responded to a request for an interview sent via the Facebook page of her dance school, now called Cleveland Ballet Theatre after formerly being known as the Cleveland School of Dance. (The Cleveland Ballet’s own in-house school now is called the Academy of Cleveland Ballet.)

In a phone interview, Guadalupe continued to maintain that she and Krasnyansky had done nothing wrong and that “all accusations are false.”

“The time will come when the truth comes out,” she said.

Of the ballet, Guadalupe said on three occasions during the interview, “I wish them great suc-

“We were stunned by what we found.”

— Dr. Michael Frank, Cleveland Ballet board chair It’s important to remember, Goodman said, that people in the ballet “have been through a trauma and need to work through it.” Also critical, he said, is to establish “a functioning set of protocols” for operations and “consistent communications about where we’re going and what we expect from people.”

Internal improvements, he said, will make it possible for the ballet to meet its most important goal: producing worldclass ballet.

Bourtasenkov, the new artistic director, “is the face” of the ballet, Goodman said. “He’s the real deal. He’s the one responsible for people leaving the performance stunned. My role is to help put the organization in the best position that he can do that.”

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cess” as an artistic endeavor. But she repeatedly said she believed the board’s investigation was unprofessionally conducted and that the board “took false allegations to be true.”

Guadalupe said she believed she and her husband were not given a serious and comprehensive hearing during the investigation, and that ultimately, “I feel betrayed by the organization.”

She noted, too, that the ballet’s budget over the years was approved by the board, and that she and Krasnyansky put their own money and significant time and effort into the organization.

“We have nothing to be ashamed of. ... We gave our all, 24/7,” she said, adding her focus for now is on the school and its dancers.

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Cleveland Clinic explores using AI in patient-caregiver interactions

COZY UP WITH A LOAN FROM CBS

a business tool as well. The system has partnered with software Cleveland Clinic is exploring company Palantir to create a the use of artificial intelligence in “digital twin” of the system’s main patient-caregiver interactions as campus and is using AI to predict buzz around the technology con- the number of surgeries performed and patients entering the tinues to grow in health care.

AI was one of the topics Cleve- hospital to determine the best land Clinic CEO and president ways to utilize staff and physical Dr. Tom Mihaljevic discussed resources.

At this stage, the Clinic is being during this year’s State of the very careful about Clinic Address, which is bringing clinical appligiven annually by the cations of AI into pracCEO to the Clinic’s tice, Mihaljevic said, 81,000 caregivers. and there is always a The Clinic is piloting person monitoring AI’s an AI scribe powered by output. Still, the Clinic is computer software com“very optimistic” about pany Nuance that will the future of AI in health capture conversations care. between a patient and a Here are a few other provider and summarize Mihaljevic takeaways from the adthem in a digital medical note. Providers will then be able dress and Dr. Mihaljevic’s interto review the summary before view with reporters. placing it in the patient’s elecCleveland Clinic isn’t immune tronic medical record.

“That will allow for a much to financial difficulties more meaningful interaction be- affecting U.S. hospitals.

The Clinic generated more tween a patient and a provider,” Dr. Mihaljevic said in a recent in- than $14 billion in revenue last terview with reporters ahead of year. It resulted in an operating his annual address. “It will take margin of 0.4%, which is an inup to one-third of the time that’s crease from 2022. Still, the system currently being spent entering has not been immune to the fiand typing and retrieving data nancial challenges plaguing U.S. and will give that time back to hospitals.

Mihaljevic said margins are providers to really take care of the “severely compressed” as a result patients.”

The health system is also pilot- of the rising costs of wages, suping an AI interface that will an- plies and pharmaceuticals, and swer questions for patients rather inflation has outpaced increases than a provider. In particular, it in reimbursement.

Year-over-year, the Clinic saw will focus on patients with chrona 10% increase in labor costs and ic diseases.

Mihaljevic said the Clinic has a 20% increase in the price of already started testing the AI pharmaceuticals while reimcompanion with a certain seg- bursements from the Centers for ment of patients. In blind sur- Medicare and Medicaid Serveys, patients have often said vices, the Clinic’s largest payer, they found the AI-generated re- grew by only 2.5%, Mihaljevic sponses more compassionate, said.

Despite the financial difficuldetailed and timely than those written by caregivers, Mihaljevic ties of the times, the health system has seen increase in patient said.

AI is being used by the Clinic as encounters, Mihaljevic said, and

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services to patients have increased by 53% since 2018.

The system is focused on caregiver retention amid global workforce shortages.

Workforce shortages are a lingering problem that will continue to affect health systems in the coming years, Mihaljevic said.

Shortages existed before the pandemic, he noted, and the industry will need to adjust to living with them for many more years. The Clinic has been focused on retaining its existing workforce and using technology to redesign health care delivery processes in the face of these shortages.

Incidents of violence against health care workers went up in 2023.

Last year, the health system’s caregivers reported 3,800 incidents of physical or verbal violence. That’s over 1,000 more reports than 2022 (2,761).

Mihaljevic called violence against caregivers a “silent epidemic.

The Clinic has continued to enhance its police and security presence, he said, and has installed in every emergency department. It confiscated 30,000 weapons brought in by patients and visitors in 2023.

Telehealth is a necessity for the system.

Continuing with the theme of technology, Mihaljevic said telehealth is now a well-established part of the Clinic’s offerings.

More than 10% of visits take place remotely, he said.

As an example, every room at Cleveland Clinic Mentor Hospital, which opened to patients last summer, is equipped so patients can interact with caregivers virtually. Telehealth allows patients to gain quicker access to specialized health care services, he said.

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DOJ seeks information on Cedar Fair, Six Flags deal

BLOOMBERG

By Scott Suttell

Trump’s former chief usher raises $100M homebuyer fund

By Miles Weiss, Bloomberg

A former White House chief usher during Donald Trump’s presidency raised about $100 million for a real estate fund to help first-time homebuyers make down payments.

Timothy Harleth is launching Generational Equity Labs. The Washington-based fund plans to use a technology platform linking would-be homebuyers to institutions that will essentially co-invest in a concept dubbed “equity sharing.” Investors will be able to buy and sell their shares of the real estate funds that hold the home equity stakes.

And Ohio will be where the fund is first employed.

While Americans have traditionally relied solely on debt to finance home purchases, rising interest rates have left prospective buyers unable to afford mortgages and discouraged existing property owners from taking out home equity loans or refinancing. Selling fractional interests to investors has emerged as an alternative way for Americans to tap roughly $30 trillion of wealth locked up in their homes.

“From Wall Street’s perspective, it’s an enormous amount of home equity that is illiquid that they might help households access,” said Tomasz Piskorski, a professor of real estate finance at Columbia Business School. “Even if you get just a small portion of this, it’s a pretty substantial business opportunity.”

Harleth, previously director of rooms at the former Trump International Hotel in Washington, was recruited by First Lady Melania Trump to serve as chief usher — the White House’s head of house-

hold staff and operations. He began setting up Generational Equity after being dismissed from that job on the morning of Jan. 20, 2021 — hours before President Joe Biden moved in to the executive mansion.

A November filing with the U.S. Securities and Exchange Commission lists one other Generational Equity shareholder, Marcia Lee Samples, Trump’s former director of White House Management, who later served as chief executive officer of the 2020 Republican National Convention.

Harleth, 40, cites his family history — including the plight of his grandmother, who migrated to the U.S. as an indigenous Mexican and was homeless until being taken in by a Native American reservation — as motivation for creating Generational Equity.

Teaming up with a co-investor results in a larger down payment, allowing the prospective homebuyer to take out a smaller, more affordable mortgage. The investor in turn gets to share in the property’s future appreciation.

“GEL is building a marketplace that will enable homebuyers to finance their house using both equity and debt,” the company said in an emailed statement. “This process will result in responsible and sustainable homeownership, while reducing debt and providing significant affordability for homebuyers.”

Here’s how it works: After obtaining a mortgage from an approved lender, the homeowner and Generational Equity would enter into a shared-equity agreement. The firm’s real estate fund would then pay its portion of the purchase price at closing.

While the shared-equity agree-

ments would typically last 30 years, investors wouldn’t have to wait that long. They can use Generational Equity’s technology platform to buy and sell shares in the fund that holds the home-equity stakes.

Ohio focus Generational Equity registered as an exempt investment adviser in November and set up a real estate fund that raised about $100 million from a single investor, according to the filing. The firm plans to initially invest in homes in Ohio.

The state’s relatively affordable housing has, counterintuitively, stung some aspiring homeowners.

The low prices attract bids from big investors, including American Homes 4 Rent and VineBrook Homes, that have converted properties into rentals, often charging more per month than a mortgage.

This has contributed to rising rents and a dearth of moderately priced homes, drawing scrutiny from lawmakers.

Republican state Senator Bill Blessing has proposed a monthly tax of $1,500 per property on entities that own more than 50 single-, double- or triple-family homes in one county. U.S. Senator Sherrod Brown, an Ohio Democrat, is co-sponsoring a bill that would restrict tax breaks for investors that own 50 or more single-family rental homes.

“Housing was rarely discussed as an issue at the statehouse” in the past, said Marcus Roth, communications and development director for the nonprofit Coalition on Homelessness & Housing in Ohio. “But last year it really exploded.”

Consulting staff Generational Equity’s consulting staff includes Justin Bis, a onetime executive director of the Ohio Republican Party who was associate director of presidential personnel under Trump. Joseph Bottari, the firm’s vice president of business development, is a former member of the finance team for the Republican National Committee who worked as an associate director in Trump’s National Economic Council.

At least four other firms buy or facilitate the purchase of fractional interests from homeowners, including Point, Unison, Unlock and Hometap Equity Partners. Eoin Matthews, a Point co-founder, said he expects the industry to originate $2 billion of fractional home interests this year and $5 billion in 2025.

“You can buy and sell equity in your home like you can sell some of the stocks in your portfolio,” he said in a phone interview.

Unlike Generational Equity, Point and most of its peers only deal with existing homeowners. Buying shares in newly purchased homes could be tricky, Matthews said, because stakes in such properties “are a riskier piece of equity and very hard to price in the current market.”

There are also structural and institutional barriers to using equity financing in the U.S. housing market, said Andrew Caplin, an economics professor at New York University. He has seen roughly 50 models for creating “partnership markets” in residential real estate — none of which have succeeded — since publishing a book on the subject in 1997.

“The logic is that you shouldn’t go all debt on a big asset,” Caplin said.

“It’s generally a very good idea, but one that is very hard to implement.”

The federal government wants more information from Sandusky-based Cedar Fair (NYSE: FUN) and Six Flags Entertainment Corp. (NYSE: SIX) of Arlington, Texas, about the planned combination of the amusement park operators.

Cedar Fair said in a regulatory filing that both companies on Monday, Jan. 22, “received a request for additional information and documentary materials from the Department of Justice in connection with the DOJ’s review” of the deal.

Six Flags and Cedar Fair “will use their reasonable best efforts to certify substantial compliance” with the request, which is the second from the government, by May 2, the filing stated. The companies said they continue to expect the deal to close in the first half of 2024.

The Reuters news service noted that this second request from DOJ about the Cedar Fair/Six Flags deal “comes at a time when deals in the U.S. are facing anti-trust scrutiny from regulators, as well as consumer interest groups.”

Cedar Fair and Six Flags announced the planned combination last November. The deal would create a combined valuation of $8 billion, including debt.

The merger would create a combined valuation of $8B, including debt.

The new company will have the Six Flags name and will trade under the FUN ticker symbol that Cedar Fair has used. It will be headquartered in Charlotte, North Carolina, where Cedar Fair has been migrating some of its executive operations. (Cedar Fair operates the Carowinds Park in Charlotte.) However, the combined business “will maintain significant finance and administrative operations in Sandusky,” Cedar Fair and Six Flags said.

Cedar Fair and Six Flags said the combined company will operate a portfolio of 27 amusement parks, 15 water parks and nine resort properties across 17 states in the U.S., Canada, and Mexico. They said the deal creates a company with a more diversified geographic footprint, offering a “more balanced presence in year-round operating climates.”

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A panel including representatives from GCP, Cleveland-Cliffs, Avient, Nestle and Avery Dennison discussed sustainability. | MICHAEL COLLIER/GCP

GCP’s Sustainability Summit sees more participants and protesters than in ’23

By Kim Palmer

More than 800 participants signed up for the second annual Greater Cleveland Partnership (GCP) Sustainability Summit held at the Huntington Convention Center on Tuesday, Jan. 23.

The first summit, held in 2023, brought in about 400 attendees from the environmental, civic and business communities.

The increase in attendance is because, “sustainability is a business imperative and growth opportunity,” said Baiju Shah, CEO of GCP. “We know it’s right for your purpose, it’s right for your people and it’s right for our planet. And we know the momentum behind it continues to grow.”

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The sustainable ‘controversy’ The event saw more than double the registrations—even if some of the attendees came for the sole purpose of walking out on the keynote speaker, Kaitlin Bergan, BlackRock’s head of sustainable client solutions.

Dozens of attendees left after Shah introduced Bergan who, in her remarks, talked about the role of environmental, sustainability and governance (ESG) in asset management and investing.

The protesters left the talk and held a “teach-in” in response, saying the event was “sullied by the keynote spokesperson from BlackRock, the world’s largest asset management firm” and “one of the largest investors in fossil fuels,” according to a statement from the organizers.

In her discussion, Bergan talked about sustainability as part of the broader economy and as a trend with investors and consumers. She also stressed that ESG considerations when looking at corporate investment were not entirely new.

“For decades as investors, industry-wide, we have thought about issues like corporate governance, thought about how does a company’s particular placement geographically affect its risk of extreme weather events? Thought about how compensation and

employee retention ultimately affect a company’s performance?” she said.

Those considerations are not new but as a financial fiduciary and investor, she added, the firm always takes into account how those ESG factors drive company performance. “What we’re thinking about is value, not values,” she added.

The transition to decarbonization Touching upon a survey of 200 of BlackRock’s biggest global clients about the importance of ESG initiatives.

Bergan pointed out 56% of those surveyed responded that they are focused on investing in companies that have a good or service involved with the transition to a low-carbon economy.

The report also found that 46% said that navigating the transition is actually the most important investment priority over the next one to three years.

“This is such an economic opportunity right now for companies and investors alike because of some mega forces that we’re seeing in the economy, including climate tech and other huge advances, creating opportunity,” Bergan said.

She did warn that not all decarbonization strategies are sustainable, particularly when it comes to the need for the critical minerals required to create electric vehicle batteries. Something like that is necessary in many ways for the transition to a low-carbon economy.

“We have products that are necessary in many ways for the transition to a low carbon economy, but we have to be very clear for clients who have these (decarbonization) objectives,” Bergan said.

Collaboration and communication Other summit speakers drilled down into how their companies deal with creating and selling their own sustainability programs, both internally and externally.

“It’s not really about winning just for your company,” Chastity McLeod, Nestle’s vice president of sustainability in North America, told the audience. “If you want to do the right thing for the planet, you cannot do it without working with others to scale and drive initiatives forward.”

McLeod said that it is becoming apparent that any company, regardless of the sector, will have to absorb some of the initial costs around sustainable innovation in order to scale up those technologies and drive product costs down.

Often, she said, that means competitors need to work together.

“We have to collaborate. We have to get this right. It’s bigger than our company. It’s bigger than our competition with each other,” McLeod said.

Another panelist, Walter Ripple, Avient Corp.’s vice president of sustainability, said that with four business units, more than 100 plants and lots of sub-business units, he found that the company’s sustainability efforts were going unnoticed and underappreciated.

The specialty polymer manufacturer, headquartered in Avon Lake, was making strides in launching sustainable products as part of the larger supply chain, but the message was getting lost.

“It was a real mess for our employees who knew all these great things you’re doing around sustainability,” Ripple said about efforts to get buy-in from such a large and diverse company.

“The other thing is that we weren’t sharing best practices throughout the organization,” he said.

Avient in 2019 established a sustainability council populated with leaders from all of the company’s business units from different departments and regions, he explained.

