Crain's Cleveland Business by Crain's Cleveland Business

VOL. 39, NO. 4

JANUARY 22 - 28, 2018

Source Lunch

Akron Family restaurant is influential gathering spot. Page 40

CLEVELAND BUSINESS

Suzanne DeGaetano, Mac’s Backs-Books co-owner Page 43

The List Largest commercial property sales Page 38 SPORTS BUSINESS

Indians climbing revenue rankings

INDUSTRY OUTLOOK: FOOD AND DRINK

Should it be such a waste?

By KEVIN KLEPS kkleps@crain.com @KevinKleps

Urban Farmer general manager Andy Hata is a strong advocate for effective recycling efforts. Here, he harvests chilies from a hot pepper plant cultivated in a basement grow tent at the Westin Cleveland Downtown. (Peggy Turbett for Crain’s)

Making the most of their trash can be a daunting task for restaurant operators By JOE CREA clbfreelancer@crain.com

An average American discards 4.4 pounds of trash every day, or 1,606 pounds per year, according to the Environmental Protection Agency. That means an average family — statistically, around three people — throws away 90 pounds of trash each week. Care to guess how much of an average hotel or restaurant’s waste ends up in landfills? Andy Hata, general manager for Urban Farmer restaurant, part of the Westin Hotel Cleveland in down-

town’s Civic Center district, helped orchestrate an audit of the amount of waste produced by the 22-story, 484room high-rise. “We discard 584,000 pounds per year, for the entire hotel property, including food service,” Hata said. That includes everything from kitchen trimmings, broken glassware, cans, paper and plastic products, wine bottles and mixed garbage, he said. “It’s damning because of what we could do with all that waste. And damning because why haven’t we already done anything?” Hata asked. Others ask the same, or similar, questions.

Taking their concerns to court Northeast Ohio cities continue their battle with the state over the collection of net profits taxes. Page 4

Inside: Focus Nighttown remains a gem. Page 9 Distillers take shot at success. Page 9 Craft beer market is packed. Page 10

A quick survey of a half-dozen popular Cleveland-area restaurants provides a simple summation of stumbling blocks and mostly unsuccessful attempts at salvage and recycle efforts. “We did compost for a while, and one of my employees took it home for her big farm,” said Dante Boccuzzi, chef-owner of Dante in Cleveland’s Tremont neighborhood and several

SEE WASTE, PAGE 12

SEE INDIANS, PAGE 39

REAL ESTATE

Higley’s move is ‘1,300 feet’ By STAN BULLARD

other Northeast Ohio restaurants. That worker eventually moved on. Boccuzzi said his staff can separate materials into various bins, but other issues quickly arise. “In the winter it’s not so bad, but in summer vermin is a huge issue. We would gladly do it — but there’s no system in place,” he said. “We would separate the glass and stuff, but nobody picks it up. They don’t have that system in place in Cleveland.” Paul Minnillo, owner of Flour Restaurant in Moreland Hills, said he’s a big advocate of recycling who’s wanted to get more of his restaurant’s waste recycled “from Day 1.”

Coming off consecutive playoff appearances, and with an average of 98 wins per season the last two years, the Cleveland Indians are well above the norm in Major League Baseball. From a revenue standpoint, the Tribe is closing in on the middle of the pack. And in this case, average is pretty darn good. In 2014, Brian Barren’s first year on the job, the Indians were in “the bottom third of the bottom third” among the 30 MLB clubs in revenue. It was then that Barren Barren, now the Indians’ president of business operations, developed the “15 and 5 battle cry,” which was his plan to get the Indians to 15th in baseball in the organization’s key business metrics within five years. Making significant improvements in three crucial revenue segments — tickets, premium suites and corporate partnerships — creates “as much flexibility as possible for our baseball operations team and our ownership to field a competitive baseball team,” Barren said. The business side’s plan got a huge jolt from the Indians’ surprise run to the 2016 World Series.

sbullard@crain.com @CrainRltywriter

Black and white photos of significant buildings long part of Northeast Ohio's landscape, such as the landmark art deco former U.S. Coast Guard station at the Cuyahoga River’s mouth, line the south wall in a conference room at the Albert M. Higley Co.’s main office at 2926 Chester Ave.

Through a glass partition in the conference room, a north wall is covered with color photos of recent projects such as Eaton Corp.’s North American headquarters campus in Beachwood. They are a reflection of past and present at the general contractor and construction management company that has completed about 12,000 projects — both big and little and primarily in Northeast Ohio — since it was started in 1925. It was launched by the

grandfather of its current chairman, Bruce Higley, who succeeded his father, the late Albert M. Higley Jr., in the role in 2008, after serving years in various roles since 1984. However, for all its legacy, this outfit is focused on its future. It is undertaking sweeping moves — physically, with a new headquarters, and marketwise, with a just-opened Detroit office — that follow an internal updating of the organization.

SEE HIGLEY, PAGE 39

PA G E 2

J A N U A RY 2 2 - 2 8 , 2 018 |

CRAIN’S CLEVELAND BUSINESS

MRN is adding 25 suites to Ohio City office space By STAN BULLARD sbullard@crain.com @CrainRltywriter ©

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MRN, the Cleveland-based developer of the East 4th Neighborhood downtown and Uptown in University Circle, is adding a residential component to its nine-story Ohio City office venture. Call it the third trend-setting wave by MRN in the neighborhood near downtown dating from the early 19th century. The first was when it bought United Bank Building, 2012 W. 25th St., in 2008. The second was when it landed a top-tier downtown tenant from Tower City, the Skylight Financial Group affiliate of MassMutual, in 2011. Now 25 suites are going into the 1926-vintage office building in a $4.5 million project. The project is disclosed on the Cleveland Development Advisors website as the corporate- and foundation-backed investor in catalytic real estate projects, through an affiliate, provided a $2.5 million loan to the project. The third and fourth floors are being converted to apartments, according to permits on record with the city of Cleveland’s Building & Housing unit. The suites have a stated completion date of 2019. Thomas McNair, executive director of the Ohio City Inc. local development corporation, said he’s excited about the project. “We strive to be a 24/7 neighborhood,” McNair said. “A little residential development will bring a little more activity to that (southern) side of Lorain Avenue at West 25th Street. There isn't much of that there now.” He said he believes it will be a prized apartment location because it sits on nine public transit lines. Continued retenanting of the building for offices would have been beneficial in terms of diversifying the neighborhood, but McNair believes some floors of the building are subdivided into such small suites that it might have

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MRN is converting two floors of the United Bank Building in Ohio City into suites. (Stan Bullard)

been difficult to land new tenants for them. David Hollister, a Newmark Knight Frank managing director focused on office leasing, said the building’s floor plans might be more conducive to apartment conversion than current offices. “What’s the area becoming? Residential,” Hollister said. “And the apartment market is on fire there with projects like the West 25th Street Lofts nearby, which are full or close to it.” Ari Maron, spokesman for family-owned MRN, did not return two emails and three phone calls by last Thursday, Jan. 18, seeking comment about the United Bank Building project. However, Maron recently expressed continuing confidence in the city’s growing rental residential market, which such a development move reflects. In a Jan. 10 email to Crain’s, he said activity this winter is particularly strong for this time of year and noted that MRN’s 329-suite downtown portfolio, where most development activity is concentrated, is at 98% occupancy. In addition to office tenants, the structure across the street from the West Side Market houses Crop Bistro and a Penzeys Spices shop.

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PA G E 4

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CRAIN’S CLEVELAND BUSINESS

Much to the chagrin of local communities, Gov. John Kasich’s administration has been trying to take over the collection of net profits taxes since 2014. (Bloomberg)

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22 local cities take tax fight with state to court By JAY MILLER jmiller@crain.com @millerjh

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Northeast Ohio cities have taken their fight over the state of Ohio’s effort to become the collector of local taxes to court. Just before Christmas, 22 Northeast Ohio communities filed suit in Lorain County Common Pleas Court to block provisions of the state budget bill, H.B. 49, that would allow businesses to choose to file their net profit tax forms with the state, rather than the municipalities in which they do business. The communities use the Regional Income Tax Agency (RITA) to process their business and municipal taxes. The new provisions were scheduled to take effect Jan. 1. Gov. John Kasich’s administration had hoped the legislation would make filing through the tax department mandatory and that the state could charge businesses a fee for the filing. The final bill dropped the fee and made filing with the state optional. Although it’s now optional, the communities are asking the court to declare the net profits tax provisions of H.B. 49 unconstitutional and to issue preliminary and permanent injunctions to prohibit the state from implementing the centralized administration of the tax. Cleveland-based Walter Haverfield LLP filed the suit against the state of Ohio and Tax Commissioner Joseph Testa. The legislation allows businesses to elect to file their net profit tax forms with the state, which would then distribute the taxes collected to the local governments, taking a 0.5% cut off the top. The communities argue in their lawsuit that, with this legislation, the state “is even confiscating a portion of the municipal net profit tax for its own use in violation of the Ohio Constitution.” This comes on the heels of a similar lawsuit filed in Franklin County Court of Common Pleas last November by a coalition of more than 100 municipalities.

These suits are the latest steps in what municipalities see as a decades-long erosion of home rule — the section of the state constitution that grants cities broad powers of self-government, including the right to assess and collect local taxes like an income tax. The General Assembly, backed up by Ohio Supreme Court decisions, has been narrowing the powers of cities since the 1980s, when legislation overruled cities’ collective bargaining laws. More recently, the Legislature took away cities’ rights to register firearms, regulate oil-andgas drilling and force city employees to live in their work city. The Kasich administration has been trying to take over collection of this net profits tax since at least 2014. Testa told legislators last year that businesses he talked with on a listening tour consider compiling and filing their net profits tax the biggest tax headache they face. That’s because each of the approximately 600 communities that levy a net profits tax on businesses set their own rules and enforcement practices. “On the listening tour, we heard stories of how it can cost a business more to prepare a net profits filing than the actual tax owed,” he told the House Finance Committee on Feb. 9, 2017. “Businesses like to have tax predictability. That is difficult to achieve under the current net profits system.” The Tax Foundation, a Washington, D.C., think tank, considers Ohio’s municipal taxing structure one of the worst in the country because it allows individual cities so much freedom to craft their own tax. Also, the state argues that its 0.5% administrative fee would save cities money, including cities that use RITA, whose charges typically run about 1.5%. But the filing of the lawsuits suggest the cities disagree. While some large businesses may have to file many tax forms, cities and their tax collectors believe the tax commissioner overstates his case. Don Smith, executive director of RITA, said his agency processes net profit tax filings for 71,000 businesses and administers tax collections for

319 taxing districts. That means that nearly half the communities that levy a net profits tax already file only one form for those communities. And of those businesses, he said, 76% filed in only one community in 2015, the latest year for which he had data, and only about 13% filed in more than four communities. “When you begin to make the argument that this is an overwhelming burden for businesses, we really have to step back and say, ‘Not for most businesses,’ ” he said. “For some, for sure, but not most.” Smith also argued that while the state is charging a smaller fee than RITA, his agency provides more services, including auditing, collections, setting up payment plans, providing assistance to business filers and other administrative work. Cities, he said, also are concerned that they won’t get their tax receipts as quickly from the state, which intends to send revenue to the cities quarterly. His organization transfers the money in half that time. Kent Scarrett, executive director of the Ohio Municipal League, which is backing the Franklin County lawsuit, expressed the same sentiment and added that, in addition to the communities that contract with RITA, 125 cities and villages contract with the Central Collection Agency, an arm of the city of Cleveland, to process their taxes. “It’s not the 0.5% fee, but the lack of accountability and enforcement power that (cities) currently have,” he said. “Our members feel, and we think taxpayers should feel, a pretty significant level of angst with the state getting into the business of managing local revenue and not letting us assure the accuracy and accountability and auditing as we currently do now. They are not as interesting in municipal filings as they are in state filings.” Scarrett also is concerned that allowing the state to take over the administration of this business tax will lead to the state seeking to take over the municipal income tax collections, a far larger pot of money for cities. “This is the first bite of the apple,” he said.