“It created not only communication but full engagement throughout the organization, all the way to our executive team and across all our functions. It really helped to accelerate all of our efforts around sustainability,” Ripple said.

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CEO Barlage unsure if Cavs will stay on Bally Sports Team is considering several broadcast possibilities for future

By Joe Scalzo

Over the last year, Cavaliers CEO Nic Barlage has experienced a lot of emotions about the situation with Diamond Sports Group and Bally Sports.

Recently, he felt a new one: optimism.

Thanks to an investment from Amazon and a settlement with its parent company, Sinclair Inc., Diamond put forth a plan that would allow it to emerge from bankruptcy and continue broadcasting NBA, MLB and NHL games. Diamond-owned Bally Sports Ohio broadcasts Cavaliers games, while Bally Sports Great Lakes airs Guardians games.

“That’s an incredibly positive step in regard to righting the ship,” said Barlage, who spoke to the Pro Football Hall of Fame luncheon club on Monday, Jan. 22, in Canton. “There’s a lot left of this tale to be told, but they took a quantum step in securing their future and creating a healthier outlook.

“They’ve got a chance. Last Wednesday (Jan. 17), I wouldn’t have given them a good chance.”

Diamond reached an agreement with the NBA in November that allowed Diamond to broadcast games in 15 league markets, including Cleveland, through the end of the 2023-24 season.

Although the Cavaliers have another year left on their TV contract, which pays them $42 million per year, many observers expected Diamond to release the broadcasting rights back to those teams at the end of this season.

The Amazon deal changes that.

The Cavaliers have prepared for several possibilities regarding their TV future — Barlage said the Cavs meet several times each week to discuss it — but this month’s news was a bit of a surprise, if only because it didn’t look like Diamond had a realistic path forward.

Still, asked if he thinks Cavs games will remain on Bally next year or have a new broadcast home, Barlage said he didn’t know.

“It’s so hard to tell,” he said. “I give Bally and Diamond a ton of credit for what they’ve been able to do in regard to continuing to keep the train moving down the tracks, but to say I know what it’s going to look like next season right now? I can’t say that. I think we’re still in the same place as we were before. We’re still evaluating opportunities and we’re still making sure we have contingency plans wrapped around to make sure fans are served as the core. Beyond that, it’s going to be interesting to see how Bally and Diamond want to engage.”

One possibility would be for the Cavaliers to choose a local, over-the-air option, something both the Phoenix Suns and the

Utah Jazz have done this season.

Both teams are taking a financial haircut on the deals — and the Cavaliers would doubtlessly do the same — but it would solve one issue that’s been bothering Barlage and his team: viewership.

“We haven’t answered our viewership situation,” he said.

“Right now, we’re reaching one in three people in our television region, which extends from the shores of Lake Erie to the southern edge of Canton. That’s not good enough. That’s not fair.

We’ve got to figure out a better solution.

“That’s not me calling out Bally’s or Diamond. That’s me saying as an overall group, we’ve got to put the media puzzle pieces together to be more recognizable and more accessible to fans because right now, we’re not doing that. We’re working on it. We’ll get there, I promise that, but when we get there is still TBD. It’s based on how some of these things evolve on their (Diamond’s) side.”

The Cavaliers’ other major broadcast goal? Finding a permanent, sustainable broadcast home.

“We want to create a sustainable solution so our fans understand what a destination looks like for Cavaliers basketball and all of our teams,” said Barlage, whose Rock Entertainment Group also oversees the AHL’s Cleveland Monsters and the NBA G League’s Cleveland Charge. “Ultimately, we want to build something over a period of time where we’re not worried about the cord being pulled out tomorrow or the next day.”

Here are three other topics Barlage discussed in the Jan. 22 speech:

Cavaliers CEO Nic Barlage laughs during his speech in front of the Pro Football Hall of Fame luncheon club Jan. 22, in Canton. | JOE SCALZO

“We want to create a sustainable solution so our fans understand what a destination looks like for Cavaliers basketball and all of our teams.”

— Nic Barlage, Cavaliers CEO sources you surround him with and I think we check a lot of those boxes for him,” Barlage said. “We feel like our chances are just as good as anyone in regard to keeping him, but at the end of the day he’ll have to make his own decision.”

The Cavaliers’ Paris trip Cleveland played the Brooklyn Nets in Paris on Jan. 11 in Paris, marking the Cavs’ first regular season game outside of North America.

The Cavaliers brought 272 team members to France to pull off the

five-day trip, which was part of a bigger strategy to increase the team’s international profile. The Paris game generated 700 million impressions tied either to Cleveland or the Cleveland Cavaliers, which equated to about $12.4 million in earned media, Barlage said.

But, Barlage added with a laugh, that paled in comparison to when the Cavaliers announced Browns defensive end Myles Garrett would join the Cavaliers as a minority partner.

“We got 1.3 billion impressions and generated just over $18 million in earned media (with Garrett), so

that shows you the power of football and the power of what goes in Northeast Ohio and across the world,” he said.

The Cavaliers have to petition the league every three to five years for international games, whether that’s a preseason game or a regular season game. Cleveland’s last game overseas was in 2015 when it played in Brazil.

“We don’t plan on waiting another nine years to play abroad,” Barlage said. “We plan on playing abroad every opportunity we can get. Not because we don’t want to play home games here in Northeast Ohio. Just because it’s a great opportunity for us to tell the story of what we do in Northeast Ohio and to share Cleveland on our chest. We want to represent the region and the state and showcase the game we all love abroad.”

Guardians ownership Barlage did get one curveball from a member of the Jan. 22 crowd, who asked him whether Cavaliers owner Dan Gilbert has ever approached the Dolans about buying the Indians/Guardians.

Barlage laughed, then said, “So, look, the Dolans and the Guardians are fantastic neighbors of ours.

And, actually, they just struck a deal with David Blitzer and Harris-Blitzer Sports & Entertainment Group just bought into the Hall of Fame down here as well. We know David very well. We think it’s a great combination as we go forward. But the short answer to your question is no, no we haven’t.”

Donovan Mitchell’s future Barlage said he couldn’t predict whether the Cavaliers guard would sign an extension with the Cavaliers this summer.

“I don’t have a crystal ball,” he said.

Still, Barlage said Mitchell enjoys playing in Cleveland and he said it’s the Cavaliers’ job to make Mitchell’s current situation as attractive as possible.

“Money will not hold us back — we will put the most money we possibly can in front of him — and we’ll work with his team and, more importantly, his family to ultimately find a fit here for him over a longer period of time,” he said.

Mitchell declined to sign an extension with the Cavs before this season and has just one guaranteed year left on his contract. Mitchell has a player option for $37.1 million in 2025-26, although no one expects him to exercise it. Mitchell can still sign a three-year extension this summer worth close to $150 million.

“Whenever you think about a superstar like Donovan, what’s most important to him is winning, it’s the team, it’s the re-

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JANUARY 29, 2024 | CRAIN’S CLEVELAND BUSINESS | 7

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Bobby George’s River Garden concept prepped for Flats

By Stan Bullard

Highland Park Golf Course in Highland Hills | HIGHLAND PARK GOLF COURSE

Highland Park Golf Course raising prices for most rounds Move is part of plan to get city-owned course back to solvency

operations at Troon, told council.

Troon is partnering with the Highland Park Golf Foundation (HPGF), which was chosen by the city in January of 2023 to lead the revitalization, operations and management of the only public

By Joe Scalzo course near Cleveland’s East Side.

Troon manages more than 750 Higher prices are coming to courses worldwide and 140 muHighland Golf Course.

But like any good course, it’s of- nicipal courses in the U.S. Troon recommended the price fering relief.

Cleveland City Council ap- increases after studying Highproved an emergency ordinance land’s prices compared to other on Monday, Jan. 22, that allows public golf courses in the area. the course to raise prices for most Bednar said Highland Park’s pricrounds. The move is part of a larg- es were among the lowest — and er five-year plan to get the city- still are — and that the company plans to evaluate the course’s pricowned course back to solvency.

Weekday 18-hole rates will actu- ing each year.

“Our competition doesn’t stay ally decrease, with riding rates dropping from $39 in 2023 to $36 the same every year, so we need to in 2024, and walking rates falling look at this on an ongoing basis,” he said. from $26 to $23.

Highland lost $50,000 in 2023, But the nine-hole riding rates on weekdays will increase from Bednar said, but the course ex$21 to $24, while the walking rates ceeded HPGF/Troon’s earnings expectations by about $100,000. will jump to $17 from $14.

HPGF/Troon assumed operations on May 22, just as the peak golf season was starting.

“It was a very good first year overall,” he said.

Facility improvements planned for 2024 include on— Nick Bednar, vice president of operations at Troon going golf course conditioning improvements; a mobile On weekends, the 18-hole rid- app that will include a course GPS; ing rate will increase from $40 to an additional 90 golf carts, which $45 in 2024, while the walking rate will boost the course’s available will jump from $27 to $32. The carts from 45 in 2023 to 135 this nine-hole riding rate jumps from year; expanded cart paths; and $22 to $26, while the 9-hole walk- improved curb appeal and traffic ing rate increases from $15 to $19. flow around the clubhouse.

Highland is also installing safety The city will offer Cleveland residents a free discount card, which netting near Green Road, part of a gives them $6 off 18-hole rates and larger plan to add a driving range $2 off 9-hole rates. Non-residents and a learning center, which will can buy a discount card — called provide additional revenue.

HPGF and Troon are projecting an HP Card — for $20, offering them the same discounts as the $1.28 million in golf revenue in resident card. Non-residents 2024 with a $185,550 net loss. Bedmade up about 85% of Highland’s nar expects Highland to break golfers in 2023, which encompass- even as early as 2025.

“We’re right on track with that es just over 50,000 rounds.

“Even with the increases, High- target,” he said. “With the imland is still one of the most afford- provements we mentioned, as able facilities in town,” Nick Bed- well as the small pricing increases, nar, the vice president of we’re confident we’ll get there.”

“Even with the increases, Highland is still one of the most affordable facilities in town.”

Although redevelopment efforts in the Cleveland Flats have focused on making it a yearround live, work-and-play land, the latest concept for Old River Road by restaurant/bar operator and property owner Bobby George glorifies enjoyment of the summer months.

George won Cleveland City Planning Commission approval Friday, Jan. 19, for a plan to demolish a too-remodeled-to-careabout building at 1204 Old River Road to create what he and Cleveland architecture firm Bowen+ call River Garden with riverfront dining and games such as cornhole next to the Cuyahoga River. Buildings north and south would be remodeled to house multiple food options.

The plan also calls for the storefront of the Italianate Victorian facade of the building to the south, 1220 Old River Road, now the bricked-in ROC nightclub, to be restored to its 19th-century appearance. And the exterior wood paneling at 1198 Old River Road would be removed to recast it as a contemporary building.

Meantime, the river sides of 1220 and 1198 Old River would be deconstructed to provide multilevel outdoor dining with river views. Between the two the socalled “River Garden” would be constructed behind a wall on Old River with an arched doorway that would be thrown open in the summer months.

George, who was present at the online virtual hearing, said the proposal is to bring a new level of riverfront dining to town designed for a variety of customers.

The plan envisions the first floor of the 1220 Old River as several concepts and food options and even an ice cream kiosk in

the open-air section of the plaza.

David Bowen, a member of Bowen+, set a high bar for the project by comparing the proposed River Garden to similar concepts in Miami and Palermo, Italy.

When commission members quizzed the presenters about preserving the historic character of 1220 Old River, George said he hopes to get state and federal tax credits for that building “so you can be as critical as you want.

They’ll be harder on me.”

Asked what would become of the open space in the winter months, George said he would like to extend the season as much as possible “to make it more profitable” but said winter operations are tricky.

“We’ll light it up with Christmas lights in the winter,” he said.

In terms of restaurant concepts, George said the idea is to have multiple price points at the property to attract as many people as possible, including lower-cost casual ones to attract families with children. Upper-end dining in the enclosed buildings would be a Mediterranean concept, he said.

A key feature of the plan is that a brick wall, designed to match the brick common in the Flats, would enclose the Old River side of the River Garden, but would feature a huge arch with doors that would open up when the River Garden is operating.

“It’s to provide a peek into what’s going on inside the River Garden,” Bowen said.

Support for the plan was voiced by multiple stakeholders.

Councilman Kerry McCormack, whose Ward 3 includes the Flats and downtown, said he supported the plan.

“It’s no surprise that this part of Old River Road needs new energy,” McCormack said. “This

seems like it would add a vibrancy to the river that would attract people to the area.”

Michael Deemer, president and CEO of Downtown Cleveland Inc., sent a letter to the commission supporting the plan.

Jim Haviland, executive director of Flats Forward Inc., the Flats stakeholder group, said, “This plan is exciting for sure. We look forward to working with others to help this embrace other properties to achieve the area’s Vision for the Valley riverfront plan.”

Joyce Pan Huang, Cleveland City Planning director, said the city’s Flats Design Review committee liked the “high quality of the design.”

Some specifications that normally get aired about restaurant and nightspot plans were not discussed at the hearing, such as the number of seats in the restaurants, due to the early stage of the designs.

George’s comments during the session indicated the project would have a multimillion-dollar cost.

Lillian Kuri, planning commission chairwoman (as well as president and CEO of the Cleveland Foundation), said she looks forward to seeing more detailed designs soon. The conceptual approval the River Garden plan received allows the owner and designers to add more details to the proposal before returning for more reviews and being able to secure building permits.

George has played an increasingly prominent role on the East Bank of the Flats, partnering with GBX Group of Cleveland on other Old River Road for purchase last year and, earlier this winter, he secured a role in the retail or storefront level of the Wolstein Group-developed Flats at East Bank building.

Three little-used buildings on Old River Road in the Cleveland Flats will be repurposed as a restaurant complex with an open-air summer food and entertainment area dubbed River Garden. | BOWEN+

8 | CRAIN’S CLEVELAND BUSINESS | JANUARY 29, 2024

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SPONSORED CONTENT

January 29, 2024 S1

CORPORATE GROWTH & M&A Contents

PRESIDENT’S LETTER

ACG Cleveland: A network of robust deal makers and creating exceptional value for our members.

By Jay M. Moroscak

W

hen you look back at your friendships and business connections, so many of them originated with an ACG event.

It is through these relationships that professional connectivity is made and where deals get done. It is no surprise to this readership that Cleveland has a long history as a hotspot for M&A dealmaking. Our ACG members are at the forefront of that dealmaking community, supplying the knowledge, talent and energy at its core.

ACG Cleveland is one of the preeminent chapters within the ACG network. Our activity and size far outpace a market of our size. We have an unbelievably strong group of professionals that give back to the chapter. With more than 500 members and scores of events, there is a palpable energy surrounding our group, propelling the chapter

The Cleveland chapter delivers numerous networking opportunities MOROSCAK through annual marquee events such as the 27th Annual Deal Makers Awards, Deal Source, the Summer Social at Shoreby Club, the annual golf outing at Firestone and the ACG Cup. We also offer highly valuable and innovative content year-round on a smaller, more personalized scale.

Our large-format, marquee events are the cornerstones, but there is so much more with unique themes and activities that should appeal to everyone. Our “networks within the network” — Women in Transactions

(WiT), Young ACG (YACG) and ACG Akron — regularly feature special topics and engaging events year-round, all tailored to our diverse membership.

I’ve been an ACG member for 22 years, and it is my honor and privilege to lead our chapter. The deal climate has its ups and downs, but ACG Cleveland is a welcoming arena to build relationships and find opportunities. I’m grateful to give back to an organization that allows so much involvement and growth. I look forward to sharing our successes with you during the upcoming year.

S2 M&A insurance choices are really investment decisions S3 How state tax elections could steal the show in your 2024 sale S4 Selling a business in the current high-deal volume environment S5 Valuation trends and expectations for 2024 S6 Cultural fit matters in dealmaking S6 3 steps to prepare for an effective M&A exit S7 The Corporate Transparency Act: Are you ready?