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PA G E 6

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CRAIN’S CLEVELAND BUSINESS

Opinion From the Editor

Amazon’s pass on NEO might not be so bad

Editorial

Running on empty The state of Ohio is an easy — and appropriate — punching bag when it comes to dissecting the problems facing the Greater Cleveland Regional Transit Authority. At this point, our knuckles are raw. State funding for transit has slid from roughly $40 million at the turn of the 21st century to about $7 million, or less than 1% of the total cost, today. That’s a figure far lower than other states and a problem that’s been deepened with the recent cutoff of Medicaid managed-care organization sales tax revenue. In a refrain that’s become all too familiar for RTA in recent years, last week the agency’s board agreed to reduce service on 15 routes starting March 11. The funding woes are expected to lead to additional service cuts and the layoffs of as many 200 employees later this year. It’s clear our leaders in Columbus aren’t interested in a fix and, at least so far, discussion over the perils facing public transit has been virtually nonexistent in the governor’s race. RTA is on life support, and its CEO, Joseph Calabrese, can only pump so much morphine into the agency to ease the pain for riders and his staff. Local intervention is needed, and it must happen now. “When you go down to Columbus, they see us as a different animal — almost like a different state. The attitude has been, ‘We’ll fund highways out of Columbus, but if you want public transit, it needs to be funded locally,’ ” Calabrese told Crain’s late last year. Our elected leaders — namely, Cuyahoga County Executive Armond Budish and Cleveland Mayor Frank Jackson — and the corporate community (looking at you, Greater Cleveland Partnership) need to put transit in the upper echelon of their economic development priorities. It should be more than a talking point. Of course, what that fix might be is a thorny issue, and we certainly aren’t claiming to have the answer. Some transit advocates have floated the idea of a county sales tax hike — likely a difficult pill to swallow politically given that

Cuyahoga County already boasts the highest sales tax in the state. A 1% Cuyahoga County sales tax enacted in 1975 provides the lion’s share of RTA’s revenue. That said, ballot issues concerning transit have been relatively well received nationwide. RTA also is authorized under state law to levy property taxes, and one study notes that 1 mill would be sufficient to replace the lost revenue, with some leftover for service improvements. Another creative idea being floated in transit circles would be asking the region’s largest hospital systems — Cleveland Clinic, University Hospitals and MetroHealth — to underwrite public transit as part of their community benefit strategies. With the expansion of Medicaid under the Affordable Care Act, hospitals have been looking for creative ways to justify their tax-exempt status beyond caring for those without coverage. Support from Greater Cleveland’s other corporate citizens — not just the hospitals — should be on the table, too. RTA, of course, cannot sit idly by and wait for a handout. The agency, for several years, has understandably put the bulk of its energy toward avoiding fiscal chaos. However, it also needs to think creatively about what a modern version of itself looks like and sell that idea to the riders, employers and taxpayers. Positioning one’s self as the neglected kid in the corner is only palatable for so long. So who is going to take the lead on this necessary community conversation? The mayor? The county executive? GCP? Whomever, it just needs to happen now. For too many, public transit is viewed as a government handout — and extension of welfare, more or less — and not a necessary ingredient for workforce and economic development. The absence of Cleveland (or Detroit, for that matter) on Amazon’s latest target list for its coveted HQ2 and the 50,000 jobs the company claims come along with it should be a stinging realization that public transit matters in a modern economy.

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Last week, Amazon revealed the short list of 20 cities competing to become the home of its second corporate headquarters. Northeast Ohio, which was among 238 cities and regions across North America that submitted bids for what’s dubbed the online retail giant’s HQ2, did not make the cut. That might not be such a bad thing. Amazon unleashed a “Hunger Games”-style competition last September in which cities and states were pitted against each other to create economic development packages brimming with public subsidies and tax breaks. May the odds, slim as they are, be ever in your favor, I guess. Amazon’s request for proposals laid out what the company was looking for: a metro area with at least a million people, an international airport, an educated workforce, mass Elizabeth transit, quality of education and tax incentives. McIntyre So, we watched as cities spent countless dollars and hours creating their pitches, some going to extremes. Tucson tried sending a 21-foot cactus. Kansas City’s mayor wrote five-star reviews for 1,000 items on Amazon. New York City lit up its most iconic skyscrapers in Amazon orange. It felt eerily like a flashback to 1985, when governors and mayors were wooing General Motors to build its $5 million Saturn car plant in their backyards. And we know how that turned out. Northeast Ohio’s bid — created by the city of Cleveland, Cuyahoga County, Team Northeast Ohio, Greater Cleveland Partnership, the state of Ohio and other local partners — was shrouded in secrecy. We don’t know exactly what was offered, because as a press release issued in October stated, the proposal was “proprietary.” I realize landing the $5 billion HQ2 brings the promise of as many as 50,000 high-paying jobs, which would inject more jobs into our region than the Cleveland Clinic, our region’s largest employer, already provides. But HQ2 wouldn’t come without headaches. As Greg Lowery, writing for Fast Company, explains: “More families arriving means more teachers to hire; more classrooms, roads, water mains and sewerage to build; more public safety to provide; and more trash to pick up. All of those things cost money. But if Amazon is paying no sales tax, no property tax, no income tax, and is getting cash gifts from its employees and/or the state treasury by selling tax credits, then Amazon won’t be bearing those new costs. Instead, there will be a huge burden shift: Either everyone else’s taxes will have to go up, or the quality of public services will have to go down, or some of both. There’s no such thing as free growth.” Ultimately we’d be trading off jobs for public subsidies, which is often done, but rarely at this scale. Since 2000, Amazon has received $1.15 billion in tax breaks from communities across the United States. In Ohio alone, it’s gotten more than $123 million in tax breaks, including for fulfillment centers in Euclid and North Randall. Certainly, companies that relocate or expand in our region deserve to access whatever economic incentives they can. And it’s wise for governments to prudently offer incentives when the loss in tax dollars is dwarfed by the benefits of added jobs. But this felt more like a reality show than an actual economic development negotiation. Amazon is “The Bachelor.” Columbus is still in the running, and more power to them. Northeast Ohio leaders are supporting that bid and talking about how proud they are of the collaboration that went into the local bid. It’s great to hear excitement about collaboration to lift our region up. Use that energy to continue to attract and grow worthy companies in Northeast Ohio — they don’t have to be behemoths like Amazon — and to build on our strengths in fields such as education, medicine and manufacturing. If anything comes of the Amazon sweepstakes, let it be that.

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

CRAIN’S CLEVELAND BUSINESS

‘Younger generation’ takes the lead at Meyers Roman SEE WHAT PRIVATE BANKING SHOULD BE. By JEREMY NOBILE jnobile@crain.com @JeremyNobile

In a move planned for at least the past year, Meyers, Roman, Friedberg & Lewis has tapped Seth Briskin as the firm’s third and newest managing partner. The move was effective with the first of the year. Briskin replaces Peter Turner, who was named managing partner in September 2011 following founder Anne Meyers, who started the firm in 1995, selling her majority stake in the business to nine other partners. Turner still chairs the firm’s civil and commercial litigation practice following the changing of the guard, and Briskin still leads the labor and employment group. “I did two terms as managing partner, and I made it known I wanted to pass the torch and refocus on other things,” Turner said. “The timing was right.” Meyers Roman partner Peter Brosse talked with Crain’s last spring about the firm’s efforts in succession planning, citing a need to have one as management grayed — and because it’s a matter of practicing what they preach to their business clients. “I see this as a firm that I and others helped grow, and I want it to be sustainable,” Brosse said at the time. “We’re all asking these same things: What happens here if something happens to you or someone else? Well, those are good questions. But no one asked them until now.” Briskin doesn’t plan to reinvent the wheel at the midsize firm, which has grown to 35 attorneys. The firm had four attorneys when it was established about 23 years ago. “If it ain’t broke, don’t fix it,” he said. “You don’t want to stop a good thing.” However, there are plans to further growth of the firm through a heightened focus on niche law work. That doesn’t mean any less focus well be paid to the firm’s usual work, which largely centers on small and midsize businesses. Briskin said his “mantra” for the firm will be “service in all things.”

The naming of Briskin coincides with the addition of Bryan Dardis and Jenifere Singleton to the management committee. The trio are all in their Briskin early to mid-40s, making them the firm’s youngest leadership team to date. “As a younger generation of managers, we have the ability to be more open-minded and in tune with the changes in this world today — more flexibility in the workplace, monitoring of some family-related issues,” Singleton said, reflecting a change in law firm cultures in recent years that are shifting more toward collaborative and flexible work environments in the industry. Briskin hopes that sort of approach will resonate with younger attorneys and draw in more talent. “We’ve been blessed as being a good place for people who are entrepreneurial and growing books of business and practice areas,” he said. “If (other attorneys) don’t have a good fit at the time at the firms they are in, we offer a place to practice law, raise a family and be a member of the community.” Brosse reflected back on a sentiment he had in 2011 as he joined the management committee about adapting to the market that still rings true today, if not even more so. “We have to adapt,” he said. “We can’t stand still because then we are in trouble.” Dardis pointed to burgeoning practices in areas like cannabis law and blockchain. “Because of our structure and our nature, we can and will be flexible to jump on those opportunities,” he said. “We are looking to bring in new practice areas or attorneys with interest in growing practices that share our visions,” Briskin added. “It’s an exciting time with this move to talk to people about how we can collaborate together.” In terms of growth, the firm doesn’t

have a particular size in mind to hit, but it’s trending upward. The firm would not disclose revenues beyond saying growth in 2017 was at least 10%. In November, Meyers Roman moved to a newly renovated space on the 6th floor of Eton Tower in Woodmere to provide more space for the firm at its current size and to give more room to grow. That marked its first physical expansion since opening in 1995. “When Anne Meyer started the firm, she had no intention of being more than four attorneys,” Briskin said. “So I don’t think we have a number in mind. We’ve got offices and availability here and we can always think about another location. But right now, we’re just focused on being the best we can.” The outlook for growth in demand for legal services is somewhat mixed at this point, which could create some challenges for growth-minded firms. According to a 2018 client advisory report from The Citi Private Bank Law Firm Group and Hildebrandt Consulting, the law firm industry is in a “channel of modest demand growth with high levels of dispersion and volatility.” Revenue growth is coming mostly from rate increases as overall demand is rather flat, with margin growth coming mainly from decreases in overhead costs. The report asserts that all those factors put a premium on drawing the best legal talent and expanding work into new markets, practices and industries. Briskin didn’t seem overly fazed by tepid outlooks for the industry like that, citing their own plans to be nimble and develop those new practice areas. “I just think of that as a reflection of Northeast Ohio and sort of our region here, the day of the Fortune 500 companies has sort of gone downhill,” he said. “But while Big Law may see some stagnancy, there are a lot of smaller, midsize businesses growing every day in Northeast Ohio. It’s a popular place for entrepreneurs and people owning businesses. Maybe that’s why we haven’t seen any sort of dip.”

ANALYSIS

Key Center deal tops robust list By CHUCK SODER csoder@crain.com @ChuckSoder

Naturally, when someone buys the biggest skyscraper in the city, it’s going to be the deal of the year. The sale of Key Center to Cleveland-based Millennia Cos. easily took the top spot on our list ranking Northeast Ohio’s Largest Commercial Property Sales of 2017. (The list is on page 38.) The $267.5 million deal — which includes Key Tower and the attached Marriott hotel — also would take the top spot if we ranked every commercial property sale included on this list since we started producing it annually in 2013. And the deal faced stiff competition this year. The top 27 deals all exceed $20 million. In past years, we always ran out of deals that big before we got to No. 20 on the list. Granted, it’s hard to make an ap-

ples-to-apples comparison between years. Though we’ve always built the list with data from both Real Capital Analytics, a real estate data analytics firm in New York, and Alec Pacella, managing partner at NAIDaus, we haven’t always compiled the data in exactly the same way. For instance, this year we grouped buildings together if they were adjacent and sold together in one deal, which we haven’t done consistently every year. And some of the deal prices on the list are labeled as estimates from Real Capital or Pacella. Still, those discrepancies can’t account for the increase, which is overwhelmingly clear. DDR Corp. of Beachwood played a big role in beefing up this year’s list. The publicly traded shopping center owner sold five of the 54 properties on the full digital list. Three of those properties — Belden Park Crossing in Canton, Macedonia Commons in Macedonia and Southland Crossings in Boardman — made the top 10. You’ll see several local buyers on

the list, too. For instance, an investment group led by Joseph Greenberg, a broker with Pepper Pike-based Lee & Associates, bought two big office parks in Independence last year: Park Center Plaza I, II and III and Corporate Plaza I and II. And though Dan Gilbert may not technically live in Cleveland, we sometimes think of the Cavs majority owner as a local: His companies picked up the May Co. building, an attached building at 2025 Ontario and a nearby parking garage for a grand total of $42 million. Although Cleveland is no longer in the running to land Amazon’s second headquarters, two Amazon-related properties show up on the full digital list: The internet retailer’s facility in Twinsburg traded hands last year, and in August Seefried Properties picked up the old Randall Park Mall site to turn it into an Amazon fulfillment center. The developer also bought Euclid Square Mall, a deal that wasn’t large enough to make the list.

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CRAIN’S CLEVELAND BUSINESS

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In just two-and-a-half years, NOMS has more than tripled the number of doctors practicing within the independent, physician-owned and -led medical practice. And leaders believe that it’s “very feasible” for the Sandusky-based multispecialty practice to again triple in size in the coming years as the organization offers doctors a place to practice outside of the region’s major health systems. “The snowball has become an avalanche,” said Joshua Frederick, CEO of NOMS, which stands for Northern Ohio Medical Specialists. “Every new physician that joins us, they have five physician colleagues that are experiencing the same frustration with all the complexity in health care.” NOMS is bringing the model that has worked for it in rural Ohio to the metropolitan areas of Cleveland and Toledo. The group is focused on outpatient care at a higher quality and lower cost, and has been executing on advance payment models for six years now. “About three years ago is when we really solidified our core market and made the decision to scale this and replicate this in other much higher-costing markets,” Frederick said. Since mid-2015, NOMS grew from 60 providers to more than 200, with

“Every new physician that joins us, they have five physician colleagues that are experiencing the same frustration with all the complexity in health care.” — NOMS CEO Joshua Frederick

most of that growth in the Toledo and Cleveland areas. The practice now has 31 areas of medical specialty in 21 cities across the northern half of the state. In 2015, the group was in Erie, Huron, Seneca, Sandusky and Ottawa counties. Today, NOMS also is in Cuyahoga and Lorain counties, and it expects to announce a presence in Lucas County later in the first quarter of this year. NOMS chief strategic officer Rick Schneider said the Cleveland area presented the most opportunity. Here, the growth began in the western suburbs with physicians joining in Lorain County and Westlake, and then sharing their experience with other physicians. Since 2015, 22% of NOMS’ overall growth in doctors has been in Cuyahoga County. “We definitely plan on growing more in Cuyahoga County and greater Cleveland,” Schneider said. “We’re

starting to see activities migrate even farther east toward Youngstown.” NOMS maintains and studies claims data to compare outcomes and costs. With that information, and as a strictly outpatient practice, NOMS is able to help direct its patients to the highest-quality, lowest-cost system to ensure patients access care in the appropriate setting, Frederick said. “By being proactive, we know if you need heart (care), Cleveland Clinic’s well-known for heart,” he said. “If you have oncology, cancer issues, UH is very well-respected. And if there’s burn or trauma, Metro(Health) is very well-respected and very well-known.” Directing patients to the most appropriate care setting is beneficial, of course, to the patients, as well as to Medicare, Medicaid and commercial insurance companies, Frederick said. Plus, it helps build relationships with hospitals. The various regulations health care providers have to navigate makes today one of the most complex times to be in practice, he said. He believes NOMS has mastered its value-based care model that will keep it competitive in today’s environment. “The insurance companies like us; the hospitals like us — they want to be part of our referral network,” Frederick said. “And the physicians like us, because I’m a CPA and Rick’s an insurance guy, and we manage the business and let the doctors practice medicine.”

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By JAY MILLER jmiller@crain.com @millerjh

Ohio’s legislators are having a tough time fixing the state’s stressed unemployment compensation system, despite its precarious position. State Rep. Kirk Schuring, a Canton Republican, introduced legislation in October to bolster the system that is supported by federal funds and a state trust fund that employers pay into for every employee. The system only recently has recovered from a severe financial hit suffered during the last recession. H.B. 382 would increase taxes on employers, reduce benefits and, for the first time, tax employees. A companion piece of legislation would seek voter approval of a constitutional amendment that would allow the state to issue bonds to pay unemployment benefits or to repay advances from the federal government made during times of high unemployment. After the last recession, the state of Ohio borrowed more than $3.4 billion from the federal government to pay its share of the joint, state and federal, unemployment compensation system. That led to more than $400 million in penalties. Both the borrowings and penalties were paid for by increased charges to employers. The Ohio Legislative Service Commission, the Legislature’s research arm, has reported that, without any changes, Ohio’s unemployment fund

has a good chance of running out of money by 2021, assuming no intervening recession, earlier if there is even a modest recession. It’s unusual for the country to go 10 years without a recession, and the last recession was a decade ago. But the response to Schuring’s bill has been underwhelming. Seven hearings since last fall attracted testimony from only six witnesses, and that testimony came at only two hearings. The last hearing was Wednesday, Jan. 10, and the bill has not moved out of the Government Accountability and Oversight Committee of the House of Representatives. Business and labor groups see the need for change and have been involved in informal discussions for months. But neither side is eager to support the current legislation, which Schuring introduced when no better compromise was reached. At a hearing in November, Don Boyd, director of labor and legal affairs for the Ohio Chamber of Commerce, acknowledged that the system “remains in a perilous position” and that “(t)his instability creates a threat to economic development in the state.” The legislation raises the wage base of employer premiums to the first $11,000 in wages from the first $9,500. Businesses pay an average of $1.01 per $100 of payroll for workers’ compensation insurance, according to a 2012 survey by the National Academy of Social Insurance. It requires, for the first time, a co-pay-

ment from employees equal to 10% of what the employer pays. It also reduces the number of weeks a laid-off worker can get unemployment from 26 to 24 weeks and freezes the amount of the weekly benefit for 10 years. The current maximum benefit is $598 a week. At the Jan. 10 hearing, Hannah Halbert, a researcher at Policy Matters Ohio, a labor-supported think tank, said the legislation is an improvement over previous attempts, though her group still opposes the cut in the number of weeks of unemployment payments and the freeze on the maximum benefit. She argued that the solution is an increase in premiums, since payments made by Ohio businesses currently are in the bottom half of states. “The main source of our trust fund problem is that it was underfinanced for many years,” she said. “Employer taxes have been below average. The solution to a problem should be based on its main causes, and in this case, that is inadequate taxation.” In earlier testimony, Halbert said her group supports the tax on employees but was not satisfied with how it was being calculated. She said Policy Matters Ohio would prefer a tax based on gross wages. Schuring, though, is optimistic that his bill will move forward. “I hope to get some modicum of support from business and labor,” he said in a telephone interview after the Jan. 10 committee meeting. “We might be close. But so close, yet so far away.”