S8 Prepare early to maximize valuation in a sale process S9 Minimizing tax risks a key part of structuring a successful deal S10 How private equity firms can accelerate growth with marketing AI S11 A proactive approach to deal origination can add value to your process S12 Family business succession requires calculated planning S13 Not just any ChatGPT NDA S14 Practical advice for distressed M&A transactions

Jay M. Moroscak is a senior vice president with Aon Cleveland. Contact him at 216-272-2155 or jay.moroscak@ aon.com

ABOUT ACG ACG is a global organization focused on driving middle-market growth. Its 15,000-plus members include professionals from private equity firms, corporations and lenders that invest in middle-market companies, as well as experts from law, accounting, investment banking and other firms that provide advisory services. Learn more at www.acg.org. ACG Cleveland serves professionals in Northeast Ohio and has about 500 members. For more information, visit www.ACGcleveland.org.

S15 Build resilience by investing in people, risk management S16 Navigating buy-side tax considerations in mergers and acquisitions S16 Protect your time and money from legal diligence through closing S18 Northeast Ohio’s top deal makers to be honored S18 Officers and Board of Directors S18 2024 events calendar

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S2 | January 29, 2024

CORPORATE GROWTH & M&A

SPONSORED CONTENT

M&A insurance choices are really investment decisions

By Kip Irle

B

oth middle-market CEOs were experienced and savvy, and both pursued strikingly similar acquisitions. Two years later, one of the deals had checked every box and exceeded the buyer’s most optimistic expectations.

The other was stumbling along and a constant source of criticism from the board. Would you believe the difference largely came down to how the two CEOs viewed risk and insurance?

The CEO of the faltering deal faced more than their fair share of unpleasant surprises, among them a handful of extraordinary medical claims resulting from worker injuries, a programming error that triggered a costly product recall and a three-week shutdown of a critical overseas vendor to repair damage from a typhoon.

The other CEO also encountered unanticipated problems large enough to impact earnings. Why didn’t those issues derail the newly combined enterprise’s goals? Although nobody can accurately predict every situation capable of creating headaches for companies, the CEO’s mandate to the acquisition team emphasized both a frank examination of potential risks and the identification of strategies to best address those risks.

The successful CEO sought to

decapitalize what the company might otherwise spend on insurance.

Armed with a comprehensive look at risk management, the leadership IRLE team was able to consider a variety of strategies to best address areas of concern. Those strategies included retaining manageable risks by increasing deductibles, exploring ways to link specific risks more affordably with insurance policies and using captives and other vehicles.

Taking such a strategic approach to the combined companies’ risk management allowed the management team to redeploy capital they might have otherwise spent on insurance to fund initiatives supporting growth and a stronger competitive position. Instead of thinking of insurance as just another inevitable expense, the CEO approached the risk management spend as an investment in the companies’ future.

Of course, none of that would have been possible had the CEO not been open to discussing shifting strategies for funding risk mitigation. If leadership intends to spend a dollar in capitalizing insurance, it

needs to approach it with the same level of rigor it would assign to capitalizing an investment in a plant expansion.

The business case for risk management demands a detailed analysis of the finances, the expected utility and its impact on the combined companies’ return on capital. Only with that level of understanding can the leadership team confidently decide to transform the use of insurance into an investment decision that not only drives costs out of traditional insurance spending but also provides an opportunity to increase market leverage and competitive advantages.

deserving the greatest focus and funding.

A universal outcome of most M&A transactions is an increase in financial wherewithal. That has the potential to fund a more effective risk management program, but before the company can determine whether it wants to — or should — capitalize insurance or assume risk on its balance sheet, it must understand its financial risk-bearing capacity. Knowing what the leadership team will have available to work with requires the same kind of financial analysis that is a part of other significant investment decisions.

A universal outcome of most M&A transactions is an increase in financial wherewithal.

The leadership team drew upon the specialized expertise of their risk management consultants to better understand the company’s business risk from an insurance perspective. Because not all risks are created equal, identifying and prioritizing risks is the first step.

The newly combined entity would face hundreds of potential risks and could not mitigate them all, so the consultants identified the top handful of risks

The consultants also created a sensitivity analysis for insurance, which begins by quantifying the expected annual dollar value of losses in each major line of coverage (e.g., general liability, workers’ compensation). By modeling both entities individually and combining the forward-looking exposure base, unit rate averages and volatility, the consultants presented an actuarially sound forecast of future economic impact, giving the leadership team statistical certainty to

support decision-making. If the analysis concludes that expected losses in a particular category are well below what insurance carriers would charge, the leadership team can consider alternatives.

Finally, given an actuarial understanding of the combined companies’ prioritized risks, risk-bearing capacity, and likely losses, the consultant identified options for efficiently addressing those risks.

Should the team choose to go ahead and purchase traditional insurance, the information gathered through the process will help them determine the appropriate investment amount and negotiate the best rates. Conversely, if leadership recognizes they can instead use the capital to build and grow the business, that’s true risk optimization.

Ultimately, choosing whether to use insurance is an investment decision. By partnering with an experienced insurance risk management consultant, the CEO ensured the leadership team understood all their options to make the best use of their capital, achieve a competitive advantage and create more value.

Kip Irle is the leader of global M&A and transactions solutions at Hylant.

Contact him at 312-283-1339 or Kip.Irle@Hylant.com.

Insuring Investments.

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What you don’t know can hurt you in small or large business transactions like mergers and acquisitions—especially when it comes to insuring risks before, during and after a transaction takes place.

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Learn more at www.hylant.com/mats.

Insurance, employee benefits and risk management consulting for businesses and individuals.

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SPONSORED CONTENT

January 29, 2024 | S3

CORPORATE GROWTH & M&A

How state tax elections could steal the show in your 2024 sale

By Samantha Smudz

I

f you are a business owner looking to sell, advance planning can be the key to help minimize your tax burden and maximize your profits. In particular, recently created state elections for pass-through entities have had a surprising reach, in some cases changing the general dichotomy in the structuring goals of S corporation sellers and buyers.

In general, S corporation owners selling their business want to sell equity so they can pay tax at more favorable capital gain rates. However, buyers typically want to structure transactions in a way that allows them to recover the purchase price in depreciation and amortization benefits, often resulting in a portion of the sellers’ gain to be taxed at higher rates. This difference in goals can create strains in purchase price negotiations and, in some cases, even delay the timing on closing a transaction.

The pass-through entity tax election, often paired with a pre-transaction “F” reorganization, can help bridge the gap between buyer and seller and set up sellers for significant benefits during the sale.

Impact of pass-through entity taxes One of the most impactful provisions of the Tax Cuts and Jobs Act of 2017 created a limitation of $10,000 on deductions

of state income taxes an individual can claim on their federal income tax return. Since then, numerous states, including Ohio, have created passthrough entity tax SMUDZ (PTET) elections. A PTET allows these entities to pay income tax at the entity level, resulting in a federal deduction of more than $10,000 in state income taxes paid by their own businesses.

Often, the seller’s largest tax bill is in the year they sell their business. For example, the sale of equity in an S corporation for

of “gross-up” payments due to make a seller whole for selling assets.

It is also imperative to know that PTETs will vary by state — including timing, single or multiple-year options, credit amount on your individual income tax return and even when you can deduct the taxes paid. For instance, some states require elections to be completed early in a tax year. Sellers should consider the PTET election as early as possible, putting pen to paper to determine whether it could help in the sale of your business.

Regardless of the particulars in your state, timing and structuring the transaction specifically as an asset sale versus equity will be critical factors to success.

Sellers should consider the PTET election as early as possible, putting pen to paper to determine whether it could help in the sale of your business. $20 million of gain could create a federal and state tax bill of well over $5 million.

Without a PTET election in place for a state that charges an income tax of 4%, the seller may lose almost $800,000 in federal tax deductions. Those deductions could be enough to make an asset sale more beneficial than an equity sale. For buyers, this could mean the eliminations

Pre-transaction “F” reorganization In order for a taxpayer to take advantage of the PTET in the year of a transaction, first the deal must be structured as a sale at the entity level rather than a sale of equity.

Completing an “F” reorganization before a transaction can work well with the PTET. An “F” reorganization has almost become

the norm when acquiring or selling an S corporation, and for good reason. In this context, the reorganization creates a new holding corporation above an operating company. As the operating company becomes disregarded for federal income tax purposes, a purchase/sale of all the equity in a disregarded entity is treated as a sale and purchase of assets. This allows sellers who plan ahead to make the potentially beneficial PTET election.

Potential tax benefits also allow: • Sellers a tax-deferred rollover of equity into the purchasing entity.

• Buyers that are ineligible S corporation shareholders to potentially maintain a pass-through entity structure post-close.

While the M&A market continues to ebb and flow, if you plan to sell your company

in the near future, the best advice is to be aware of the tax opportunities available to you before going down the path of a sale. Planning ahead could significantly impact your success.

Samantha Smudz, CPA, JD, is a tax partner in the Transaction Services Group at Cohen & Company.

Contact her at 216-649-5546 or ssmudz@cohencpa.com.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this article is considered accurate as of the date of publishing. Any action taken based on information in this article should be taken only after a detailed review of the specific facts, circumstances and current law.

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Partner, Transaction Services 216.774.1202 jthomas@cohencpa.com

Partner, Assurance 216.774.1120 pryan@cohencpa.com

Partner, Transaction Services 216.649.5546 ssmudz@cohencpa.com

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CORPORATE GROWTH & M&A

Selling a business in the current high-deal volume environment

By Dustin J. Vrabel

S

elling a business in any environment can be challenging when planning is not addressed early in the M&A process. The challenges are heightened in the current environment where buyers are looking at multiple potential deals simultaneously, expecting to close as efficiently as possible before moving on to the next opportunity. With the proper planning conducted by sellers before even identifying a buyer, however, a sale

transaction can be relatively smooth and maximize value to the seller.

Buyers have limited time and resources to dedicate to potential M&A VRABEL opportunities, and they need to focus on those target companies and transactions that are most likely to get to a successful closing. There are a number of steps that sellers should

consider implementing before going to market or engaging with potential buyers that will lend them credibility as a “real seller” and make them an attractive candidate for a deal.

Most sophisticated buyers will conduct a Quality of Earnings review (QofE) as part of their diligence to help validate add-backs/adjustments to EBITDA and justify valuation and sustainability of earnings, post-closing. Even if buyers will ultimately engage their own QofE, sellers demonstrate a level of seriousness

and commitment when they make the investment upfront and provide an independent QofE report to potential buyers. It also helps sellers identify add-backs to EBITDA that might have been overlooked. This approach can lead to a higher valuation and provide insight into what level of normalized working capital might be requested as a working capital peg in the letter of intent or definitive acquisition agreement.

Further, companies that historically had only internally prepared or accountantreviewed financial statements should

evaluate the cost and benefit of obtaining accountant-reviewed or audited financial statements, respectively, to make it easier for buyers to evaluate reliable financials with some degree of outside review.

Conducting an internal legal due diligence review is another step that helps lend credibility to sellers and, most importantly, can speed up the closing timeline. Many items such as ordinary course consents to change-in-control of material contracts are generally addressed after the LOI stage. However, certain items such as ownership/cap table records or real estate title defects with a long lead time should be handled in advance of deal talks to avoid delays.

Other items such as environmental, benefits, sales tax compliance and other legal issues can be uncovered and addressed as part of a legal due diligence review.

Buyers don’t expect to have every legal due diligence item identified, posted to a data room and covered off before the LOI — and they will certainly conduct their

Conducting an internal legal due diligence review is another step that helps lend credibility to sellers and, most importantly, can speed up the closing timeline. own independent review. Nevertheless, it makes it much easier for a buyer and builds trust when sellers are forthright with legal issues and propose solutions to address them via risk-sharing in the purchase agreement, transaction insurance, corrective action or other remedies.

If the internal legal due diligence review identifies material legal issues, then sellers should consider discussing potential transaction risk insurance solutions. While Representation and Warranty Insurance traditionally covers unknown issues in the event of breach of a rep or warranty in the definitive acquisition agreement, various tax indemnity and contingent liability insurance products can cover and ringfence liability for known contingent exposure in the areas of tax, employee benefits, environmental and litigation matters. Again, when the due diligence issues are brought to the forefront and addressed (and not discovered by buyer’s counsel or CPA firm late in the transaction process), it makes a deal more likely to close.

Sellers should also think about and propose to buyers what the business could look like post-closing, whether that be new opportunities and synergies or leadership and management if the primary owner of the business is going to be retiring or moving on to other things. These business items can enhance value to the deal, as many of the management/key employee issues are often addressed too late in the process. From a legal standpoint, addressing employee non-compete and employment or transaction/stay bonus 2024 Doug Sibila Testimonial final outlines.indd 1

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arrangements at the appropriate time for employees to consider and evaluate — and not waiting until right before closing — is something that can often be overlooked.

Finally, sellers and the entire transaction team must establish reasonable and firm deadlines with all members of the transaction team and help hold everyone accountable once an LOI is executed.

Despite what can be perceived as an adversarial situation, finalizing and closing a successful M&A transaction is more about collaboration among experienced parties, CPAs, counsel, bankers and other advisers.

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Set weekly or daily status calls and meetings and establish agreed-upon closing timelines. Determine expectations for turn times on the definitive acquisition agreement and ancillary drafts. Confirm deadlines for review and resolve comments on environmental reports, insurance reviews, title commitments and other diligence items.

These strategies are vital to keeping a transaction on track when buyers, sellers and advisers are working in a highvolume M&A environment.

al Dustin J. Vrabel, Esq., is lead partner of the M&A Group at Buckingham, Doolittle & Burroughs, LLC. Contact him at 330-491-5238 or dvrabel@bdblaw.com.

January 29, 2024 | S5

CORPORATE GROWTH & M&A

Valuation trends and expectations for 2024

By Andrew K. Petryk

2

023 could be considered a year during which buyers and sellers took time to “catch their breath” coming off the frenzied pace of 2022.

Market shocks of recession fears, persistent high-interest rates and geopolitical instability served to feed investor caution, leading many to hit the pause button on M&A and await better clarity on the macro environment.

The same catalysts that stalled dealmaking hold the potential to push deal flow higher and fuel a rebound in the M&A market in 2024. The weight of a threatening recession loomed large throughout much of 2023, yet the U.S. economy remained resilient.

Economists predict continued, albeit slow, growth, with real GDP to increase 2.4% in 2023 and 1.7% in 2024. Interest rates are predicted to moderate or decline in 2024, with analysts anticipating a Fed Funds rate of between 4% and 5% by year-end.

The credit markets remain open for good companies. The debt markets have improved notably in the last few months. Spreads are tightening, although all-in rates remain elevated given where reference rates sit (three-month CME Term SOFR around 5.4%, and prime at 8.5%). Nuances remain in a market where new private (non-bank) lenders continue to emerge to fill voids left by

PETRYK

the banks and syndicated markets, and alternative lenders are busy with mezzanine — an increasingly attractive financing option in the current environment.

The high-rate environment has decreased buyer leverage, putting pressure on valuations and causing a disconnect between buyers and sellers. As that gap narrows, we expect more movement in the M&A market. But make no mistake.

Quality reigns and great companies are achieving great valuations. Business models with strong recurring revenue and free cash flow, consistency of performance through COVID, and

requirements are heightened.

Signs of an uptick were visible during the third quarter. According to GF Data, valuations ticked up on middle-market private equity-backed M&A transactions, with the adjusted EBITDA multiple increasing to 7.5x — up nearly a full turn (0.9x) from the second quarter. Further, the year-to-date average of 7.3x falls just shy of the 7.4x observed in 2022.

Strategic buyers and financial buyers are sitting on cash, which will fuel the deal engine as acquisitions augment slower organic growth. Capital in the private equity coffers has ballooned to more than $955 billion as of the third quarter of 2023. More than 20% of that amount is tied to funds with a vintage of three years or more, which must be put to work.