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FOOD AND DRINK

Cleveland’s hidden treasure Contributed photo

Unassuming Nighttown has been a Northeast Ohio cultural destination since opening in ’65 By JOE CREA clbfreelancer@crain.com

It’s easy to rattle off a list of Cleveland’s trove of cultural treasures. While you list the Cleveland Museum of Art, Rock and Roll Hall of Fame, Western Reserve Historical Society and so many others, one unassuming gold mine can’t be overlooked. Nighttown, a weary-looking stone-fronted storefront that stares stoically from its perch on Cedar Hill,

is easily passed by. The bold black awning drawn over its portal intrigues — yet tens of thousands of commuters nary give it a glance, never knowing the magic and mania woven within those storied walls. Equal parts jazz club, restaurant and watering hole, Nighttown has been a Northeast Ohio destination — and eventually an institution — since it first opened on Feb. 5, 1965. It’s a true “joint.” The place recalls some New York City haunt, maybe somewhere in the Bowery, from a

hundred years back. Drawn from the scandalous Dublin red-light district in the James Joyce classic, “Ulysses,” its name alone weaves mystery. It grows as you wander through the warren of rooms that make up the landmark. A hint a shabby debauchery exudes from Nighttown’s dark corners — worn old wood, heavy drapery, stained glass. Seductive nudes hang among other fine art portraits and vintage posters. A fascinating faux elegance lures guests to lose them-

selves in this netherworld of pleasure and escape. Yet the club is a dynamic space. Its vitality draws from several fountains. The mix of patrons — business professionals, academics and average working folk — are its wellspring. But it’s Nighttown’s live music, a cunning confluence of jazz, blues and classic American standards, that invigorates these bustling, moody rooms. Amid it all sits an alternatively quiet and garrulous character. Brendan

Ring, an Irish native, presides over this lively empire. Growing up in County Kerry, he worked in his father’s eatery, Wimpy Bar (“opened to snag American tourists,” Ring said) and was urged to take another path in life. He trained to become a construction costs engineer and in 1984 he came to the United States with a job on the construction site of the new American Express Building — then fell back in the arms of the hospitality game. SEE TREASURE, PAGE 13

Regional distillers are taking a shot at success By JEREMY NOBILE jnobile@crain.com @JeremyNobile

Kevin Thomas, whose work has long centered on the industries for food and drink, sees a slow and steady climb in the spirits business. And he wants a shot at it. That’s why Thomas — who serves as the regional head of innovation and custom business development at Nestle USA in Solon and confesses a love for work that marries science and art — is breaking into the distilling business this year with Western Reserve Distillers. The certified or-

ganic, family-owned distillery on Lakewood’s Madison Avenue is on track to open later this month or early February. Its adjoining restaurant is slated to open by the end of May. “If you look at the spirit growth in this country, the reality is that post-prohibition, spirits has been on a steady climb back up, while wine and craft beer have been more like this,” said Thomas, moving his arm in a wavy motion. “Particularly as options become more local, you’re going to see that marketplace explode in the next three to five years. And I think we’re trying to get in on the ground level.” According to the National Alcohol Beverage Control Association, liquor

Also in this section Competition for shelf space is fierce for local craft brewers. Page 10

sales by case have grown between 3% to 4.5% every year since 2010. According to the latest data, in 2016, more than 5.03 million cases of spirits were sold, a 26% increase from the 3.99 million sold in 2010. Andy Herf, executive director of the Ohio Licensed Beverage Association trade group, said a variety of factors could be at play. For one, today’s consumers are more interested in local and organic fare. That same trend is credited with carrying growth in

craft beer and wine. Meanwhile, Ohio laws changed in 2016 to allow distilleries to run restaurants, which are cited as highly desired components for spirit manufacturers. That change is expected to heighten interest in the distilling business. Also, the recent tax reform bill includes a provision known as the Craft Beverage Modernization and Tax Reform Act, which cuts down the excise tax on craft brewers and distillers. For distillers, that tax falls from $13.50 to $2.70 per proof gallon for the first 100,000 gallons produced — a level most craft distillers won’t surpass. Thomas said he feels that helps “level the playing field” for craft distillers

and estimates that change will save him about $9 to $12 per case he would’ve otherwise incurred. “You’re also seeing that, after six or seven years, the first generation of this business (in the recent wave of growth a few years old now) has become successful,” Herf said, citing distilleries in the Columbus market. “It’s viewed as a viable business for people now. And you’re seeing these little guys making something that’s local.” As the spirits industry stays hot, at least one local, established whiskey maker in Northeast Ohio is poised to capitalize, while other aspiring distillers are ready to catch the wave. SEE DISTILLERS, PAGE 11

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FOOD AND DRINK

Crowded craft beer field poses challenges By JEREMY NOBILE jnobile@crain.com @JeremyNobile

As the craft brewing industry matures like a rich stout, enjoying steady and stable growth over the past several years, the surging number of players and brands in the market is creating some fresh challenges for brewers thirsting for growth. With the market becoming increasingly crowded, some have wondered whether there’s a craft beer bubble ready to burst. We’re not there yet, as the consensus in the brewing sector is that there’s still room to grow both in Ohio and across the country. But the sector is, undeniably, increasingly saturated. And while the craft beer world is generally brotherly and supportive of its myriad fellow brewers, a crowded market is making it more difficult for even established brands to get the tap and shelf space they desire to move product and flourish. “If you really want to get large and, honestly, make a lot of money in the business, distribution is really the route you have to go,” said Shaun Yasaki, founder of Cleveland’s Noble Beast Brewing Co., which opened last May. While Noble Beast is not yet a year old, Yasaki, who’s comfortable with the business' size at the moment, is nonetheless debating whether he’d work with an external distributor — which, per industry standards, takes at least about a 30% cut from the brewers — or distribute on his own, which invites its own layer of complexities and startup costs for such things as sales teams and trucks. According to The Brewers Association trade group, the number of breweries in the U.S. has increased every

year since 2005, reaching 5,301 in 2016 (the most recent year for data). That’s a 266% increase from the 1,447 breweries operating in 2005. The Brewers Association counted 177 breweries in Ohio in 2016, but there are 275 in the state today, according to the group. At the time of their 2016 analysis, the state ranked 26th in terms of breweries per capita — square in the middle of the pack of states. Naturally, more companies means more competition, particularly at floor and shelf space for retailers and tap handles for bars. “There’s absolutely competition for that,” said Jason Edwards, the craft beer expert and senior vice president of business development for Superior Beverage Group. “The beer category and industry as a whole is not growing at the same rate as offerings are growing. Everyone is getting a slice of the pie, but it might not be what they’re looking for, or what their business plan calls for.” Distributors and retailers face similar challenges to expand their beer offerings. The competition for brewers can be even more acute at tap handles because retailers can add floor space to sell product if they want, but expanding tap options at a bar simply isn’t that easy. The bigger question for those distributors and retailers is how fast product moves. And as offerings increase, velocity has slowed, Edwards said. “And a retailer can only have so much money tied up in the inventory in the store,” he said. “So they’re forced because of space and potential financial constraints to be more selective in what they’re supporting in their establishments.” Ohio City’s Platform Beer Co. has enjoyed rapid growth since 2014. It's cov-

Packing a wallop

Some notable numbers for the craft beer industry in Ohio, according to a 2016 analysis by The Brewers Association trade group: $2.675 billion: Total economic impact, which ranks seventh in the U.S. 1,373,041: Barrels produced per year, which ranks fourth.

ering most of Ohio and self-distributes in markets like Cleveland, Columbus (where it has added a taproom), Dayton and Cincinnati, where Platform is planning to open its fifth facility soon, said co-owner Justin Carson, declining to go into further details just yet. It uses external distributors in other states it covers and to fill in the gaps in Ohio. Outside of Ohio, the saturation of breweries is making it increasingly challenging to secure sale space. “We are targeting craft-centric, small distributors outside Ohio where we know they can handle the product and it won’t be in a huge portfolio of a bunch of different brands,” Carson said. “It’s becoming more and more competitive to become relevant outside your local market. You definitely have to have points of differentiation to be able to sell yourself to a distributor on why they should carry you versus the other hundred brands who have called them over the years.” Having an immense variety of beers is part of Platform’s approach to differentiating itself. Carson estimates Platform distributes close to 100 different types of beer annually. “We strive to be different and to have something for every beer drinker,” Carson said. “That’s the core of who we are.”

Sibling Revelry Brewing in Westlake will turn 2 years old this February. Brewmaster Pete Velez said the issue it’s facing there is the conundrum of self-distributing or using an external distributor. They currently work with the former approach, though not every state allows that. “I think if you can afford to keep it in-house, I think that just makes sense to do,” he said, noting that the margin is better that way. That approach is also crucial to building brand awareness in a brewery’s early days. That becomes even more acutely important when trying to make a brand stand out from the crowd. “But as a startup, you need to get your brand out there,” Velez said. “If the way things are going with more breweries opening up, maybe giving up that extra margin is worth having a distributor get your beer out there more quickly.” Fat Head’s Brewery — which is in the midst of building a $13 million-plus beer hall in Middleburg Heights that co-owner Matt Cole has called his “brewery mothership” — is seeing the challenges of a crowded space. “We used to be the big dogs in a lot of ways — I think we still are in some ways,” Cole said. “But the sale people have a much broader portfolio to sell now.” Bill Wetmore, Fat Head’s national sales manager, pointed to how retailers are measuring that beer velocity, and “to get that shelf space, you have to move quickly.” If you can’t keep up with their expectations, you may lose an SKU, he said. “We are competing against not just regional breweries, but national brands,” Wetmore said. “We’re com-

peting against all facets now because there is almost more beer than there are consumers to drink it.” Having a stellar taproom to drive sales becomes all the more important to grow sales when the ecosystem is like this. That’s why groups like Fat Head’s and Platform are looking at more taprooms, and why Thirsty Dog Brewing Co. has added a new taproom in the Flats. While not craft beer, Kent Waldeck of Crafted Artisan Meadery in Mogadore sees the same challenges. Focusing on a niche product, jocking for space among craft brewers is unquestionably difficult. The market conditions are the very reason he’s considering not just opening an expanded taproom, but possibly doing that outside his home market of Northeast Ohio. “As we continue to try to figure out what the best location is for us to have a sustainable tap room presence, we are considering locations inside the state and outside because Ohio is a very saturated market as far as the number of breweries popping up,” he said. Despite all those challenges that are a function of a crowded market, brewers are confident quality will sort winners and losers in the end. “All this means it’s very important for brewers to get behind their core, flagship brands, as opposed to just bringing out a new flavor every week and to have good, executable business plans,” Edwards said. “But ultimately, distributors can have some influence, but the consumers need to support those brands if they’re going to maintain their retail real estate. Quality is paramount these days with the amount of competition.”

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DISTILLERS

trying to promote Eastern European fine dining, which really revolves around vodka and a system of eating unfamiliar to a lot of Americans,â&#x20AC;? said Pogrebinsky, a native of Ukraine who ran a restaurant in Queens before closing that and coming to Cleveland. Pogrebinsky thinks heâ&#x20AC;&#x2122;ll need about $1.5 million to get up and running, but heâ&#x20AC;&#x2122;s still picking a site. Heâ&#x20AC;&#x2122;s shooting to have an operation together in the next year or so. â&#x20AC;&#x153;But I donâ&#x20AC;&#x2122;t want to be part of a bubble,â&#x20AC;? he said. â&#x20AC;&#x153;We want to stand out on our own. If that means missing out on a bit of a boom, thatâ&#x20AC;&#x2122;s OK.â&#x20AC;?