But while there is capital to be deployed,

Strategic buyers and financial buyers are sitting on cash, which will fuel the deal engine as acquisitions augment slower organic growth. insulation from geopolitical risk are garnering even greater attention. The highest-quality companies see virtually no change in purchase price multiples.

While valuations remain strong for the best companies, the market is binary.

Transactions involving average companies are difficult to get done today. Diligence

fundraising has been more challenging today, with the total amount raised by closed funds down 12.9% through the third quarter. Sponsors are choosier about which investments to support and are not rushing to deploy capital. The slowdown is not entirely unexpected, coming off a record year in 2022 when

U.S.-based funds raised a notable $381 billion, according to PitchBook.

Significant pent-up demand has the deal pipeline near bursting, with 2024 likely to be an “opening of the floodgates” as buyers, sellers and lenders await bringing deals to market.

Andrew K. Petryk is a managing director and leads the Industrials practice at Brown Gibbons Lang & Co. Contact him at 216-920-6613 or apetryk@bglco.com.

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IN M&A AND CAPITAL MARKETS TRUSTED ADVISORS

Investment banking and financial advisory services for the global middle market

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CONSUMER • HEALTHCARE & LIFE SCIENCES • INDUSTRIALS • INFRASTRUCTURE & ENVIRONMENT • SERVICES • TECHNOLOGY Learn more at bglco.com.

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

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Cultural fit matters in dealmaking

By Albert D. Melchiorre

I

n order to successfully acquire a business, many challenges and obstacles must be overcome to complete the transaction.

MELCHIORRE First, one needs to determine its acquisition rationale and criteria. Inorganic growth by way of strategic acquisition can make sense for a business for a variety of different reasons, including: • access to new markets • product line diversification • expansion of production capabilities • geographical expansion • access to talent in both management and production.

Once the acquisition rationale has been determined and the target identified, an experienced deal team is paramount to successfully navigating the complexities of the transaction to close the deal. In today’s environment, it’s getting even more complex. Cultural fit is one of the most critical aspects of a successful transaction, which can sometimes be missed or overlooked.

Cultural fit is a crucial aspect in any M&A transaction because it can significantly impact the success or failure of the deal.

Cultural misalignment poses a risk to the merger’s success. Issues such as conflicting values, communication breakdowns and resistance to change can disrupt operations and lead to the failure of the M&A deal. There are several reasons why cultural fit matters, but here are a few that MelCap has seen that can determine success or failure: • Employee morale and engagement: A harmonious cultural fit helps maintain employee morale during times of change.

Employees who see a seamless integration of cultures are more likely to feel secure, engaged and motivated.

• Retention of key talent: Cultural alignment contributes to retaining key talent. Employees who identify with the newly formed culture are more likely to stay with the organization, reducing the “flight risk” of losing valuable skills and experience.

• Communication and collaboration: A shared cultural foundation fosters effective communication and collaboration. When employees understand and embrace a common set of values and norms, working together toward common goals becomes easier.

• Reduction of resistance to change: M&A transactions inherently involve change, and employees may resist change if they feel their culture is being disregarded. Cultural fit minimizes resistance by incorporating aspects of both organizations, creating a more inclusive and accepting environment.

• Productivity and efficiency: A cohesive culture can contribute to increased productivity and operational efficiency. When teams are aligned culturally, they are more likely to understand each other’s working styles and processes, leading to smoother operations.

Cultural fit matters in M&A transactions because it directly impacts the human aspect of the integration process.

Organizations that prioritize cultural compatibility are better positioned to create a cohesive and high-performing merged entity, leading to long-term success and sustainable growth.

Al Melchiorre is president and CEO of MelCap Partners, LLC. Contact him al@melcap.com.

3 steps to prepare for an effective M&A exit

By T. Ted Motheral and Jacob B. Derenthal

I

n today’s business landscape, successfully navigating a business sale requires meticulous planning and execution. Here is a summary of three crucial steps to ensure an effective M&A exit strategy: 1. Strategic alignment: To maximize success during a business exit, sellers should conduct a review of its financial, operational and legal position before engaging with potential merger or acquisition partners. Identifying the strategic goals of the selling business and its owners ensures that an exit path aligns with the company’s vision. Stakeholders should take advantage of this stage to consider challenges that will inform future negotiation of terms. With a solid foundation in place, the exiting company can be confident when it engages financial partners interested in acquiring the business.

2. Team preparation: M&A transactions involve complexities that demand a coordinated effort of the

MOTHERAL

DERENTHAL

exiting company’s employees and external transaction specialists. The typical team will include, at a minimum, representatives from finance, legal, human resources and operations departments.

Establishing lines of communication among the cross-functional team is essential for streamlining transaction execution.

3. Communication and stakeholder management: Effective communication is paramount.

Most decision makers must balance the need for employee subject matter expertise with a desire to keep the sale confidential. Managing the timing of communications with internal and external stakeholders is necessary for maintaining trust and minimizing

MelCap Partners would like to thank our clients and friends of the firm who helped us achieve another record year of deals closed in 2023. We are honored and humbled to be surrounded with such wonderful supporters!

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A successful M&A exit requires strategic forethought, collaboration and effective communication. disruptions. Companies should develop a communication plan that addresses the concerns applicable to each stakeholder group. Timely updates among the deal team can mitigate duplication of efforts during the transition. Additionally, companies should manage reputational risks by aligning their messaging with the values of the exiting and acquiring entities. Lean on advisers with transaction experience to guide the exiting management team and allow company employees to continue operating the selling business without becoming overwhelmed.

A successful M&A exit requires strategic forethought, collaboration and effective communication.

T. Ted Motheral is a partner and chair of Walter Haverfield’s Business Services Group. Contact him at 216-928-2967 or tmotheral@walterhav.com.

e Jacob B. Derenthal is a partner with Walter Haverfield’s Business Services Group. Contact him at 216-928-2933 or jderenthal@walterhav.com.

January 29, 2024 | S7

CORPORATE GROWTH & M&A

The Corporate Transparency Act: Are you ready?

By Jennifer L. Vergilii

T

he Corporate Transparency Act (CTA) was passed into law as part of the National Defense Authorization Act for fiscal year 2021 and took effect Jan. 1, 2024. The CTA regulates what types of entities are required to file a report with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and requires reporting of beneficial owners of such entities — individuals who own, control or take steps to create an entity. FinCEN estimates the reporting obligations under the CTA to impact more than 32 million pre-2024 entities and about 5 million entities per year formed in 2024 and over the next decade. In all likelihood, if you are an owner or can direct decisions of a limited liability company, corporation or other type of entity, you will have to report to FinCEN. Reporting is ongoing and failure to report will result in fines.

Requirements now mandated by the CTA and who could be affected Domestic and foreign companies registered to do business in the United States are generally required to self-report. While there are 23 different exemptions under the CTA, the exemptions are narrowly drafted

to exclude from reporting those types of entities that are already highly regulated, such as banks, insurance companies, public utilities and VERGILII large operating companies (companies with more than 20 full-time employees and federal tax filings that demonstrate more than $5 million in gross receipts or sales).

Reporting companies must report the following information: • legal name of the reporting company • any trade name or “dba” • address • jurisdiction of formation and • Employer Identification Number (EIN).

Likewise, beneficial owners of reporting companies must report: • legal name • date of birth • a unique identifying number (passport or driver license) and • address.

The CTA’s definition of a beneficial owner is broadly drafted to include any

individual who, directly or indirectly, exercises substantial control over a reporting company or controls at least 25% of the ownership interests.

“Substantial control” is interpreted to include any person who can direct or control decisions made by a company.

On Sept. 28, 2023, FinCEN extended the deadline to 90 days for entities formed in or after the calendar year 2024. Entities formed before 2024 have until Jan. 1, 2025, to file. FinCEN’s filing system is located at www.fincen.gov/boi.

The filing requirements under the CTA are not a “one and done” effort, but rather any time there is a change in beneficial ownership, the reporting entity is required to file an updated report within 30 days of the change.

Companies are encouraged to establish education and training protocols for

complying with this new law as the potential to misstep is great.

Additional information: 1. Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 (Sept. 30, 2022). https://www.federalregister. gov/documents/2022/09/30/2022-21020/ beneficial-ownership-information-reportingrequirements.

2. https://www.fincen.gov/sites/default/files/ shared/BOI_FAQs_FINAL_508.pdf at *10.

Jennifer L. Vergilii serves as firm vice chair, and she is a partner with the Corporate and Finance practice group at Calfee, Halter & Griswold LLP. Contact her at 216-622-8568 or jvergilii@calfee.com.

Congratulations to all ACG Cleveland Deal Maker Award nominees and honorees!

Calfee celebrates the accomplishments of MPE Partners, the ACG Cleveland PE Fund Deal Maker of the Year Award recipient!

Calfee is honored to represent many companies and private equity funds that generate employment and economic success in our region and beyond.

CALFEE.COM | 888.CALFEE1 | INFO@CALFEE.COM ©2024 Calfee, Halter & Griswold LLP. All Rights Reserved. 1405 East Sixth Street, Cleveland, OH 44114. ADVERTISING MATERIAL.

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Prepare early to maximize valuation in a sale process

By Jeff Johnston and Brian Weiss

W

ith over 40 years of combined experience as M&A advisers, we’ve advised many owners on selling their privately held businesses.

Some businesses are highly soughtafter, attracting the attention of multiple highly-motivated bidders.

The owners of these businesses typically begin planning for a sale well in advance and, with the help of an experienced M&A adviser, can position their companies in the best possible light.

Other businesses struggle to draw significant interest or do not achieve the owner’s desired valuation. In some cases, these businesses have JOHNSTON solid underlying fundamentals yet are unable to achieve an optimal result due to a lack of thoughtful preparation.

Completing successful M&A transactions has additional challenges in today’s post-COVID deal environment.

Economic uncertainty and WEISS elevated interest rates have cooled the overall market. Many buyers, however, are eager to put money to work. Corporates have record cash levels

on their balance sheets, and private equity firms must invest their committed capital to achieve desired fund returns. Given the market uncertainty, these buyers want to invest in the highest quality businesses. The best-prepared and marketed companies are achieving very strong outcomes.

Below are some ways business owners can prepare for a future sale: Diversify customers and suppliers: In the eyes of a buyer, one of

We have fresh ideas to move industrial businesses forward.

Through deep industry expertise, flawless execution, and nationwide resources, KeyBanc Capital Markets® has successfully closed nearly 300 M&A deals since 2019.

Industrial & Business Services

Distribution

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August 2023

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Visit key.com/M&A Let’s connect: Jeff Johnston, M&A Group Head and Managing Director jjohnston@key.com KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. ©2024 KeyCorp. 231116-2337329

the biggest risks to a business is an overdependence on a single or limited number of customers. A current owner may have a long, deep relationship with an important customer. Still, a buyer will rightly consider whether that customer’s loyalty will be as strong under new ownership.

Similarly, a buyer will view dependence on a single supplier as a potential risk to future production. Buyers will consider these risks in their valuation, so business owners should attempt to diversify both customers and suppliers as much as possible before a sale.

Vet historical financials: Buyers will want to ensure that the seller’s historical financials are trustworthy and will conduct financial due diligence, typically with their own accounting adviser. Business owners should consider having their annual financials audited by a credible accounting firm before a sale process — this will streamline due diligence and provide credibility to the numbers.

At the appropriate time, sellers should also consider retaining an established accounting firm to perform a Quality of Earning (QoE) analysis. This analysis will identify and adjust out any non-recurring items in the numbers, likely increasing profitability and further bolstering credibility.

Create budgets and projections: Owners should institute an annual budgeting process to create a detailed budget for each new year. Buyers will draw comfort from comparing past performance relative to budget.

Good performance vs. budget will lend credibility to the current owner and management team. In addition, companies should produce medium-term projections (i.e., three to five years) based on a detailed buildup of business drivers, including trackable key performance indicators. Buyers will use these projections to help value the business, so a thoughtful and logical buildup will help drive buyer confidence.

Focus on profitability: Businesses in most sectors will be valued based on their “normalized” profitability.

EBITDA, or earnings before interest, taxes, depreciation and amortization, is a commonly used profitability metric.

Therefore, owners who may have previously run the business to minimize taxes should focus on maximizing profitability before a sale. This could include cutting unnecessary costs and removing personal expenses from the business.

Identify long-term growth areas: Understandably, many owners planning a sale are focused solely on near-term growth to maximize the company’s financials at the time of the sale.

Buyers, however, will want to know the business will continue to grow after their purchase. A smart seller will set up the company for continued growth (through new product lines, geographic expansion, a pipeline of acquisition targets, etc.) and help the buyer formulate their own growth plan. The more a buyer believes in the future growth of the business, the more it can pay for the business now.

Set up a robust and flexible management structure: Buyers of a privately-owned company will want to ensure that a strong management

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team is in place to drive the business post-acquisition. A standalone private equity buyer typically wants a full management team, including a CEO, going forward. A strategic buyer, which may fold the acquired business into its larger operations, may not require a full management team. If the current business owner would like to exit the business upon sale, it is important that the business operations and customer relationships do not appear too dependent on the owner and that a strong group of managers are eager to remain with the company.

Selling a privately-owned business can be complicated, and not all sales have a successful outcome. Business owners should begin planning for an eventual exit well in advance, regardless of the market environment. The more prepared a company is for a sale process, the better result it will achieve.

Jeff Johnston is managing director and group head of Mergers & Acquisitions at

KeyBanc Capital Markets. Contact him at 216-689-4115 or jjohnston@key.com.

Brian Weiss is managing director of Mergers & Acquisitions at KeyBanc Capital Markets. Contact him at 917-887-0385 or brian.weiss@key.com.

This article is for general information purposes only and does not consider the specific investment objectives, financial situation, and particular needs of any individual person or entity. KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A.

WHERE CRITICAL INSIGHT MEETS TRUSTED RESULTS Avoid surprises. Our national experts provide thorough buy and sell-side due diligence and quality of earnings assessments so you can make informed transaction decisions.

Mark B. Bober, CPA/ABV, CFF, CVA | mbober@bmf.cpa Steve C. Swann, CPA/ABV, CFE | sswann@bmf.cpa Mindy S. Marsden, CFE | mmarsden@bmf.cpa

Minimizing tax risks a key part of structuring a successful deal

By Michael D. Makofsky and Ryan M. Palko

A

n ounce of prevention is worth a pound of cure in M&A deals. A plan to mitigate tax risks and optimize tax advantages is an essential component of every M&A strategy and requires multifaceted legal expertise. Omitting tax considerations in structuring a deal leaves money at the bargaining table and confounds the valuation process. Whether the business transaction is a purchase or sale, involving assets or stock, good advice is needed to understand how the deal will be treated by the IRS. Asset transactions have unique contours when compared against a stock deal.

From the buy-side, buyers may depreciate assets based on purchase price. However, the downside is business successor liability. Under state law, buying assets may keep the buyer on the hook for unpaid state taxes. From the sell-side, asset sales likely create capital gain treatment. This is beneficial because of the capital gain rate break. However, sellers of assets may have potential “depreciation recapture.” To reiterate, experienced advisers have potential planning opportunities to mitigate these tax risks.

Stock sales, compared to asset deals, are generally more complex. Depending on the business entity form, the Code blesses some transaction structures as tax-free.

On the one hand, buyers may choose stock deals for “tax-free reorganization treatment.” A tax-free reorganization is

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a creature of the Code and requires tax counsel.

Sellers generally receive capital gain treatment on the sale of corporate stock.

All in all, stock deals are complex, but advisers have levers in the Code to manage parties’ interest in a transaction.

Before inking a LOI, engaging a skilled adviser to structure PALKO your deal ensures the most value is captured at the bargaining table. Advisers with both tax and transaction acumen have tools in their toolkit to bring a transaction to life while mitigating downstream tax liabilities.

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

Ryan M. Palko is an associate at McCarthy, Lebit, Crystal & Liffman Co. Contact him at 216-696-1422 or rmp@mccarthylebit.com.