CONTINUED FROM PAGE 9

Tom Lix wasnâ&#x20AC;&#x2122;t exactly motivated by market trends when he launched Cleveland Whiskey in 2009. He was more interested in disrupting an age-old industry by making whiskey with a controversial new technique. That said, his expectations for his company â&#x20AC;&#x201D; which sold its first bottle in 2013 â&#x20AC;&#x201D; have been bolstered by strong consumer interest in spirits. â&#x20AC;&#x153;This was an industry that hasnâ&#x20AC;&#x2122;t changed in generations,â&#x20AC;? Lix said. â&#x20AC;&#x153;It was ripe for disruption. I started working in the basement to test out theories. I thought, thereâ&#x20AC;&#x2122;s a way to make something with equivalent or better flavors in a non-traditional, disruptive process.â&#x20AC;? Lixâ&#x20AC;&#x2122;s Cleveland Whiskey is made by cutting up wood chunks and placing them in the clear spirit â&#x20AC;&#x201D; he gets his distillates from Kentucky â&#x20AC;&#x201D; in a machine that uses pressure to force the whiskey through those bits. Itâ&#x20AC;&#x2122;s vastly different from a traditional whiskey-making process that takes years. He eventually secured a 6,600-square-foot lab at Magnetâ&#x20AC;&#x2122;s space off East 25th Street, where he now employs 14 people. His startup costs were a little under $5 million. Lix said yearly sales increased in 2017 by 63%, the companyâ&#x20AC;&#x2122;s best year yet. Lix is looking for a bigger space, and the next chapter for his business that could include a barbecue-centric restaurant. Lix uses data to refine their processes every six months to improve the product, which now includes a variety of complex flavors via their Cleveland Underground line like black cherry, hickory or honey locust â&#x20AC;&#x201D; woods that are hard, if not impossible, to make proper barrels out of versus oak, and hence are typically ignored by traditional whiskey makers. Through an equity crowdfunding campaign, Lix raised $750,000 in 2016 from 951 unaccredited investors all over the world (which is on top of 12 accredited investors from before). Heâ&#x20AC;&#x2122;s considering going for a bigger round later this year. His products are now being shipped in 16 states, China and Japan. He wants to hit the European market in the future. To him, though, the secret to a successful busi-

Standing out in the pack

Kevin Thomas of Western Reserve Distillers works on equipment at the burgeoning distilleryâ&#x20AC;&#x2122;s Lakewood location thatâ&#x20AC;&#x2122;s expected to open soon. (Contributed photo)

ness is having a niche approach and a unique product to set his drinks apart in a crowded pack because he feels being local is a selling point, but by itself, â&#x20AC;&#x153;it just isnâ&#x20AC;&#x2122;t good enough anymore.â&#x20AC;? Alex Pogrebinsky, meanwhile wants to create a â&#x20AC;&#x153;true bartenderâ&#x20AC;? vodka to capitalize on the interest in craft spirits. Heâ&#x20AC;&#x2122;s eyeing spots around downtown Cleveland and the East Side for a combined vodka distillery and Eastern European restaurant, which would be run by his sister Natasha. The two were most recently working with Hub 55, a small complex that includes Goldhorn Brewery, but amicably parted ways between the fall and winter as owner Rick Semersky and Pogrebinsky opted to focus on their own projects, Pogrebinsky said. â&#x20AC;&#x153;Our whole past eight years has been about

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While a contraction in the business may come, most distillers â&#x20AC;&#x201D; particularly those in the Cleveland market, where local players are few with Portside closing last year â&#x20AC;&#x201D; convey a sense of needing to differentiate themselves. Western Reserve Distillers will be making vodka, gin, rum and whiskey, which itself will be made with spelt, a grain related to wheat. But the organic element makes their operation different. The distillery will get grains from Twin Parks Farm in West Salem, and return spent grains for feed. Going entirely organic has cost more time and money than doing a traditional distillery, and the Thomas family has opted for larger equipment from the onset instead of starting small and having to face costly upgrades in the future. The whole project, marking an investment of about $3 million in startup costs, has been at least three years in the making. Thomas expects to employ about 25 people by the end of the year with everything combined. There will be space for about 80, including exterior seating of the indoor/outdoor patio. Theyâ&#x20AC;&#x2122;ll open the business with organic liquors theyâ&#x20AC;&#x2122;ve had contract made on the same Koval equipment as theirs at a distillery in Chicago. Some of those bottles have been aging for three years. They expect to make 50,000 cases, or about 300,000 bottles, of booze themselves this year. Their current equipment has the capacity to allow them to scale production three fold, if the demand is there. Thomas expects to make $1.4 million to $1.6 million in sales from spirits

â&#x20AC;&#x153;I donâ&#x20AC;&#x2122;t want to be part of a bubble. We want to stand out on our own.â&#x20AC;? â&#x20AC;&#x201D; Alex Pogrebinsky, on his search for a local vodka distillery and restaurant

alone in 2017, with plans for that side of the business to grow to $4 million to $5 million in revenue in the next decade. Thomas said there are even plans in the works to let customers come in and make their own spirits â&#x20AC;&#x201D; like The Brew Kettle of liquor. Spirits like theirs and Cleveland Whiskeyâ&#x20AC;&#x2122;s are in high demand by ambitious mixologists, said Alex Giangreco, a bartender and mixologist at The Ritz-Carlton in Cleveland. He also runs Envision Cocktail Creations, a bar-specific catering service. Growing interest in unique, craft cocktails is a big driver of the spirits industry today, he said, reflecting on his early days as a bartender in Florida in 2005. â&#x20AC;&#x153;A lot of bartenders didnâ&#x20AC;&#x2122;t use fresh ingredients back then. They used high-fructose corn syrup mixtures right out of their guns. Today, itâ&#x20AC;&#x2122;s a complete 180,â&#x20AC;? Giangreco said. â&#x20AC;&#x153;The integrity of the cocktail world has changed now.â&#x20AC;? Giangreco said a good practice is telling a story with the drink. One cocktail he makes at the hotel is a smoked, black old fashioned that uses Scotch whiskey and black walnut bitters. With that, a special domed machine is placed over the glass that surrounds it in a cloud of wood chip smoke, which infuses it with a special taste and aroma. The smoke represents smokestacks reminiscent of Clevelandâ&#x20AC;&#x2122;s manufacturing heyday, Giangreco said, and is something he can talk about with guests â&#x20AC;&#x201D; who arenâ&#x20AC;&#x2122;t typically from Northeast Ohio. â&#x20AC;&#x153;They know itâ&#x20AC;&#x2122;s a trend, and thatâ&#x20AC;&#x2122;s why theyâ&#x20AC;&#x2122;re doing this right now,â&#x20AC;? said Giangreco of Western Reserve, noting the organic element is just something else he can add to a drinkâ&#x20AC;&#x2122;s story. â&#x20AC;&#x153;Theyâ&#x20AC;&#x2122;re going entirely farm to glass and theyâ&#x20AC;&#x2122;re local. Local is the way to go. And itâ&#x20AC;&#x2122;s not just that we want that. Itâ&#x20AC;&#x2122;s what the guest wants.â&#x20AC;?

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“But there’s no space on our property for recycling,” he said. “Our dumpster gets picked up five days a week as it is.” Brandon Chrostowski, CEO of Edwins Restaurant in Shaker Square, says his organization attempts to reduce potential waste at the source. “We have many practices that prevent the use of certain products that would end up discarded,” he said. “For instance, rather than using the little plastic portion cups, we use metal ones that can be washed. We have a water filtration system that we use (to produce) sparkling and purified still water, cutting down on glass bottles without losing sales. “It’s about buying in bulk and refilling smaller containers. We also use businesses (as suppliers) who have a commitment to being green,” Chrostowski added. Others refuse to go on the record simply, as one source said, “It’s a nowin situation. There are just too many other challenges we face, staying in business.” Indeed, for all the laudatory feedback the environmental agenda generates, it’s a huge challenge going — and staying — green.

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Hata, a strong advocate for effective and efficient recycling efforts at his downtown Cleveland property, admitted it’s a long, uphill fight. On a walking tour of Urban Farmer’s kitchens, he quickly came across one of his effort’s biggest stumbling blocks: a large garbage can filled with a mixed bag of detritus. “Almost anything ends up in here,” he said, as he cast a disdainful gaze at the can’s contents. Scrapings from plates, plastic bottles and paper goods occupy its greasy perimeters. “We have recycling bins positioned throughout the kitchen, but it’s hard to get everyone in the habit. I think a lot of it stems from what you do at home — and I don’t think recycling is as widespread a practice as we’d like to think. And that might be part of the problem — the mindset,” he said. Hata, born in Japan and raised in Hawaii, said, “I grew up with a mother who said we live on a beautiful island and it’s our responsibility to keep it that way.” After graduating from Syracuse University in 2007 with degrees in hospitality management, entrepreneurship and emerging enterprises, Hata’s career took him to restaurant and hotel properties around the world. When he joined Sage Restaurant Group’s original Urban Farmer location in Portland, Ore., he said he found recycling part-and-parcel with everyday operations. “In other cities, I never thought twice about it. Since I’ve been here, every single bottle of wine I open goes into the same trash bin — and that got me going. “Recycling and waste management is part of our values in representing Urban Farmer,” he said. “With my background, we’ve always had programs where recycling was part of our practices. Growing up in an island nation, the land is something that’s very important to me. But this is the first time I’ve felt I must be an advocate — not because Clevelanders don’t take care of the land, but restaurant growth is so exponentially great here, and the lack of such

Using a brush, Urban Farmer general manager Andy Hata collects pollen from a pepper blossom as part of the hand-pollination process for an indoor garden at the Westin Cleveland. (Peggy Turbett for Crain’s)

programs here lit a fire in me and became an issue.” As he explored alternatives, more challenges emerged. Balers-to-bundle cardboard waste are common, but other waste recycling poses other stumbling blocks. In order to dispatch those empty wine and spirits bottles to a more useful end other than a landfill, a recycling company demanded the bottles be pulverized before they would haul them away. That requires an expensive crusher, protective gear, trained personnel and noise abatement. Hata is budgeting for the new equipment. As for food waste, Hata has launched a composting program to handle the more than 400,000 pounds of food waste generated by the hotel’s kitchens. Large green dumpsters, positioned throughout the kitchen and basement food prep areas are first-stage repositories for compostable waste. Barnes Nursery in Huron picks up those containers for composting. Meanwhile, Hata is exploring on-premise composters, similar to the kinds used by backyard gardeners and other small farmers, that can be used on the hotel’s rooftops for more immediate disposal. The resulting compost will then be used for another of Hata’s projects — indoor and rooftop gardens where produce can be raised for garnishes, salad ingredients and strains of chili peppers to be made into specialty hot sauces for the dining room. Hata also looks to a neighboring food-service operation, the Huntington Convention Center, hoping to adopt an additional composting model. Matt Del Regno, general manager for food and beverage at the convention center, uses a Grind2Energy food waste recycling system. Last year, the giant grinder system converted 13.5 tons of kitchen scraps into a slurry, which is then transferred to a holding tank. “The company sends a pumper truck out, pumps out the waste and transports it to a microbial digester,” Del Regno explained. “The digest releases methane gas that their system harvests.” According to the convention center’s 2016 sustainability report, “more than 82,000 pounds of food waste was recycled and converted into enough natural gas to heat 22 homes, electricity to power 15 homes (and) more than 5,700 pounds of nutrient-rich fertilizer.” “On top of the amount of food we

divert from landfills,” Del Regno added, “our waste didn’t emit any methane into the atmosphere” — the equivalent to 65,652 automobile miles, according to the sustainability report.

Other standouts There are other exceptions. The Greenhouse Tavern on East 4th Street was built using primarily recycled materials, earning the acclaimed restaurant Ohio’s first LEED (Leadership in Energy and Environmental Design) certified status. Great Lakes Brewing Co. has a long-standing commitment to environmentally friendly practices. Its spent grains from beer-making end up in farm compost, as feed for livestock subsequently included on its restaurant menu, and the operation’s use of solar energy are part of the corporate agenda. Ultimately, Hata said that in order to be sustainable, the positive aims of effective recycling have to be balanced against its cost. The sheer magnitude of the waste produced by hotels or convention centers taxes average handlers — quickly resulting in massive overhead. “Not a single company could handle our output,” Hata said. “We’d have to go to multiple companies — one that handles glass, one composting, one for paper — or with the companies that would be able to handle our capacity, because of the volume, the cost became astronomical.” Hata said he’s still in the hunt to push his projects forward. His next step is to approach other restaurants, hotels and food-service operations to share the costs, which can be mitigated by larger numbers of participants. “If we can get just five others, we can divide the per-visit fee a major company agreed to,” he said. “That would be big.” Hata — really, most anyone who’s pursued effective ways of reducing their business’ impact on the environment — recognizes that it often seems futile. Today’s razor-thin profit-loss climate leaves little margin for that added effort and expense. “I do this because it’s important,” Hata said. “This is our community. While I don’t have children, I have the strong belief that this Earth is a place we share with everyone, and I want to live in a place where we all take care of the land we live on. If we don’t, it pollutes our water, it pollutes our air, it pollutes our world — and that has a basic impact on our everyday life.”

CRAIN’S CLEVELAND BUSINESS

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He walked into a bar, Shenanigans on Fulton Street, and promptly met the woman (the bar owners’ daughter) who would become his wife. “My wife, Siobhan — we’ve been together 32 years now — got transferred here in 1992,” Ring recalled. “She was a controller for a Belgium steel Ring company. I landed at Nighttown initially as a shortterm employee. I told the owner I needed a job for just one year, then I’d be high-tailing it back to New York City.” But he stayed. In 2001, Ring bought the place. Cobbled from a series of storefronts, he described Nighttown as “a three-legged stool” — equal measures restaurant, music club and an event center. “They’re three different constituencies coming here,” Ring said. “The music part I started slowly when I first got here, and now we’re considered one of the major music venues in the country. It’s a place where we can bring in performers from around the country, around the world — people you can’t hear anywhere else in Cleveland. And our audience is very, very, very loyal to that. We’re a home to diehard jazz fans.” And it’s a formidable lineup of stars that have taken the Nighttown stage over the years: Dick Gregory, Esperanza Spaulding, The Count Basie Orchestra, Dick Cavett, Stevie Wonder, Tommy Tune, Freddy Cole and John Legend have headlined. Now on the eve of its 53rd anniversary, Ring sat down to talk about the legacy of his one-of-a-kind watering hole. Apart from it being the source of your livelihood, what does Nighttown represent to you? To me, I suppose, it’s home. I’ve been here 26 years, and I always felt when I walked in here it wrapped its arms around me and never let go. I came here from New York City. I knew the allure and legend of the nightspots in New York, and this place was a bit like that to me. What do you think the place means to Cleveland? It’s a comfortable place, where the same people come back time and time and time again. There aren’t many places like this anymore. These days, so many places are hipster: new and polished, all that post-industrial design. You’re not going to get that here. It’s the same place it always was, and that’s not going to change And business seems to grow every year. Except for 2008, when the crash occurred, that’s the only year we took a dip. Every year has been better than the last, and 2017 was exceptionally strong. Our sales were $4.4 million this past year, and in ’16 it was $4.1 million — and that’s the biggest yearover-year jump. The economy is on fire, too, and we booked a lot more music in ’17, and we did a lot more weddings. So talk a bit about what brought you to Cleveland in the first place. We came to Cleveland ... I always joked I came here kicking and screaming, and told my wife “I’ll stay for a year and then I’m going back.” So I walked into Nighttown and told the owner, John Barr (he died this

past November at age 87), “I need a job for one year. Period.” He looked me over and hired me. See, I’d had a little bar in Queens, bartended in Manhattan for 10 years, then sold it for $25,000. I thought I was rich at age 28. So I thought I wouldn’t work for a while after we got here. So we got a little place and I went out for a while, and when I got back my room was ransacked and the money, all cash, was gone. I looked in the newspaper for a job, and there were two openings. The Swamp Club in Solon was a happening place, but when I walked into Nighttown it felt a bit tired — but I loved the feeling. The fellow who started this in 1965, he did it organically. It wasn’t planned. He opened one storefront, the Silhouette

Lounge, then pushed through to the second storefront, then the third, then the fourth. It came together honestly. It’s not planned. This was built with blood, sweat and tears — and what’s wrong with that? There’s a warmth, an ambiance, that you don’t find in Cleveland anymore. It seems most people first think of Nighttown as a nightclub, but I sense you think of it in much broader terms. With 550 seats, that makes us one of the biggest restaurants in town. We’re sort of chopped up, so people don’t see us that way. But the people who come in for private events, whether it’s weddings or ceremonies or bar mitzvahs, aren’t typical Nighttown customers — and they’re very at home here.

The regular diners are our bread and butter. New Year’s Eve is our busiest night of the year, but Christmas Eve is our second-busiest (St. Patrick’s Day is No. 3). During the holidays, people from all over the place come home to Cleveland Heights, and Nighttown is a second home to these people. We’ll see the same people three or four or five times a week. Nighttown is one of the city’s busiest places, but it’s not one of the restaurants that employs a “name” chef. Why is that? I found a fellow who’d been working in Boulder, Colo., Nathan Sansone. He’d worked around. I’d looked for a chef in Cleveland, and I found that the sheer volume of what we do might not be what these guys want to do. This is an environment for a man

with nerves of steel. We’re an everyday place, and we’re not a “foodie” destination. And I’m a very strong, large presence in the place — and maybe they wouldn’t want to work in the shadows of a larger-than-life guy’s place. I hired my own crew when I came here, and a lot of them have stayed around. I find you mostly want to know the person at the front door, because they’re the ones who are going to take care of you. So how does it feel, having such a large measure of responsibility for your guests having a good time in your club? It’s a duty. Like a duty I was born with, since I was a kid. I always wanted to take care of people, see them have a good time, and its an awesome responsibility. But it’s one I’ve loved all my life.

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ACG Cleveland is proud to be part of momentum, growth By BRIAN KELLY

leveland is a city on the move and perpetually growing. From the continued transformation of Clevelandâ&#x20AC;&#x2122;s neighborhoods and downtown, to the evolution of the Euclid corridor, University Circle, coupled with the impressive infrastructure initiatives, we see this growth all around us. Cleveland can again boast of two championshipcaliber sports teams, and a third ready for takeoff. With innovation and national leadership in the medical field, world-class diversified industrial, manufacturing and specialty chemicals companies, and a vibrant hospitality and food scene, Cleveland has developed a reputation as a true destination for business and cultural events. At the start of this new year, we can Kelly re ect with pride on the successes and accomplishments of the past year and exciting plans for the future. The Association for Corporate Growth (ACG) also has much to be proud of. Founded in 1954, our mission is to drive middle-market growth as a networking organization for professionals engaged in middle-market mergers and acquisitions and associated financial transactions. lobally, ACG is made up of 59 chapters and a community of 14,500 members from all areas of middle-market M&A. ACG serves 90,000 investors, corporate executives, lenders and advisers. ACGâ&#x20AC;&#x2122;s Cleveland chapter, established in 1981, is 500 members strong, with a board and committees composed of our cityâ&#x20AC;&#x2122;s leaders from public companies, private equity, law firms, accounting firms, investment banks and all facets of dealmaking and

supporting professionals. We are nationally recognized for providing the highest-quality educational programming and networking events, enabling our members to build value in their organizations and further their careers. In 2017, the Cleveland chapter was again active in support of our cityâ&#x20AC;&#x2122;s growth. We hosted more than 35 events, with speaker breakfasts, lunches and panels on trending M&A topics, East and West Side networking happy hours, the ACG Cup for college teams of aspiring leaders in M&A, and a year-end Shoreby Club social. These events provide members with powerful and creative ways to grow their professional relationships and share insights with colleagues and peers. More of this growth-oriented programming from Cleveland ACG and its Women in Transactions (WiT), Young ACG and ACG Akron groups is planned for 2018, including a special event at the Ritz Carlton on May 10, featuring a panel discussion on New Leadership in the Fortune 500. The Deal Maker Awards, ACGâ&#x20AC;&#x2122;s agship event, showcases ortheast Ohioâ&#x20AC;&#x2122;s top corporate dealmakers for demonstrated success in using acquisitions, divestitures and financing to fuel growth. The 22nd annual event, which we anticipate will be attended by upwards of 1,000 people from Northeast

Brian Kelly is president of ACG Cleveland andÂ a partner with PwC, leading its MidwestÂ Deals business.Â For more informationÂ about ACG Cleveland, visitÂ www.ACGcleveland. orgÂ and follow us on LinkedIn (www. linkedin.com/company/acg-cleveland) andÂ Twitter (@ACG_CLE).

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

Managing editor, custom and special projects: Amy Ann Stoessel, astoessel@crain.com Trusted Advisors. Respected Advocates.SM l11-u|_ Ń´;0b| 1ol

Ohio and around the country, will be held on an. 2 for the first time at the new Hilton Cleveland Downtown. The awards ceremony, preceded by a special red carpet welcome, will recognize this yearâ&#x20AC;&#x2122;s winners: Parker annifin, ordson orp., lue Point Capital Partners and Park Place Technologies. We are also very excited that, for the first time, this event will specifically recogni e impactful Women in Transactions, with Karen Tuleta of MPE Partners as the recipient of the inaugural award. Special thanks to our 500 current members for their commitment and community leadership, and to our valued sponsors enesch, riedlander, oplan & Aronoff; Grant Thornton; Huntington ank ey anc apital Markets Oswald Cos.; Roop & Co.; Aon Risk Solutions; Calfee, Halter & Griswold; iti ens ommercial anking eloitte and MelCap Partners. ACG Cleveland is the premier organization for established professionals, young professionals entering the workforce and women in business. I encourage current members to take advantage of the outstanding opportunities their membership offers, and for prospective members to attend an event to witness the benefits of A membership firsthand. I am proud and honored to serve as the current president of ACG Cleveland and look forward to making 2018 our best year yet.