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How private equity firms can accelerate growth with marketing AI

By Brad Kostka

T

here’s much more to marketing artificial intelligence than simply generating text with tools like ChatGPT. Private equity general partners who recognize this and drive adoption through their firms and portfolio companies will outpace their competitors, particularly when it comes to fundraising, deal flow and portfolio company growth.

What is marketing artificial intelligence?

Put simply, marketing AI is the use of cutting-edge technologies, such as machine learning, natural language processing and computer vision, to automate and improve marketing tasks.

Marketing AI can help private equity firms and their portfolio companies better understand and engage with investors and customers, ultimately driving more top-line revenue and bottom-line efficiencies.

How can private equity firms leverage AI for marketing?

There are numerous aspects of marketing that can benefit from AI. Below are just a few: • Content creation: Beyond written

content from tools such as ChatGPT and Jasper, there are those that can generate audio (WellSaid, Murf), images (DALL-E, Midjourney), and even video (Pictory KOSTKA and Synthesia). By leveraging these tools, marketers can free up time to focus on high-impact tasks such as strategy, editing and storytelling.

• Media monitoring and analysis: AI tools are adept at autonomously monitoring and evaluating a brand’s presence across diverse media platforms, such as social media, news outlets and blogs. BrightEdge offers a notable example with its AI-powered tool called Insights, which functions as a digital data analyst.

This tool methodically searches through millions of web pages, supplying marketers with data-driven recommendations for search engine optimization (SEO) and content development strategies.

the winners. Numerous online resources, including tutorials, courses and articles, are available. Notable resources are the Marketing Artificial Intelligence Institute and Private Equity Marketing Association.

• Lead generation: AI tools can assist in pinpointing and ranking potential sales leads, enabling marketers to focus on the most lucrative prospects. Performance Max, a new feature within the Google Ads platform, is an example of this technology. It uses machine learning and audience signals to optimize campaign performance and, ultimately, maximize conversions across Google’s advertising channels.

Using AI in these areas can enable marketers to save time, base decisions on solid data and enhance the effectiveness of their campaigns — ultimately allowing them to better attract investors, increase deal flow and generate more qualified sales leads.

• Research AI marketing tools: Explore the variety of marketing AI tools and vendors available, which vary in capabilities, pricing and technical requirements. It’s important for private equity marketers to select tools that align with their firm’s unique needs and portfolio characteristics.

• Campaign management: Utilizing AI, marketing campaigns can be finely tuned for improved targeting, personalization and timing, leading to superior outcomes. An example of this application is Seventh Sense, which employs AI to optimize the timing of email deliveries, boosting engagement and email marketing performance.

How can private equity marketing teams embrace AI?

• Identify AI application areas: Pinpoint specific business areas where AI can boost efficiency or effectiveness.

This could involve content creation, media monitoring of portfolio companies and optimizing campaign management strategies.

Here are key steps that private equity marketers can undertake to integrate AI tools more effectively:

• Pilot AI tools: Begin with modest pilot projects using AI-driven tools, assessing their functionality and setting achievable objectives. Leverage the wins to secure resources to do more.

• Seek AI knowledge: Gain a fundamental understanding of AI, including core concepts like machine learning, natural language processing and computer vision. Then, keep learning. The technology is rapidly evolving, and those who keep up will be

• Consider the ethics: Remain vigilant about the ethical use of AI. Ensure the data used for training AI models is free from bias and does not lead to discriminatory outcomes, especially in the sensitive context of private equity investments.

• Monitor and refine AI tool performance: Continually assess the effectiveness of the AI tools and make necessary adjustments. Bear in mind that AI systems progressively learn, adapt and enhance their capabilities.

• Develop a skilled team: Build a team proficient in data science and AI to manage and leverage these tools effectively. This may involve recruiting new talent or upskilling existing staff in the private equity firm and its companies.

• Integrate AI with overall business strategy: Ensure the use of AI in marketing aligns with your firm’s broader business objectives. This includes coordinating with various departments for a cohesive approach, particularly if AI applications span multiple areas.

By following these steps, marketing and PR professionals in private equity can begin to harness the power of AI, positioning themselves and their firms at the forefront of innovation and efficiency in investor relations and portfolio company growth. Learn more at roopco. com/pe.

Brad Kostka is president of Roopco.

Contact him at 216-902-3800 or bkostka@roopco.com.

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January 29, 2024 | S11

A proactive approach to deal origination can add value to your process

By Lizabeth Roth

I

n the world of lower-middle market M&A, proprietary deals may be the most sought-after. But what is proprietary deal origination, and how can it bring value to your process?

A proprietary deal is generally considered a transaction resulting from the direct relationship between the seller of a business and the buyer. This contrasts with an intermediary-led formal process where the seller has committed to exiting the business and is potentially entertaining many suitors.

2. Less competition. A proprietary deal can allow a buyer to discuss a possible transaction without competition. In a formal process, a bidding war may ROTH ensue if multiple buyers are interested in a particular company.

Proprietary deal sourcing can add significant deal flow to your origination efforts. This discussion aims to encourage a more proactive instead of reactive approach to deal origination. As with any approach, there are advantages and disadvantages associated with committing to this strategy.

3. Relationship-focused. A deal negotiated outside of a formal process allows for organic relationship development and a more open exchange of information. Buyers may have an extended opportunity to share more about who they are and explain their value proposition.

The buyer may also have a chance to gain a deeper understanding of the business, potentially speeding up the transaction timeline and helping ease post-deal integration challenges.

Advantages

Disadvantages

1. Strategic focus. Reaching out to companies that are not actively seeking an exit may open additional opportunities that are a great strategic fit. Proprietary deal sourcing can allow the buyer to focus on targets that best fit their objectives instead of limiting deal flow to only looking at in-market companies.

1. Time consuming. Proprietary origination can be time-consuming, and acquisition opportunities may not be actionable in the near-term. Compiling a target list requires research. It also may take several conversations and months of relationship-building before deal negotiations occur.

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2. Operations hurdles. Additionally, sellers may not be operating the business financially and organizationally with the goal of an imminent transition.

Information requested from the seller might not be in the best format, and the seller may become overwhelmed with the amount of detail requested.

make up a perfect target company. Then, develop a set of search criteria. Having fixed criteria that outline what you are looking for in a target company will help you stay focused and establish a guide for building your pipeline with targets that have the highest probability of being a strategic fit.

3. Owner mindset. Lastly, the seller may not be psychologically ready to exit the business. Engaging with a business owner who has not dedicated time to think through life post-transaction may complicate the conversation.

2. Do your research. Databases and resources can help you compile lists of targets that fit your criteria. Your time is valuable. You should focus your outreach and relationship-building efforts on targets you are confident fulfill most of your criteria. Leveraging technology can be a tremendous asset in building quality target lists.

A proprietary deal is generally considered a transaction resulting from the direct relationship between the seller of a business and the buyer.

Whether you’re beginning your proprietary deal process or refining your strategy, here are some tips to help you get started.

3. Know your value proposition. It is important to be able to articulate to a target what you, as the buyer, bring to the table. The target company needs to understand why it would be better off selling the business to you than continuing to hold. For most sellers, this comes down to your ability as a buyer to understand the business and sell your vision. The current owner needs to know how you intend to grow the business and provide value to the company posttransaction.

1. Drown out the noise. Take time upfront to thoughtfully think through what quantitative and qualitative factors

4. Focus on building a relationship.

Some of the most successful deals are those during which the buyer and seller

become partners. The buyer and the seller should feel like they are working together toward a common goal. The initial discussions with a potential seller should be conversational and not overtly direct. An overly aggressive approach might skew the conversation and alienate the seller. Even though, as a buyer, there is a desire to work through a “checklist,” being too direct initially might cause the seller to walk away.

5. Be patient and reframe rejection.

Most proprietary deals take months of preplanning and conversations before there is a successful transaction. A no can be a no, but sometimes a “let’s keep in touch and see where things go.” Although not everything, timing is certainly a huge factor in the world of M&A, and it is important to remember that situations change. It can pay off tremendously to prioritize cultivating relationships with the owners of strategically compelling companies.

This shift in thought process will help you find deals that are a part of your strategically curated M&A pipeline.

By utilizing these tips, you will become closer to creating a deal instead of just bidding on one.

Lizabeth Roth, JD, is a vice president at Copper Run. Contact her at lroth@ copperruncap.com.

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CORPORATE GROWTH & M&A

Family business succession requires calculated planning

By Todd Baumgartner

A

ll families have some level of dysfunction. Throw a familyowned business on top of that, and managing the dynamics between personal and professional relationships across generations can get tricky. A Loyola University study found that only 13% of family businesses made it to the third generation, and of those, only 3% prospered. There is no perfect answer to why some family businesses succeed

while others fail. Still, in my experience, there’s a commonality you’ll find in successful transitions from generation to generation: intentional, thoughtful planning.

Evaluating the wants, needs and capabilities of the next generation Family business succession planning is complicated, but the first step is determining whether the next generation

wants the business — and if they do, can they run it? It can be helpful to have the opinion and mediation of trusted outside advisers who will speak the BAUMGARTNER truth, even if it is painful for the family to hear. The next generation may not be qualified to run the business if it has grown beyond the

capacity of the family to manage. They also may not be passionate about the business, which requires honest and open communication.

However, if there is a new generation willing and able to successfully operate the business, they need to be adequately prepared and trained. It is strongly recommended that a family employee train under and report to a non-family supervisor or a family member who is not a parent. Governing documents should

The team that gets your deal done!

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provide for the length of service and operational duties required for a family employee before obtaining ownership in the family business. Some businesses impose stipulations that family members work at an unrelated business for some time before being employed at the family business.

Other provisions can require that all family members involved in the business, other than the employee’s parents, approve of the employee becoming an owner before transitioning ownership.

Evaluating the wants and needs of the current generation The current generation needs to have a financial analysis performed by an adviser who can equate their financial needs to maintain their standard of living for the duration of their life. When handing down a family business, few family members seek to extrapolate every last bit of the fair market value from the next generation. Most families will pay a certain purchase price for the business.

Setting a purchase price when selling to the next generation can be risky if nonemployee family members are members

The current generation needs to have a financial analysis performed by an adviser who can equate their financial needs to maintain their standard of living for the duration of their life. or shareholders in the business. Officers and directors owe shareholders a duty of care and duty of loyalty to the company’s profits. Human nature is to assume if you aren’t receiving adequate compensation, non-employee family members can bring an action for breach of a duty of loyalty if they feel the selling price is unfair. These are especially difficult cases to defend since the business will ostensibly be forced to prove a negative. Allegations like these are fact determinations that ultimately are decided at a trial before a judge or jury.

This is an expensive and time-consuming ordeal that will adversely impact the finances of the business and family relationships and pose a distraction to the management team.

Tax planning is also paramount to successfully transfer the business to the next generation and minimize any estate or gift taxes payable. Typically, a business will retain an expert to perform a business valuation that can be defensible to the IRS. The valuation will be the basis for gifting without incurring tax liability.

Selling the family business to a third-party buyer

Kevin Washburn

Amy Willey

m c d o n a l d h o p k i n s . c o m

John Wirtshafter

When selling a family business to a third-party buyer, the current generation should retain an investment bank to begin preparing years in advance. The investment bank can define the current generation’s goals in exiting the business and advise on financial decisions that can impact the profitability and sale price of the business. The current generation should also retain legal counsel with expertise in family-owned businesses,

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who can help obtain favorable deal terms and risk allocation. Family businesses tend to have strong bonds and a feeling of loyalty to long-standing employees.

Certain buyers can increase the chances that those employees will remain in place or flourish in their new role. An ESOP, strategic partner and certain private equity funds can maintain the existing company culture.

When to begin planning to transition your family business As with any sales process, it is crucial

to have options— and options are only available when you’ve planned ahead. I have never encountered a sale process where the business began planning too soon. Without a good plan in place, you risk creating unnecessary family tension, selling below market value, compromising the long-term viability of your business and so much more.

January 29, 2024 | S13

TMA Northern Ohio Chapter Announces 2023 Lifetime Achievement Award Winner!

Todd Baumgartner is a member of the Mergers and Acquisitions Practice Group at McDonald Hopkins LLC. Contact him at 216-348-5737 or tbaumgartner@ mcdonaldhopkins.com.

Not just any ChatGPT NDA

By Charbel M. Najm and Jenna R. Bird

I

n an era where proprietary and confidential information holds immense value, business owners commonly find themselves in tricky situations where sharing valuable information is necessary to complete a merger or acquisition. Sharing confidential business information requires adequate protection to prevent such information from leaking into the wrong hands. In some circumstances, bad actors could even seriously injure or destroy a business. Ensuring that a business’s information remains confidential can be accomplished by crafting a welltailored non-disclosure agreement (NDA) —an agreement that clearly regulates and safeguards business and transaction information.

To create a well-drafted NDA, business owners should consider the potential implications of their information getting into the wrong hands but balance that with the need to complete a successful transaction.

When drafting the NDA, some key considerations include: • Will the fact that the business is for sale be confidential? Employees and customers may fear remaining at a business subject to a potential sale.

• Will certain business secrets and intellectual property require particular attention if they must be disclosed?

At least one Ohio court recently held that boilerplate NDA provisions encompassing “all information” are sometimes not enough to protect certain trade secrets.

NAJM

BIRD

• Who will bear responsibility if the party receiving the confidential information experiences a data breach? How will a data breach be defined? As data breaches expand in breadth, it is important to spell out specific responsibilities and protection requirements for all or certain confidential information.

• For what purpose may the confidential information be used?

Clearly articulating who will have access to confidential information and for which specific purposes will limit the overall risk of exposure.

A well-drafted NDA requires attention to detail and — importantly—serves as a cornerstone for building trust among all parties, fostering successful transactions and minimizing risk for business owners.

Charbel M. Najm, Esq., is an attorney at Schneider Smeltz Spieth Bell LLP. Contact him at 216-696-4200 or cnajm@sssb-law.com.

Jenna R. Bird, Esq., is an attorney at Schneider Smeltz Spieth Bell LLP. Contact her at 216-696-4200 or jbird@ sssb-law.com.

The Northern Ohio Chapter of the Turnaround Management Association congratulates Shawn M. Riley (McDonald Hopkins), winner of the 2023 Lifetime Achievement Award, pictured here with his wife, Chris.

We thank Shawn for his leadership and the contributions he has made in the turnaround industry and in our community.

We Get Deals Done.

McCarthy Lebit offers big firm expertise with small firm responsiveness to ensure our clients achieve success on every deal – no matter the size.

Because exceeding expectations and delivering more success has been our approach for over 60 years. www.mccarthylebit.com

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CORPORATE GROWTH & M&A

Practical advice for distressed M&A transactions

By Jayne E. Juvan and Christopher J. Hewitt

W

ith Charlie Munger’s passing late last year, we were reminded how he transformed Warren Buffett’s investing philosophy from buying fair companies at wonderful prices to buying wonderful companies at fair prices.

One of the best ways to buy wonderful assets at fair, and maybe even wonderful, prices is to buy them from distressed sellers. There are many reasons sellers need to sell assets at distressed prices

even though the assets themselves are wonderful — technical covenant defaults in debt documents, failure in succession planning, cash flow issues and entityHEWITT destroying litigation judgments, to name a few.

The following are some ways sellers and buyers in distressed M&A can position themselves for a successful transaction.

Advice to sellers The No. 1 factor for sellers to be successful is to act before it’s too late. Rarely are there no signs of impending distress JUVAN before everything falls apart. Sellers need to be realistic and not emotional, accept the inevitable, and take action before needing to sell assets in a fire sale. Once the seller has lost suppliers, customers, employees

and other stakeholders, the assets are much more likely to fetch a lower valuation than if the seller can sell a fully functioning, stand-alone business.

The seller has a much greater ability to control the narrative on the purpose of the sale, even to the point that the buyer may not even know it’s a distressed sale.

There is also a greater probability of saving the rest of the enterprise.