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January 22, 2018 S3

Indemnification in private M&A deals Allocating liability risk imperative By TONY KUHEL

n most M&A transactions involving a privately held target, the seller’s representations and warranties and its indemnification obligations are the most heavily negotiated provisions in the definitive agreement. While representation and warranty insurance has altered these negotiations when it is used, the fundamental purpose of representations and warranties and indemnification remains unchanged: allocating risk for Kuhel unknown (and in some cases known) liabilities between the buyer and seller. All buyers and sellers, regardless of the nature of their transaction, should keep the following principles and concepts in mind during their negotiations. SCOPE: Typically, the seller is required to indemnify the buyer for any claim whether a direct claim by the buyer or an indirect claim against the buyer by a third party arising from or relating to any breach of either the seller’s representations and warranties or a seller’s covenant. The buyer may attempt to take a broader view of these obligations and ask the seller to indemnify it for any liability relating to the operation or conduct of the seller’s business prior to closing. The prudent seller will, however, resist this approach because it renders the representations and warranties essentially meaningless: Why negotiate representations and warranties when the seller is responsible for anything that happened prior to closing Sophisticated and reasonable

parties can typically negotiate and agree on a robust set of representations and warranties tailored to the business in question that fairly allocate the unknown risks inherent in owning, operating and selling a business. If, however, through its due diligence investigation the buyer becomes aware of a pre-closing liability that is not re ected in the purchase price offered, then relying on a seller’s representation that may address the issue could be inadequate. nder these circumstances, the buyer may require a specific lineitem” indemnity for any loss associated with the liability in question, which would not be sub ect to the limitations on the seller’s indemnification obligations that apply to claims for unknown liabilities. Specific indemnification for matters such as pre-closing tax liabilities, indebtedness or transaction expenses not paid at or before closing is also common. LIMITATIONS: Without negotiated limitations on its indemnification obligations, the seller bears the entire risk of the business’s unknown liabilities. This means the seller’s potential liability could conceivably exceed the purchase price it received, while the buyer would bear virtually no risk for pre-closing operations (despite conducting extensive due diligence yet would be entitled to the entire economic benefit of the target after closing. To more fairly allocate the risk of the unknown, the parties typically negotiate temporal and monetary limitations on a seller’s indemnification obligations. Representations and warranties are made as of the closing date. They typically survive the closing for a

Eliminate Surprises Serving private equity groups nationwide, BMF Transaction Serving private equity groups nationwide, BMF Transaction Advisory Services provides thorough due diligence and quality Advisory Services provides thorough diligence and of earnings assessments that help youdue better evaluate thequality value of of earnings that help you better evaluate the value a targetassessments company so there are no surprises down the road.

of a target company so there are no surprises down the road.

Mark B. Bober, CPA/ABV, CFF, CVA Partner, Practice Leader, Transaction Advisory Services bobermarkey.com • 330.255.2425 Mark B. Bober, CPA/ABV, CFF, CVA Steve, C. Swann, CPA/ABV, CFE mbober@bmfcpa.com sswann@bmfcpa.com

fixed period of time, meaning after the closing date, the buyer can only bring an indemnification claim against the seller for a limited time. or general usually operational representations, the survival period is typically between 12 and 2 months. or more fundamental representations — such as organization of the seller, authority to complete the transaction, capitalization, title to assets and broker expenses the survival period is extended or, in certain instances, indefinite. or other statutory representations (tax, environmental and employee benefit matters , the survival period is often tied to the statute of limitations imposed by applicable laws governing those matters. There are three standard monetary limitations the parties may negotiate:

n A minimum claim threshold. This helps avoid disputes involving small claims. n A basket or threshold amount after which the seller’s indemnification obligations kick in. This may be a deductible basket, similar to an insurance policy, where the seller’s indemnification obligations only apply after the deductible is met, and then only to the extent liability exceeds the deductible, or a first dollar or tipping basket, where the seller’s indemnification obligations cover the entire amount of liability once the basket is met. n A monetary cap on the seller’s indemnification obligations. The amount and nature of these limitations are often heavily negotiated, although an M&A professional can suggest what is customary under

the circumstances. These monetary limitations usually don’t apply to certain other representations or to breaches of the seller’s covenants, so the parties must carefully negotiate which representations or covenants are sub ect to, and which are exempted from, these limitations. Risk allocation is critical in private company M&A transactions. The buyer and seller are best served by negotiating indemnification provisions that clearly and fairly allocate economic and legal risk for both known and unknown liabilities. Tony Kuhel is a partner in the Corporate Transactions & Securities Practice Group and serves as vice chair of the practice in the Cleveland office of Thompson Hine. Contact him at tony.kuhel@thompsonhine.com.

S4 January 22, 2018

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Cleveland businesses should heed the wealth of M&A opportunity By BRIAN KELLY and ALEX BROWN

or many Cleveland-area businesses, the current business climate is positive. The equity markets have been torrid, with the S&P 500 increasing 23% over the last 12 months, to its highest level. Seasonally adjusted unemployment rate is just 4.1%, interest rates are low and, according to PwC’s CEO Survey, 55% of U.S. CEOs are planning on acquisitions in the next 12 months. Several factors are driving this positive outlook:

U.S. manufacturers (manufacturing is a Kelly big part of the local economy) have become more nimble operationally, enabling them to reduce earnings volatility and risk to investors as markets uctuate. n Many manufacturers have also moved up the value chain to focus on higher value-added components and n

services, which have higher margins and more recurring revenue streams. n Regulatory reductions — and the promise of more — have made it easier to do business and increased line-ofsight for companies in many sectors. n Tax reform has given share prices a lift and could increase firms’ cash balances and ability to invest. This is on top of record cash balances for U.S. companies. As is always the case, however, U.S. companies are also facing some distinct challenges, some of which are new and especially difficult to respond to. n With the broadbased run-up in share prices (some say frothy, see chart Brown above and to the right there is significant expectation for profitable growth already built into equity valuations, which means that failure to deliver those expectations or any material shocks to the macro environment could result in a quick and material decline in value.

S&P 500 Trailing Price to Earnings Multiple, 2012-2017 30.0x 25.5x 25.0x 19.5x

20.0x 15.0x

24.7x

22.3x

14.4x

10.0x Jan 2012

19.5x

15.8x

Jan 2013

Jan 2014

Jan 2015

Jan 2016

Jan 2017

Dec 2017

SOURCE: S&P Capital IQ n Some companies are not seeing the run-up in their share prices. Even within the same sector, there have been winners while others have seen at or even declining share prices, which is attracting some unwanted attention from existing investors and activists. n A likely reason for the emergence of winners and losers in equity value performance is that most sectors are experiencing some form of disruption

Investment Bankers Dedicated to Helping You Achieve Your Goals and Drive Your Business Forward MelCap Partners is an independent, private investment banking ﬁrm that specializes in assisting businesses reach their M&A goals. Since our inception in 2000, MelCap Partners has provided its clients with the knowledge, expertise, and perseverance to help them navigate through the challenges of completing a wide-variety of M&A transactions. Interested in learning more about what we can do for your business? Contact us today!

— new or existing competitors are bringing new business models that are changing the basis of competition. The most talked about is the digital transformation (often called Internet of Things), in which hardware is being linked together with sensors and controls and enabling significant performance improvement and new services. Some companies are not responding well to this disruption and are being punished by investors. n Many Cleveland-area companies — our region is strong in manufacturing, chemicals and metals, to name a few — participate in markets that are growing at or below GDP rates, which makes delivering or exceeding the high expectations in their share prices difficult to achieve without big investments to consolidate current markets or expand into adjacent sectors. n Consolidation deals, acquisitions in adjacent markets or deals to expand into digital solutions are often available, but in many cases multiples have expanded so much that companies are struggling to justify the prices (see chart below). n Absent viable deals, many companies

are returning large amounts of cash to shareholders via dividends and share repurchases. For a group of 85 U.S. industrial firms, share repurchases represent about 25% of earnings per share growth over the last five years. While this can satisfy value investors, it is not a viable long-term approach for companies to remain competitive. Given the unprecedented environment we are in — with both exciting opportunities and existential threats coexisting — how should companies respond? The following are some themes that PwC is recommending to its clients: n Invest to create or grow platforms. We define platforms as businesses within the portfolio that (1) leverage a firm’s truly differentiating capabilities, (2) are focused on markets with large and growing profit pools and are synergistic with other platforms in the portfolio. n Make the tough decisions. Simply put, if a part of the portfolio is not or cannot become a platform, exit it. ven if financial capital is not scarce, other forms of capital are – particularly management bandwidth. It is very difficult to manage non-core parts of the portfolio and to have a clear narrative to investors as to why orphaned assets make sense and create value. They should be disposed of so management can focus on the platforms. n Change the investment mindset. Focusing on platforms enables management to move faster and with more confidence to make the investments they need to make. Because platforms are advantaged in their markets, companies can pay higher multiples than the competition and still create deal value. Moreover, companies can increase critical CONTINUED ON NEXT PAGE

GLOBAL M&A Transaction Multiples* 2012-2017 All

EV/EBITDA 12.0x

10.7x

10.0x 9.2x 8.1x

9.3x

Industrials 11.2x 9.9x

9.0x

10.7x 10.5x

11.3x 10.0x

8.4x

8.0x

(330) 239-1990 melcap.com

6.0x 2012

2013

2014

2015

* Based on median for all deals closed within given time period SOURCE: S&P Capital IQ

2016

2017

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M&A for high-growth companies Evaluating possibilities for acquisition or sale is a worthwhile strategy By MICHAEL C. SHAW

cquisitions can elevate highgrowth companies to new levels. Often, companies that can benefit the most from acquisitions are companies that have grown significantly at the cost of structural problems such as a significant customer concentration). Implementing a regular internal M&A review will help high-growth companies stay ahead of the growth curve and find areas to improve. M&A isn’t just Shaw for the slow-growth consolidators. Here is a challenge for 2018: At the regular monthly or quarterly management meeting, set aside at least 30 minutes to have an M&A review. Assign the team to identify and evaluate a few potential targets at each meeting, whether or not the targets are for sale. Starting with ideal candidates versus those that may be for sale will be more helpful in achieving a tangible outcome. The initial evaluation of each target should focus on just one or

two aspects that are most likely to add value to the combined business, such as decreasing customer concentration, adding key technology or expanding service capability. At future meetings, the team can further narrow the targets

and dive deeper on individual pros and cons of each target. Also do the same from the position of the company as a seller. Discuss a few potential buyers of your business and how they’d evaluate your company.

This is a worthwhile exercise to consider whether you want to sell and will help identify areas to increase value. Whether these exercises lead to acquiring a business or not, there are immediate benefits implementing a

January 22, 2018 S5

more critical review process of your business and being able to scan for external opportunities for growth. Also, having the confidence and capability to execute an acquisition strategy also helps build a mindset to critically review allocation of money and resources for future growth. Michael C. Shaw is a partner at Copper Run. Contact him at 614-888-1786 or mshaw@copperruncap.com.