Similarly, the seller should have an open dialogue with its lenders. Lenders don’t like surprises, and the seller is likely to need the lender’s assistance in any

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sales process — to obtain some form of forbearance or approval to sell the asset, to maintain liquidity during the sales process, to apply the sales proceeds other than to pay down or restructure debt. Lenders are more likely to work with distressed sellers if there is open and honest dialogue about any financial problems.

If possible, the seller should try not to sell assets as is-where is. While no-recourse deals have been in vogue recently, the pendulum is swinging back toward at least some limited recourse against sellers.

Especially if the transaction is structured as an asset deal where the buyer is cherry-picking the assumed liabilities, there is no reason not to stand behind the representations in the purchase agreement. Just make them true!

Lastly, don’t overcomplicate the sales pitch. Focus on why the assets are wonderful and, if known, how they are critical to the buyer’s business. In many cases, the most logical buyers are the seller’s competitors. The seller should leverage its knowledge about the buyer and create a simple narrative to confirm what the buyer may already suspect about the worthiness of the assets.

Advice to buyers First and foremost, pay a fair price. The worst-case scenario for a buyer that exerts its leverage to get a sweetheart deal is the seller goes bankrupt. The trustee for the estate may allege the assets were transferred for less than adequate consideration. If successful, the buyer will either be required to return the assets or pay the difference between the purchase price and their fair value.

We navigate deals in all markets.

Located in strategic cities nationwide, our trusted M&A advisers keep our clients protected in today’s everchanging and volatile climate.

Jayne E. Juvan Co-Chair, M&A and Securities & Capital Markets Jayne.Juvan@TuckerEllis.com

Christopher J. Hewitt Co-Chair, M&A and Securities & Capital Markets Christopher.Hewitt@TuckerEllis.com

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As a corollary to sellers not seeking non-recourse deals, buyers shouldn’t expect perfect information about the seller or the assets. If possible, buyers should structure the deal as an asset purchase, limit the assumed liabilities, protect against successor liability issues, ensure the seller is solvent, and complete reasonable due diligence to feel confident the assets are what the buyer thinks they are. Then, risk-adjust the purchase price on real, not perceived risks, while ensuring the purchase price is adequate consideration on that risk-adjusted basis.

The buyer could seek a 363 sale in bankruptcy to protect against unknown liabilities and a possible fraudulent conveyance claim. Sellers may not be willing to entertain a 363 sale, given the higher transaction costs associated with the bankruptcy process. Also, the buyer could lose control of the process as the stalking horse bidder, end up burning a lot of time and money, and walk away with nothing.

Conclusion Distressed sales are a perfect opportunity to reallocate wonderful assets from distressed companies to those that can more effectively use them. Done properly, sellers can right-size their companies and possibly save them from bankruptcy, and buyers can obtain quality assets at bargain but fair prices.

Jayne E. Juvan is co-chair of M&A and Securities & Capital Markets at Tucker Ellis. Contact her at Jayne.Juvan@ TuckerEllis.com.

Christopher J. Hewitt is co-chair of M&A and Securities & Capital Markets Group at Tucker Ellis. Contact him at Christopher.Hewitt@TuckerEllis.com.

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CORPORATE GROWTH & M&A

January 29, 2024 | S15

Build resilience by investing in people, risk management

By Brian Stovsky

quality talent and discussing what a successful process looks like.

I

nvestors and portfolio companies, particularly acquisitive middle-market and lower-middle-market firms, have different challenges than in years past.

Volatile market conditions, higher debt costs and competitive acquisition markets have made management teams rethink their growth and retention strategies.

In many cases, these strategies start and end with quality people.

Manage, retain, and attract top talent Workforce issues can derail a deal and hinder the growth of an organization. So why are human resources teams often overlooked during the deal process or when discussing strategic initiatives?

Among other things, building a resilient mergers and acquisitions-oriented business starts with hiring or retaining quality people and seasoned management teams. Resilient businesses require a management team that can lead during chaotic and challenging periods, align with company culture and motivate their workforce.

There is no better time than now to review your current process around managing, retaining and attracting

STOVSKY

Use a benefits and human resources advisory team

In many instances, bootstrapped and family-owned-middle and lower-middlemarket companies have understaffed and inexperienced human resources teams, specifically regarding mergers and acquisitions.

Private equity firms and their portfolio companies should lean on their advisers to perform many of the critical reviews and benchmarking necessary analyses.

This will ensure their compensation and benefits package is competitive with their peers based on size, industry and region.

Services such as wage analyses, benchmarking of employee benefits and retirement plans, deferred compensation plans, key person life insurance, employee assistance programs and virtual advocacy tools are among the many things that today’s workforce expect.

Additionally, when selecting a management team, consider their

experience with acquisitions and how that can improve integration and workforce management processes.

Protect your management team and the company Once the management team is in place, it is pertinent to protect the team by mitigating risks and liabilities that fiduciaries of the business can face. A comprehensive executive risk/ management liability program should be in place to protect a company’s leadership teams from personal liability caused by a professional decision or action. These

Workforce issues can derail a deal and hinder the growth of an organization. programs traditionally include directors & officers (D&O) liability, employment practices liability (EPL), fiduciary liability and crime coverages.

Further, errors and omissions policies (professional liability) can protect companies from legal fees in the event of a lawsuit claiming that a business was negligent, made a mistake or performed inadequate work. Such

policies help create a resilient business over time.

Properly perform due diligence on a target Another key part of building a successful portfolio company is to compile a great core due diligence team surrounding potential add-on acquisitions.

Accurately assess the inherited costs of the target, identify any synergies between platform and add-on and calculate future costs caused by the integration. Human capital strategy, employee benefits plans, retirement and defined benefit plans, executive benefits and buy/sell policies, and commercial insurance program reviews should all be considered during due diligence.

Protect buyers and sellers through Representations and Warranties insurance Build a resilient business by protecting the organization from material misstatements or breaches of the purchase agreement post-closing through Representations and Warranties Insurance (RWI).

Traditionally, RWI protects a buyer from any breaches in seller representations as reflected in the purchase agreement.

The policy will cover indemnity from seller breaches of the contract. Limits are often set at 10%-15% of enterprise value, deductibles (retention) are typically .6%-.9% of enterprise value, and premiums generally range from 2.4%-2.7% of policy limits. Retention is often split 50/50 between buyer and seller; however, we are seeing more deals structured with little to no seller indemnity in the RWI policy.

The placement of RWI has become a widely adopted practice in private equity transactions. It is a unique advantage to have a benefits and risk adviser that can also place RWI, as the RWI adviser will have a direct line of sight into the due diligence that drives the RWI underwriting and consideration of exclusions to the policy.

For divestitures in the lower-middle market, there is sell-side Representations and Warranties insurance, limiting the liability of the seller post-closing. This provides coverage for defense costs that may arise from the claim of breaches asserted by the buyer or a third party and can provide up to a specified percentage of the enterprise value to pay indemnity to the buyer if there is a breach.

Brian Stovsky is the business development leader of M&A / Private Equity at Oswald Companies. Contact him at 216-970-8622 or bstovsky@oswaldcompanies.com.

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Due Diligence and Human Capital Assessment Risk Management & Property & Casualty Insurance Employee Benefits 401(k) and Retirement Plan Services Key Person Life Insurance and Executive Compensation Reps & Warranties Insurance (RWI) Portfolio Program Management

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CORPORATE GROWTH & M&A

Navigating buy-side tax considerations in mergers and acquisitions

By James B. Skakun and Stephen A. Mazza

I

n the dynamic landscape of mergers and acquisitions, the intricate dance between buyers and sellers requires a careful examination of tax implications.

Whether opting for a pure asset deal or venturing into the complexities of F-Reorganizations and 338(h)(10) elections, buyers must tread cautiously to avoid unforeseen tax pitfalls.

Employer Retention Credit (ERC) scrutiny: Buyers are now faced with the critical task of addressing the ERC in purchase agreements, acknowledging the IRS’s heightened scrutiny. Understanding a target’s ERC claim involves a meticulous review of analysis, support and documentation. With potential audits looming, buyers must safeguard themselves to prevent repayment of credits and associated penalties.

F-Reorganizations and true-up payments: The popularity of F-Re-

SKAKUN

MAZZA

organizations necessitates buyer preparedness for true-up payment requests by sellers. Particularly in cases involving specific tax planning strategies, such as the cash basis of accounting, buyers may encounter requests for compensation based on the difference in tax, leveraging the advantages of stock sales over asset sales.

Holistic due diligence: As the M&A landscape evolves, the prevalence of complex deal structures underscores the importance of comprehensive tax due diligence. Buyers should be attentive to issues spanning sales tax, use tax,

state and local income and franchise taxes, and the Employee Retention Tax Credit. Engaging tax counsel in tandem with legal experts ensures early detection of potential issues, facilitating strategic negotiations and mitigating risks through protective language in the purchase agreement or even purchase price adjustments.

In conclusion, the success of M&A transactions hinges on a meticulous approach to tax considerations. By navigating the intricacies of ERC, F-Reorganizations and comprehensive due diligence, buyers can fortify their position, paving the way for successful and economically sound deals.

James B. Skakun, CPA, is partner of Tax Services at BMF. Contact him at 330-255-2429 or jskakun@bmf.cpa.

Stephen A. Mazza, CPA, is partner of Tax Services at BMF. Contact him at 330255-2440 or smazza@bmf.cpa.

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Protect your time and money from legal diligence through closing

By Jake Nicholson and Christopher P. Reuscher

Y

ou’ve decided to sell, found the potential buyer, showed them the basics of your operation, let them review financials, agreed to basic terms and, finally, signed the letter of intent (LOI). That’s an accomplishment on its own, but like most milestones as a business owner, it doesn’t mean the work is done. How you approach the final leg of the selling process has a major impact on the time and expenses needed to finalize the deal and navigate your post-closing obligations.

Once an LOI is executed, the parties have a set period (such as 60 days or 90 days) to solidify the sale terms and close the deal. What needs to be done to hit that deadline is different in every transaction but can be broadly categorized into three buckets: 1. Legal due diligence.

Collecting responses to questions and documentation requests from the buyer so the buyer (and equally as important, your own legal counsel) get a detailed understanding of the business and its history.

NICHOLSON

REUSCHER

contract of the business during the legal diligence process, legal counsel will not know to include it in the purchase agreement’s representations and warranties relating to material contracts.

That failure to disclose the contract could result in an indemnification claim against the seller when the buyer discovers after closing that it has an unexpected delivery to pay for, has to pay a cancellation fee or has other damages.

Alternatively, the buyer could have wanted to continue the contract, but because it was not reviewed before closing, the parties did not know that it required the supplier’s consent to assign.

Now the supplier is refusing to work with the buyer. Making a good faith effort to

Reach out to your benefits and insurance brokers to see what may be needed for policies to wind down or stay in place after the sale.

2. Transaction documents. Drafting and finalizing the transaction documents, including the purchase agreement, any employment agreements and other ancillary agreements.

3. Transition logistics.

Preparing to ensure the actual transition of business ownership goes smoothly, both internally with employees and their benefits and externally with any approvals, license updates or consents needed.

These three categories are unavoidably intertwined and neglecting one can create seller liability via another. For example, the purchase agreement will typically include indemnification provisions that create an obligation for the seller to reimburse the buyer for damages caused by incorrect or incomplete disclosures under the seller’s representations and warranties. If the seller does not disclose a key supplier

complete the legal diligence process does not just benefit the buyer; it also informs your legal counsel and other advisers as they help you negotiate the transaction documents, identify deliverables necessary for the business transition and manage risk.

Moving early to complete responses in the post-LOI diligence process will also mitigate risk and legal fees. The goal is to avoid surprises down the road that require parts of the purchase agreement to be rewritten, reopen negotiation of already agreed-upon deal points or disrupt the transition timeline.

There are a host of ways to prepare to respond quickly. Some are common sense, like maintaining good contract management practices per the example above. Others are less obvious. Reach out to your benefits and insurance brokers to see what may be needed for policies to wind down or stay in place after the sale.

About this project Business Succession Planning | Closely Held Business and Family Office Practice Emerging Companies and Venture Capital | Employee Stock Ownership Plans (ESOPs) Mergers and Acquisitions | Public and Structured Finance CLEVELAND 216.781.1212 | COLUMBUS 614.246.2150 | walterhav.com ED C

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TMA Northern Ohio Chapter Announces 2023 Turnaround/ Transaction of the Year Winners!

In the tax realm, contact the state’s department of taxation to ensure you do not have any older, forgotten amounts to pay. It is customary for buyers to require the seller to obtain a certificate of tax clearance from their state shortly before closing. If an overdue payment is discovered, it could delay receiving the certificate or uncover liabilities that need to be accounted for in the purchase agreement. With regard to debt or leases that may need the action of a third party or include a personal guaranty that needs to be released, strategize with your legal counsel to determine when you should disclose the proposed sale to those third parties to make sure they receive and provide whatever is needed before the closing.

Going through the sale process as a seller requires juggling many tasks at an emotional time. Understanding how each component plays into the bigger picture of the sale, starting the diligence process with a plan and communicating with your transaction team to manage risk make a major difference in your experience and outcomes.

The Northern Ohio Chapter of the Turnaround Management Association congratulates the winners of the 2023 Turnaround/Transaction of the Year Award: Nicholas M. Miller, Maria G. Carr and Shawn M. Riley (McDonald Hopkins).

Jake Nicholson is an associate in the Corporate, Tax & Transactional group at Roetzel & Andress in Cleveland. He can be reached at jnicholson@ralaw.com.

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

Christopher Reuscher is a shareholder in the Corporate, Tax & Transactional group at Roetzel & Andress in Akron. He can be reached at creuscher@ralaw.com.

Roetzel & Andress Corporate and Transactional WHAT WE DO

The Roetzel Corporate and Transactional group provides strategic and commercial guidance to a broad range of middle-market participants,

including privately held and emerging growth

companies, debt/equity participants, traditional/ alternative lenders, financial advisors, as well as

private investors, entrepreneurs and executives.

• Asset, Stock, and Equity Purchase and Sales

• Commercial Contract and General Business Negotiations

• Corporate Governance and Shareholder/Board Management • Cybersecurity and Data Privacy Guidance

• Labor/Employment, HR Compliance, Wage/Hour, and Exec. Comp.

• Mergers & Acquisitions, Joint Ventures and Exits

• Real Estate Acquisition, Disposition, Development and Leasing • Succession and Estate Planning

• Tax Planning and Entity Formation/Structuring

• Traditional, PE, VC and Asset Financing Transactions

ralaw.com NORTHEAST OHIO OFFICES AND KEY CONTACTS

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Chris Reuscher

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CORPORATE GROWTH & M&A

Northeast Ohio’s top deal makers to be honored

A

CG Cleveland will recognize the winners of its 27th Annual Deal Maker Awards. The event is scheduled for 5 p.m. to 7:30 p.m. on Jan. 31 at Cleveland Marriott Key Tower.

The Deal Maker Awards honor Northeast Ohio’s leading corporate deal makers for their accomplishments in using acquisitions, divestitures, financings and other transactions to fuel sustainable growth. Here are this year’s winners: PRIVATE EQUITY FUND: MPE Partners

MPE Partners (also known as MPE or Morgenthaler Private Equity) seeks to be the preferred partner for entrepreneurs and family-owned companies. Based in Cleveland and Boston, MPE invests in profitable, lower-middle-market companies with transaction values up to $250 million. MPE has two primary target investment areas: high-value manufacturing and commercial and industrial services.

traded company, valued at $54 a share, or approximately $380 million net of cash acquired. The CyberOptics acquisition expanded Nordson’s capabilities as a leading global developer and manufacturer of high-precision 3D optical sensing technology solutions.

The deal also allowed Nordson to offer new differentiated solutions to its semiconductor and electronics customers. The acquisition of CyberOptics’ innovative and proprietary technology has expanded Nordson’s growth opportunities into new areas of the semi-conductor wafer fabrication and packaging process.

Nordson in August closed its latest acquisition, the ARAG Group and its subsidiaries for a purchase price of $1.05 billion. Expanding Nordson’s core dispense capabilities into the attractive precision agriculture end market, ARAG introduced global market and innovation leadership in the development, production and supply of precision control systems and smart fluid components for agricultural spraying. The transaction helped further Nordson’s key growth initiatives. The acquisition expands Nordson’s product portfolio, adds notable customer relationships and enhances Nordson’s manufacturing presence.

CORPORATE: Nordson Corporation

Nordson Corporation (Nasdaq: NDSN) is an innovative precision technology company that leverages a scalable growth framework through an entrepreneurial, division-led organization to deliver toptier growth with leading margins and returns.

The Westlake-based company was founded in 1954 and employs more than 7,900 people worldwide. Its operations and support offices are located throughout 35 countries. The company’s direct sales model and applications expertise serve customers through a variety of critical applications. Its diverse end-market exposure includes consumer non-durable, medical, electronics and industrial end markets. Nordson is a vital, self-renewing global organization that generates wealth and stability for its employees, customers, shareholders and communities. The company has a history of investing in local communities through various corporate and employeeled volunteer efforts and nonprofit partnerships. Nordson has been a critical part of the Northeast Ohio community for decades. Its growth and development aim to benefit the area for years to come.

In recent years, Nordson has invested over $1 billion to fuel global acquisitions.

Through the Ascend Strategy, Nordson has focused on high-quality, industryleading targets that have helped support its existing lines of business, enabling Nordson to remain the leader in precision dispensing and fluid management.

The most recent milestones include Nordson’s 2022 acquisition of CyberOptics Corp., a then-publicly

CORPORATE: Olympic Steel

Founded in 1954, Cleveland-based Olympic Steel (NASDAQ: ZEUS) is a leading U.S. metals service center focused on the direct sale and value-added processing of carbon and coated sheet, plate and coil products; stainless steel sheet, plate, bar and coil; aluminum sheet, plate and coil; pipe, tube, bar, valves and fittings; tin plate and metalintensive end-use products, including water treatment systems; commercial, residential and industrial venting and air filtration systems; Wright brand self-dumping hoppers; and EZ-Dumper dump inserts. Olympic Steel operates 47 facilities.

IMPACT AWARD: Brian E. Hall, Chairman and CEO, 2Northstar Capital, LLC As a child, Brian Hall began working part time for his family’s company, Industrial Transport Inc. He became its president and CEO four years after graduating college, eventually purchasing the company from his father and uncle. He led iSource Performance Materials, a joint venture with Applied Industrial Technologies Inc. Four years later, he acquired a majority interest in Innogistics, LLC, whose minority owner was a DHL subsidiary. Hall then formed 2NorthStar Capital, LLC. In addition to specialized construction, he has interests in other service, manufacturing and real estate holdings.

Hall has served in various leadership roles and boards throughout his career, including co-chair and interim executive

director of the Commission on Economic Inclusion and senior vice president of Greater Cleveland Partnership, University Hospitals Health System Inc., Fifth Third of Northeast Ohio, the ClevelandCuyahoga Port Authority, Northeast Ohio Regional Sewer District, University of Cincinnati Foundation, Cleveland Water Alliance, Cuyahoga County Economic Development Commission, Rhythm & Blues Foundation and Rock and Roll Hall of Fame and Museum Board. He served as secretary of Cleveland Rock and Roll Inc. He is most proud of founding the Tremont School mentoring program in 1990 and serving as one of the founders of the President’s Council.

Brian Hall obtained his BBA from the University of Cincinnati and an EMBA from Baldwin-Wallace University. He attended fours year of the executive management program at the Dartmouth College’s Tuck School of Business and earned a certificate in strategic planning from Georgetown University.

WOMEN IN TRANSACTIONS: CHERYL STROM, Organization Partner, The Riverside Company Strom leads the firm’s initiatives to generate new investment opportunities from deal source firms and referral sources based throughout the Midwest.

She is a highly experienced private equity professional who brings a depth of capital choices to advisers, business owners and management teams. Her experience spans growth capital, non-control capital, majority-stake equity investments and full acquisitions, as well as debt for companies ranging in size from small businesses to the middle-market. Cheryl works with a team of 20 origination professionals globally to establish new stand-alone companies, or platform companies, for Riverside. In addition, she originates add-on acquisitions for Riverside’s many portfolio companies to help these companies expand and grow by adding new products, services or geographies.

Prior to arriving at Riverside in 2006, Cheryl worked in Debt Capital Markets at National City (now PNC), structuring and originating senior debt facilities for companies requiring more than $50 million. She began her career at Dix & Eaton, a strategic corporate and marketing communications firm.

Cheryl’s community involvement includes the ACG Cleveland board, where she served as its board president from 2021-2022; past board member and managing partner of Promise Partners, an organization that helps entrepreneurial-minded people achieve their dream of business ownership; and as a committee member in finance and capital-raising campaigns for Saint Joseph Academy.

Cheryl earned her MBA from Case Western Reserve University’s Weatherhead School of Management and her BA from John Carroll University.

2023-24 Officers and Board of Directors EXECUTIVE OFFICERS

BOARD OF DIRECTORS

President Jay Moroscak, Aon

John Allotta, BakerHostetler

President Elect Beth Haas, Cyprium Investment Partners

Steve Danford, KeyBanc Capital Markets

EVP Annual Events Terry Doyle, Calfee

Michael Fanous, PwC

Rob Cheffins, CIBC

EVP Branding Peter Cavrell, Fortress Security Risk Management EVP Governance Charles Aquino EVP Innovation Ryan McGovern, Star Mountain Capital EVP Membership Bryan Fialkowski, J.P. Morgan Chase EVP Programming Thomas Libeg, Grant Thornton Treasurer Rob Paskert, Plante Moran Immediate Past President Tricia Balser, CIBC

Kevin Emmendorfer, Ernst & Young

Dave Fechter, Acchroma Michael Ferkovic, Sunvera Group Sarita Gavhane, Edgewater Capital Partners Mitch Gecht, Benesch Joe Hatina, Jones Day Mark Heinrich, Plante Moran Nicholas House, Vorys Kathryn Kelly, Deloitte Matt Kolman, Deloitte Mindy Marsden, Bober Markey Fedorovich Corrie Menary, Kirtland Capital Partners Craig Panzica, CIBC Lizabeth Roth, Copper Run Larissa Rozycki, Harris Williams Ann Seger, Calfee Tom Welsh, Calfee

2024 EVENTS CALENDAR Feb. 8 - ACG WIT: White Elephant (Valentine’s Day Edition) Location: Market Garden Brewery Feb. 22 - ACG Cleveland Joint Event with FEI: Matt Kaulig, Kaulig Companies & Kaulig Racing Location: TBD March 6 - ACG Cleveland Members Only: Curling Event Location: Mayfield Curling Club March 14 - ACG: WIT winners roundtable Location: Lakeside Event Space at Nuevo March 21 - CIBC Joint Event with YACG: March Madness Location: Nano Brew TBD - ACG Cleveland: Women’s Final Four Basketball Event Location: TBD May 7 - ACG Cleveland Guardians Baseball Game with Paul Dolan Location: Progressive Field May 23- ACG Akron Growth and M&A in the Food Industry Location: Buckingham, Doolittle & Burroughs, Akron June 25 - ACG Cleveland Summer Social at the Shoreby Club Location: The Shoreby Club Sept. 4-5 - Great Lakes Capital Connection (GLCC) - Cleveland Location: Huntington Convention Center of Cleveland Sept. 30 - Annual Golf Outing at Firestone Location: Firestone Country Club

CRAIN’S CONTENT STUDIO

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2023 ACG IMPACT DEAL OF THE YEAR SIGNET CAPITAL ADVISORS, LLC CONGRATULATES 2NORTHSTAR, LLC AND BRIAN HALL ON WINNING THE ACG CLEVELAND 2023 IMPACT DEAL OF THE YEAR AWARD. CONGRATULATIONS ALSO TO JOHN ALBERTY AND JOHN GALIK OF SPECIALIZED CONSTRUCTION, INC. FOR SELECTING AN IMPACTFUL BUYER AND GOOD STEWARD OF THEIR BUSINESS. SIGNET CAPITAL ADVISORS IS PROUD TO HAVE SERVED AS SELL-SIDE ADVISORS TO THE SHAREHOLDERS OF SPECIALIZED CONSTRUCTION, INC.

ABOUT SIGNET. Signet Capital Advisors, LLC provides sophisticated investment banking services to select owners of middle market companies throughout the U.S. Signet services include SELL-SIDE ADVISORY (selling all or part of your business); BUY-SIDE ADVISORY (helping shareholders grow their company through acquisition); and, CAPITAL RAISING (equity, junior capital and debt).

TO LEARN MORE, PLEASE CONTACT MICHAEL PAPARELLA Managing Director 216-658-2595 mpaparella@signetcapadvisors.com

BRIAN MCMILLEN Director 216-658-2592 bmcmillen@signetcapadvisors.com

SCOTT SMYERS Senior Associate 216-290-2977 ssmyers@signetcapadvisors.com

200 Public Square Suite 2005 Cleveland, OH 44114

signetcapadvisors.com

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1/18/24 11:33 AM

From Page 1

While growth is, naturally, going to slow as a market matures, that’s nonetheless an underwhelming trend for the state’s cannabis companies.

“The moderate increase of 1% would not be anticipated in anybody’s traditional model of a medical market,” said Adam Thomarios, founder and CEO of Akron-based Klutch Cannabis.

“One-percent growth in a fiveyear-old medical market causes a lot of concern, especially when license holders had to ship 20% to 30% more product just to stay even with 2022,” said Andy Rayburn, CEO for Eastlake-based Buckeye Relief and president of the Ohio Cannabis Coalition, the state’s cannabis trade group otherwise known as OHCANN. As Rayburn notes, price compression—due in part to an oversupply—means companies had to sell more product in 2023 to achieve that 1% gain in industrywide revenue.

By volume, Ohio cannabis companies sold 39% more plant material (i.e. flower) and 25% more manufactured products (such as edibles, oils, etc.) in 2023 over 2022, according to state figures.

Meanwhile, the average retail price for flower in Ohio was about $27 per one-tenth of an ounce—a unit of measurement put in place by state regulators—in January 2022 compared with $16.92 at the end of December, according to the latest state data.

That equals a decrease in the average retail price over nearly two years of about 37%.

Price contraction may be a good trend for patients and consumers benefiting from lower retail prices, but it remains a challenging one for operators who have expected a more robust medical market.

“Buckeye Relief and Amplify are doing fine, but our returns are greatly reduced from the prior three years,” Rayburn said. “Our focus has been to keep market share and shelf space because eventually there will be a recre-

Ohio medical marijuana sales While total sales from 2019 through December 2023 top more than $1.6B, medical marijuana sales have plateaued, growing just 1.2% in 2023 over 2022.

Year 2019 2020 2021 2022 2023

Plant material

Manufactured products

Total annual sales

% change year over year

$3.9M $124.3M $198.6M $247.8M $252M

$16.4M $97.1M $182.1M $230.9M $232.5M

$55.8M $221.5M $380.8M $478.7M $484.4M

N/A +297% +72% +26% +1.2%

Post date of annual data varies slightly by year. Source: Ohio Department of Commerce

Projected cannabis sales in Ohio Projections from cannabis research firm New Frontier Data show the potential for recreational sales to grow quickly in Ohio.

Recreational

Medical

Illicit

$2B

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Assumes 2025 is the first full calendar year for adult-use sales. Source: New Frontier Data

STANDARD WELLNESS CO.

WEED

ational program.”

He added that he personally estimates “at least 60%” of licensed cannabis companies in Ohio are “losing money.”

As of Nov. 30, patients with an active registration totaled 175,484 compared with approximately 162,000 active patients as of fall

2021. That’s down from a peak of more than 180,000 patients several months ago, which may be due in part to some patients not renewing medical cards ahead of the future availability of adult-use products.

In years past, industry stakeholders had been expecting a cus-

tomer population in Ohio’s medical market to settle somewhere between 200,000 to 300,000 active patients.

Why that hasn’t happened may be attributed to a variety of potential factors by industry stakeholders and observers, including: high retail prices; a somewhat restrictive list of permitted qualifying conditions for medical marijuana; prohibitions on advertising, the impact of inflation on disposable incomes; imperfect dispensary access; competition from neighboring adult-use states like Michigan; and a lack of protections for employees who want to try medical cannabis.

Michigan topped $3 billion in total marijuana sales in 2023.

Medical sales of approximately $80.8 million accounted for just 2.6% of that amount.

The Michigan market continues to benefit from customers traveling across state lines to buy cheap products there.

“Right now, this is an industry that is very much stagnant and very much losing business and tax revenue to other states,” said Kevin Murphy, a co-owner and board member at Cleveland-based Standard Wellness Co. and managing partner of law firm Walter Haverfield.

These challenges with the medical market make the addition of an adult-use market approved by voters last fall that much more critical for industry players, which is why the Issue 2 campaign expectedly drew so much financial support from the industry.

Between January 2019 and yearend 2023, there has been $1.6 billion in total legal marijuana sales in the state.

Cannabis research firm New Frontier Data, which predicted that Ohio’s medical market would see approximately $470 million in annual sales in 2023, estimates that the state’s cannabis market could grow to nearly $2 billion in adult-use sales in 2028 with another $460 million in medical sales.

But the success of an adult-use market will hinge in large part on how a rec program is rolled out.

Regulators continue to write policies for an adult-use program that, based on the statute approved by voters in November, is to be functional around September 2024.

Meanwhile, state lawmakers continue to introduce legislation that could shape critical aspects of the coming rec program. Ideally, an effective adult-use program in Ohio should capture sales occurring in illicit and neighboring markets.

But companies worry that things like proposed increases to excise taxes—set by the statute created by Issue 2 at 10%—and restrictions on THC potencies, for example, could run the risk of pushing away potential customers.

“If potency were curtailed, that may reduce or eliminate a number of products in an SKU someone might want to produce because you can’t compete with products on the illicit market or in Michigan,” said Pete Nischt, vice president of compliance with Klutch.

Companies like Buckeye Relief are holding off on making big investments in their company in anticipation of adult use because of uncertainties about how regulations might shake out.

“Because of the confusion at the state legislature, nobody is expanding operations to accommodate the major additional business that will come from a well-written statute like Issue 2,” Rayburn said.

Despite these concerns and uncertainties, operators are very optimistic about the boost they’re expecting from an adult-use market.

Klutch is preparing for the coming rec market by investing in efficiencies, including some automated equipment, even if it’s not yet necessary to expand growing or manufacturing facilities.

“The market will be larger than the medical market, so for us not to be making some investments right now would be foolish on our part,” Thomarios said. “We are pretty bullish that an adult-use market, no matter what it ends up looking like, will be much stronger than medical.”

called off the merger less tors shelled out more than $200 bil- short-term financial ones or ‘Let’s health care providers that give than a year later. Across the country, lion on health care acquisitions in create a larger entity,’” he said. coordinated care to a designated SUMMA HEALTH systems hospitals and health systems are fac- 2021, according to the Common- “The interesting thing here is patient population. ACOs that parFrom Page 1

“I think it should be (viewed with) guarded optimism,” said Thomas Campanella, who has more than 40 years of experience in the health care sector and currently serves as health care executive-in-residence at Baldwin Wallace University. “Nothing is guaranteed in this world, but I think Summa’s in a better position in this relationship than they were, especially on their own, because they were obviously facing financial challenges.”

Summa Health has been actively seeking partnerships for years. Catholic Health Partners, known today as HealthSpan, became a minority owner in the health system in 2013, but the organizations ended their partnership in 2020.

Summa announced plans to merge with Michigan-based Beaumont Health in 2019, but the

ing intense financial pressures. Last year, the American Hospitals Association released a report that showed expenses for health systems and hospitals grew by double digits in 2022 compared to pre-pandemic levels.

Developing a relationship with an outside investor probably became a bigger priority for Summa, a major player in Akron’s health care market, following Cleveland Clinic’s 2015 merger with Akron General, said Dr. J.B. Silvers, interim co-dean and professor of health care finance at Case Western Reserve University’s Weatherhead School of Management.

“That’s a pretty serious intrusion into their market,” Silvers said.

“It’s not a surprise they would do something with somebody else. It is a surprise that they would do it with a for-profit company that’s owned by private equity.”

Private equity plays a significant role in health care financing. Inves-

wealth Fund. Private equity’s increasing presence in health care has not come without scrutiny. A 2023 study from Columbia University’s Mailman School of Public Health found that private equity investments in health care were associated with higher patient and payer costs and may decrease the quality of care.

The partnership between Summa Health and HATCo, however, is different than the usual private equity health care investment, Silvers said.

In an interview with Crain’s, HATCo co-founder and CEO Dr. Marc Harrison said the company wants to use technology to improve the consumer experience, reduce costs and take the friction out of health care. This long-term approach is not typical for these kinds of acquisitions, Silvers said.

“Many of the acquisitions that have happened before have been

they’re not building a system.

They’re not going to get a bunch of hospitals together and use the market power to do something.”

Campanella said leaders in the U.S. health system have been talking for decades about transitioning from a sick care system to a true health system focused on keeping patients healthy, but there has been little movement on the part of players and stakeholders.

HATCo has said its goal is to lead a shift to value-based care across systems throughout the country.

“It’s basically saying, ‘We need to come up with a model that is the hospital of the future,’” Campanella said.

Silvers said HATCo’s strategy is to use Summa as a “test kitchen” to try new methods for improving health care. Summa Health was one of the first systems locally to create an accountable care organization (ACO), which is a group of

ticipate in the program with the Centers for Medicare & Medicaid Services have certain quality and financial targets, and when they successfully meet them, they share in the cost savings. Silvers said Summa’s work in that space probably made it appealing to HATCo. The system’s health insurance arm, SummaCare, was another aspect that likely interested the company, Campanella said. He wouldn’t be surprised if the organizations become more aggressive in partnering with Medicare Advantage plans, he said.

“If you’re going to try to transition a new health system to focus on keeping people healthy and being linked with employers and everything else, having a health insurance arm is a major, major plus,” he said.

The other important piece is that the partnership involves well-re-

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The myriad changes on the horizon for intercity transit (RTA and Amtrak) and intracity transit (Greyhound) have Cleveland’s transit and development leaders pushing for the development of a multimodal transit center.

As part of Cleveland’s nearly finalized North Coast Master Plan, there are plans for a 150,000-square-foot multimodal transportation station that would include the existing Amtrak stop, RTA light rail and the possible relocation of the city’s Greyhound bus service.

The only wrinkle is that last month, the Federal Railroad Administration (FRA) in its selection of expansion routes for Amtrak, made a point of selecting Hopkins as the new rail station for the multiple Cleveland lines.

How the Amtrak announcement fits with the plan to create a multimodal station as part of the city’s lakefront development is not yet clear as both plans are far from being realized.

As part of the master plan, the existing Amtrak station, built in 1977 for about $500,000, would go under a massive renovation. It sits at 200 Cleveland Memorial Shoreway and services a handful of arrival and departures.

The hard-to-find station that services the Lake Shore Limited New York-Boston-Chicago route is, essentially, an enclosed waiting area with a vending machine where passenger trains pass through in the middle of the night and early morning.

With $500,000 from the FRA, two routes recommended by the Ohio Rail Development Commission (ORDC)—the ClevelandColumbus-Dayton-Cincinnati (known as the 3C+D corridor) and Cleveland-Toledo-Detroit—will undergo feasibility studies and include the Hopkins station.

All Aboard Ohio director John Easterly said there could be as many as three to four stops a day

in Cleveland at the proposed Hopkins station, which already has RTA’s Red Line running to the airport.

Having a true multi-modal station at an airport, similar to Milwaukee and Baltimore, is something the FRA would back.

For now, though, any new Cleveland-area station resulting from the state’s Amtrak corridor expansion is “aspirational,” Easterly said. The whole process relies on large infrastructure and feasi-

bility studies, both federal and state transportation budget cycles and then the actual buildout.

“We are probably looking at the end of the decade before we see new passenger rail moving humans,” he said.

The first phase of the corridor study will be all about evaluating existing rail and land rights-ofway. It’s not until the second phase when it will be time to make the case of a downtown, lakefront or Hopkins station, Easterly said.

spected Northeast Ohio health care leaders on both sides, Silvers said.

Dr. Cliff Deveny, Summa Health’s president and CEO, has been with the system since 2017. Meanwhile, Harrison previously served as CEO of Cleveland Clinic Abu Dhabi, chief of international business development at Cleveland Clinic and chief medical operations officer at Cleveland Clinic. Most recently, he served as president and CEO of Utah-based Intermountain Healthcare, a system known for its innovation and quality care, Silvers said.

Campanella said Harrison has a good reputation in Northeast Ohio health care and is familiar with many stakeholders in the area. He expects many health systems across the U.S. to pay attention to Summa as the partnership with HATCo develops.

“All hospitals in the country are facing financial challenges right now,” Campanella said. “The sooner they start evolving and doing some of the things that they’re potentially looking at with Summa, the better it

will be for them.”

Neither Summa nor HATCo officials have disclosed financial terms related to the acquisition, but the transaction will create a sizable community foundation that will address social determinants of health in the region. Silvers said the new foundation will function similarly to the Mt. Sinai and Saint Luke’s foundations in Cleveland.

One of the biggest examples of this conversion model is the California Health Care Foundation, which was created as a result of Blue Cross of California’s conversion from a nonprofit to a for-profit company, WellPoint (now Anthem).

If successful, the new structure could be a “game-changer” for health care, Silvers said, but HATCo and Summa will face some growing pains in implementing the new model.

“This value-based payment model is growing, but it’s still pretty small,” he said. “To justify doing a lot in that area when most of your reve-

nue comes from traditional fee-forservice, I’m paying for pieces of the care rather than I’m paying for the outcome when most of your revenue comes from the former, it’s pretty hard to make a quantum shift into the value-based world.”

There will also be a natural fear factor that emerges when a large institution like Summa starts to make major changes, Campanella said.

Long-time employees will wonder how these changes are going to affect them, which means it’s important for the organizations to communicate their vision and focus on getting employees excited, he said. HATCo officials have said they do not plan on cutting staff. Campanella said he expects the new structure to bring new job opportunities to the market.

“I think there’s a lot of great potential,” he said. “Like anything else, all of this is great, (but) they’ve just got to follow through with it. But from everything I hear about Marc Harrison, I think it has a strong likelihood of success.”

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Greyhound ponders future

From Page 1

Competing Amtrak plans

The myriad changes on the horizon for transit have leaders pushing for the development of a multimodal transit center. | BLOOMBERG

The downtown Greyhound station at 1465 Chester Ave. | STAN BULLARD

CLASSIFIED SERVICES CLASSIFIED SERVICES

The two Cleveland routes under study on recommendation by the ODRC are not the same ones the Northeast Ohio Areawide Coordinating Agency (NOACA) suggested.

NOACA’s application looked to connect two existing longdistance Amtrak routes and create a “mini-Cleveland hub,” according to Grace Gallucci, NOACA’s executive director.

“The routes would increase service frequency and add different origins and destinations,” Gallucci said. By upgrading existing routes rather than building out new infrastructure, the cost would be less, she added.

NOACA’s most recent strategic plan—the Transportation for Livable Communities Initiative (TLCI)—is also in favor of a multimodal transit station with the caveat that it serves as many riders as possible.

“We would like to see it (the station) where the people are,” Gallucci said. “It would be important to see a market analysis regarding where it should be for people who are using that transportation and where it should be for new people who want to use it too.”

Meanwhile, like in so many other cities, Greyhound is moving its Cleveland station from its once bustling central downtown location as that valuable real estate is sold for a hefty profit.

The private bus service, which before World War II had downtown locations across the country, began to lose out to cheaper air travel, the growth of private vehicle ownership and the interstate highway system in the 1960s and 1970s. Today the art-deco style terminals are prime real estate targets as private equity firms reposition the assets of the company.

Allison Lukacsy-Love, who leads the Greater Cleveland Partnership’s (GCP) efforts on waterfront and downtown development as managing director of major projects, said city and civic leaders are in discussion with Greyhound to relocate its station to be near other transit in the city after selling its iconic 75-year-old “Streamline Moderne” style station.

Lukacsy-Love said that the city and GCP are in active discussion with private intra-city companies.

There are no firm updates on a multimodal transit station that includes a Greyhound station but for any plan, it makes sense to align different modes of transit in one location.

“We want this all to be accessible to people who use the services in the city or with Amtrak people coming into the city,” Lukacsy-Love said. “You cannot just put a central transit stop in an exburb.”

In the meantime, Cleveland’s Greyhound owners are in active talks about relocating with multiple partners but, according to a spokesman for the Midwest East Greyhound lines, no specific information on a possible location or location is available to share.

“We are continuing to work with several community partners on long-term options to serve the residents and visitors of Cleveland,” said Brett Gaj, Greyhound district manager for the Midwest East.

Continued on Page 30

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Fishbeck

Gallagher Sharp LLP

We welcome Karen Baksa, CPA, MT, MBA to the Somich & Associates team as the new Tax Director. As a full-service accounting firm dedicated to assisting family-owned businesses, Karen’s extensive background in accounting, tax law, business taxes, and staff development makes her a valuable addition.

Her commitment to client service aligns seamlessly with our mission of bottom-line growth and client protection. With Karen on board, we look forward to propelling our clients into a prosperous future.

I.A. Lewin, PE & Associates, a leading Structural and Civil Engineering firm in NE Ohio is pleased to welcome Gayle Lewin, PE, to ownership in the firm as Principal Civil Engineer. Gayle joined IALPE in 2015 specializing in Civil Engineering including site layout, stormwater management, and retaining walls. She holds a B.S. in Civil Engineering from the Univ. of Cincinnati and an M.S. in Engineering Management from the Univ. of Akron. She brings 20 years of experience to the firm.

Travis Rhoades, PE, senior bridge engineer at Fishbeck, has been appointed to the National Society of Professional Engineers Board of Ethical Review, a distinguished authority in the study and guidance in the ethical practice of engineering. Rhoades will serve his term through June 30, 2026, representing Ohio and NSPE’s Central Region. Travis is also serving as NSPE-Ohio’s immediate past president and vice president of legislative and government affairs.

Gallagher Sharp is pleased to announce the addition of Associate Jordan D. Weeks to the firm’s Transportation and Professional Liability Practice Groups. Jordan defends members of the commercial transportation industry against claims of personal injury, property damage, and wrongful death arising from truck accidents. He also represents professionals in litigation alleging malpractice and errors and omissions. Jordan received his law degree from Case Western Reserve University School of Law.

CONSTRUCTION

Marous Brothers Construction Marous Brothers Construction, the award-winning, multi-generational construction company based in Willoughby, is pleased to announce Carter Edman as the new Director of Design for its Design/Build Group. Carter brings over 20 years of experience in design and management and is committed to improving the project development experience through greater integration of design, pre-design services, and construction. Carter believes this approach is the future of architecture and construction.

HOSPITALITY / TOURISM ENGINEERING / CONSULTING

I.A. Lewin, PE & Associates I.A. Lewin, PE & Associates, a leading Structural and Civil Engineering firm in NE Ohio is pleased to welcome Brian D Tomcik, PE, LEED AP, to ownership in the firm as Principal Structural Engineer. Brian joined the firm in 2013 and opened our first satellite office in Rochester, NY in 2016. He graduated from the University of Notre Dame in 1999 with a B.S. in Civil Engineering. He brings 25 years of experience to the team, specializing in timber design and construction management/ administration.

Kimpton Schofield Hotel Nicole Sowders has been named Director of Sales of the Kimpton Schofield Hotel, bringing more than 15 years to the restaurant and hospitality industry. She was recently promoted from her role as Ambassador of Awesome.

Sowders has been with the Kimpton Schofield for one year, but began with the restaurant and ownership group over 2.5 years ago Sowders is a known personality to guests and local media, known for attention to detail and to make everything an easy, enjoyable and fun experience.

NONPROFITS

Alzheimer’s Association Melissa Zapanta Shelton has re-joined the Alzheimer’s Association as Executive Director.

She previously served as VP of Development from 2014-2019, where she and her team contributed $2M in annual revenue. In her new role, she will lead the Association’s efforts to engage the community, increase awareness of the disease, expand the reach of free education and support across Northeast Ohio, and raise crucial funds to work toward the Association’s mission of a world without Alzheimer’s.

CONSTRUCTION

Ohio CAT INVESTMENT FIRM ENGINEERING / CONSULTING

SC&H Capital I.A. Lewin, PE & Associates I.A. Lewin, PE & Associates, a leading Structural and Civil Engineering firm in NE Ohio is pleased to welcome Alexander K. Babel, PE, SE, to ownership in the firm as Principal Structural Engineer. Alek joined IALPE in 2020 and is a licensed engineer in 47 states and DC. He is a graduate of the Illinois Institute of Technology, with a Bachelor of Science in Civil Engineering and a Master of Engineering in Structural Engineering. He brings over 16 years of experience to the firm.

SC&H Capital, a leading investment bank specializing in M&A and other advisory services for middle-market companies, announced Mike Fixler has joined as Managing Director. Fixler brings more than 25 years of experience strategically advising middlemarket companies and their stakeholders to the firm’s Special Situations team. His expertise is focused on distressed mergers and acquisitions, capital raising, and various restructuring processes, including in bankruptcy cases.

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C O N TA C T

We are pleased to announce the promotion of Gillian Taylor Henning to Rental Store Manager at our Canton and Youngstown Cat Rental Stores.

Having concentrated her efforts as a Rental Coordinator in 2023, Gillian will now further her expertise in customer service, rental revenue growth, and overall rental responsibility.

Gillian is the daughter of Ken Taylor, President of Ohio CAT, and the fourth generation of Taylors who have been involved in the business since 1945.

Congratulations, Gillian!

Laura Picariello Reprints Sales Manager lpicariello@crain.com (732) 723-0569

Continued from Page 29

Fitting transit into the waterfront master plan Gaj and Lukacsy-Love will say they are having discussions regarding a possible long-term plan to have a one-stop station for Amtrak, Greyhound and the Greater Cleveland Regional Transit Authority (RTA) as part of the ongoing waterfront development plan.

“We are very interested in the Lakefront Multimodal Transportation Project. A Lakefront Multimodal would be great for the city and something that we look forward to. We are also happy to be part of the discussions as the project continues,” Gaj said in a statement to Crain’s.

The lakefront plans could provide a good alternative for a city that does not want to move a transit service away from the people who use it and an answer to neighborhoods where residents are hostile to intercity buses and blocked efforts to move the bus terminal.

The city, which is spearheading the Lakefront master plan, is open to two Amtrak stops: one in downtown and one at Hopkins, according to City Hall spokeswoman Marie Zickenfoose.

Zickenfoose said that the city does not consider the two stations “mutually exclusive” and that the applicable development departments are involved in “investigating the potential for both an expanded and upgraded downtown Amtrak station as well as establishing a new airport stop that would serve the proposed ClevelandColumbus-Dayton-Cincinnati and Cleveland-Detroit passenger rail corridor enhancements.”

Some transportation experts including Easterly, have doubts that the routes suggested by the state—which seem to give more weight to building new passenger rail to and from Columbus than making Cleveland a destination and starting point to other cities in the east and west— could sustain two stations within 15 minutes of each other.

But there is a lot of money that is available.

The Hopkins station is backed by current and potential Corridor Identification and Development Program (Corridor ID) grants while the proposed lakefront multimodal hub is being developed with a combination of state and local funding.

There are other competitive grants and EPA funds available for more sustainable transportation that NOACA will look at when they apply again for FRA funds in 2024.

Whether Cleveland will have two Amtrak stations or two multimodal transit hubs in the future, most transit users are simply looking forward to an upgrade of the current, WiFiless Amtrak station built when Ralph Perk was mayor of Cleveland.

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