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organic investments (which almost always have higher rates of return than deals) to create and expand platforms. n Move quickly. All of the three actions above make it easier to move fast. In PwC’s experience, the most fundamental difference between winners and losers is pace. Private equity firms have long recogni ed that their drive to do things in three months that would take a typical management team a year or more to do was one of their main levers on value. Having a clear strategy to create platforms, prune the portfolio to focus on them, and deploy capital aggressively on the remaining core enables the speed that will create a step-change in value creation. In short, this is a time of great risk and great opportunity. Given the disruption occurring in nearly every industry, Cleveland-area companies need to move fast to sei e those opportunities. By the time companies start to recogni e that big change is happening around them, it may be too late to get back in the game.

500 local and 14,000 global

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S6 January 22, 2018

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Will blockchain change the world? Technology that improves security ow of transactions is gaining momentum By SEAN T. PEPPARD

WHAT IS BLOCKCHAIN?

First, let’s start with what blockchain he fanfare around blockchain is not. Blockchain is not the same as has reached epic levels, with bitcoin. Instead, bitcoin is a specific use publications like Forbes and of the blockchain technology — a digital Fortune predicting that blockchain currency. Blockchain can be, will change the world. While and often is, used without a such headlines are meant to digital currency. While there grab attention and arguably are a variety of views on the exaggerate coming changes, value of cryptocurrencies, a recent report by the World there is general consensus that Economic Forum is predicting the technology underlying that by 2025, around 10% bitcoin has vast potential to of global GDP will be built Peppard change how we do business. on blockchain or blockchain-related Blockchain is often described as technology. a “distributed ledger.” Perhaps the To put that percentage in context, easiest way to understand blockchain is by 2025 blockchain will contribute to understand the problem it addresses. more to global GDP than China contributes to global GDP today. CONTINUED ON NEXT PAGE

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In a global and digital world, businesses and individuals engage in transactions with strangers every day, directly or indirectly. The traditional way to solve the inherent lack of trust between widely separated and often anonymous parties is by the use of intermediaries, such as Visa or Mastercard, for the purchase of goods; stockbrokers for the purchase of stocks; money transmitters for transferring cash overseas; and freight brokers for the shipment of goods. Many of these intermediaries (and the intermediaries of the intermediaries) use highly manual processes and all charge fees for their services. While we can execute a stock purchase with the click of a mouse, it takes two to three days for such a sale to settle. Similarly, an international money transfer can take up to a week to accomplish and cost 7% or more of the amount of the transferred funds. The time and costs associated with intermediaries create friction in the global financial system. Perhaps more importantly, sensitive information often is placed in the hands of such intermediaries and is subject to the risk of data breach. Enter blockchain. Blockchain is a database for recording transactions in “blocks” that are distributed to a group of users, which could be public or private. The participants in the network then authenticate the transaction using an agreed-upon protocol, which can be different based on the situation. Once authenticated, each block is linked to a previous block in the chain. Blockchain transactions have several potential advantages over traditional transactions, some of which include:

Transparency:

Blockchain is transparent and auditable since it contains a list of every transaction of the underlying asset.

SO, WILL BLOCKCHAIN CHANGE THE WORLD? There are some that argue that the advent of double-entry accounting made capitalism possible. And while that statement is debated in academic circles, there is no doubt that doubleentry accounting allowed for a more

accurate and transparent recordation of transactions within a single organization. Blockchain can take that benefit and extend it to apply between contracting parties, and therefore eliminate the time, cost and risk of using intermediaries. Depending on the type of use, blockchain could be transformational (eliminating intermediaries altogether) or incremental (increasing speed and accuracy while reducing costs). While it may be an

Sean T. Peppard is a partner in Benesch’s Corporate & Securities Practice Group. Contact him at 216-363-4688 or speppard@beneschlaw.com.

No guessing games. Thompson Hine transparency provides you with complete clarity into our planning, workflow and costs. Coupled with our deep legal experience, you’re afforded the insight to make the best possible legal decisions for your business. To learn more about our transparent approach to service delivery, visit ThompsonHine.com/SmartPaTH.

Decentralized: There is no central repository of data, and therefore no centralized risk of failure or data theft. By transacting directly, the time and cost of using intermediaries is minimized or avoided.

Security:

Cryptography and digital signatures are needed to prove identity. Every participant in the system has a copy of the ledger. Each block is connected to and relies upon information from the previous block; therefore, a change in any block in the chain will corrupt subsequent blocks. As a result, blockchain is very difficult to hack. To date, no one has successfully hacked blockchain by manipulating the chain. However, central repositories, or exchanges, of bitcoin have been hacked and bitcoin fraudulently transferred.

Authenticity: The security and immutability of the blockchain creates comfort among users because transactions contained therein are authentic and can be relied upon. For this reason, companies are using blockchain to verify the authenticity of works of art and to curb the ow of blood diamonds.

exaggeration to say it will change the world, it will make transacting business faster, cheaper and safer.

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S8 January 22, 2018

New revenue recognition standard could impact quality of earnings Evaluate private equity valuation models to avoid unexpected results By ANDREA SLABINSKI and JOSEPH ADAMS

hether buying or selling a portfolio company or planning a future exit, it is critical that private equity groups understand the new revenue recognition standard. The new model can affect the timing of when revenue is recorded, which could have surprising impacts on quality of earnings. Here’s what it means for your valuation models during due diligence.

WHAT DO I NEED TO CONSIDER? The new revenue recognition standard could impact EBITDA and other performance metrics that are inputs to private equity groups’ current valuation models. The changes are due to a shift in an accounting standard however, the cash ows and operations of the business will not have changed. Since the business model isn’t changing, in theory, the value shouldn’t differ. But, if private equity groups

don’t update their valuation models, the models could indicate changes in value. As a result, you need to ask, “What adjustments should I be making to my valuation models to incorporate the effects of the new standard?” While the standard goes into effect in 2018 for public business entities and 2019 for all other organizations, com- Slabinski panies could have adopted the standard in 2017. This means, as a buyer, you could be looking both at target companies that have adopted the new standards and those that haven’t even thought about them at the same point in time. That’s why it’s important to understand where in the process a company is. When performing due diligence, private equity groups should begin to consider the following: Prior to implementation: Understand how the business’s revenue and EBITDA will change under the new

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rules. Will this impact the value of the target? Should it? Additionally, a company’s readiness to test, implement and operate under the new standard may have significant implications for its appeal as a target. It will be important to understand the prospect’s progress toward implementation during due diligence and the Adams costs associated with implementation if the target isn’t far along in that process. Closer to implementation: Understand how forecasts are being built — whether under the old rules or the new rules — to determine what adjustments to the valuation model are necessary and in what periods the adjustments should be applied. After implementation: Be aware of historical numbers used in analyses and how those will need to be recalibrated to be consistent with revenue under the new rules. For some companies, the bottom line won’t change much.

Others may see a major shift, for better or worse, and in unexpected ways. Additionally, the new standard is principles-based, rather than rulesbased. This means there are plenty of judgment calls and estimates on the part of management. It’s key for sellers to provide and for buyers to consider the rationale and assumptions behind decisions and projections, and to understand how those assumptions impact the bottom line. We’ve seen many examples of unexpected changes through our work with clients who have begun planning for adoption. The following is a sampling of some of the changes we’ve observed:

CAPITALIZE OR EXPENSE SALES COMMISSIONS? Current state: Companies can make a policy election to capitalize sales commissions and recognize them as expense over the long-term contract period or to expense them as incurred. New standard: Sales commissions related to long-term contracts meeting

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certain criteria will be required to be capitalized. Capitalizing commissions on these contracts will likely result in a more favorable bottom line for many businesses that were previously expensing them when incurred.

VENDOR SPECIFIC OBJECTIVE EVIDENCE FOR SOFTWARE COMPANIES Current state: When a software license has been bundled with other services, such as maintenance and support, SO has been difficult for many software companies to establish, track and prove. Companies that couldn’t consistently do so were required to recognize revenue over the full contract term, rather than recognizing license revenue when the software was delivered. New standard: VSOE is no longer a requirement. In instances where the license is a separate performance obligation from the other promises in the contract, companies could recognize the license revenue upon software delivery by using an estimate of that software’s standalone value. This could result in some software providers significantly accelerating the timing of their revenue recognition.

MANUFACTURING CUSTOM PARTS Current state: Manufacturers that produce custom parts for a client recognize revenue for those parts when CONTINUED ON NEXT PAGE

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January 22, 2018 S9

Key questions to answer during due diligence By MARK B. BOBER

he M&A market remains extremely competitive, and buyer due diligence is more critical than ever. Sellers often seek valuations based upon projected forward earnings and pro-forma adjustments that may not re ect the actual results of operations, which require thorough diligence. While each situation is unique in terms of assessing fundamental risk areas to focus due diligence scrutiny around, below are a few of the areas that are critical Bober to the success of an investment: n Revenue and margin trends. Assess customer concentrations, customer trends and margin trends. What are the attrition/retention trends? What are the customer acquisition costs? What are fixed and variable costs to support revenues? What is history of price increases? Is there an ability to pass along increases in costs to support sales, such as raw materials and subcontractor costs? Are revenues and projected revenue growth sustainable? Are there

one-time and/or non-recurring revenues that need to be adjusted on a pro-forma basis to the extent they will not repeat in the future? n Normalization adjustments. Can underlying contemporaneous documentation support the seller’s proforma normalization adjustments? Are they truly non-recurring or owner

Andrea Slabinski is a senior manager with Plante Moran’s professional standards team. Contact her at andrea.slabinski@plantemoran. com. Joseph Adams is a partner with Plante Moran’s private equity team. Contact him at joseph.adams@ plantemoran.com.

acquisition, both from a valuation standpoint as well as establishing strategy going forward. Mark B. Bober is a partner and practice leader in Transaction Advisory Services at Bober Markey Fedorovich. Contact him at 330-255-2425 or mbober@bmfcpa.com.

The team that gets your deal done! Patrick Berry, Co-Chair

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the title transfers, which is usually when the parts ship. New standard: If certain criteria are met (for example, if the part has no alternative use to the company producing it) and the company has the right to payment for work completed to date in the event of contract termination, revenue would be recognized sooner — as the parts are produced rather than when shipped. We don’t see this in all contracts for manufacturers, but contracts with these terms are common. In all three examples, revenue was advanced or expense deferred. In the year of adoption, it will be critical to adjust private equity valuation models to take into account the effects of the known changes and of the adoption if you want to avoid unexpected results from your models. Portfolio companies should assess the impact now. Start reviewing contracts to understand the accounting changes the business will need to make to comply with the standard. Be prepared to discuss progress during due diligence. Understanding what the new standard means with respect to a company’s quality of earnings and your valuation models isn’t going to be business as usual.

statements re ect an adequate level of cost to support the future growth of the business? Is there adequate infrastructure in place to provide a platform for growth? Has adequate investment in capital expenditures and research and development been made? Due diligence is critical to the ultimate success of a contemplated

discretionary? It’s vital to assess the probability of reali ing such benefits if the seller suggests they are “proforma” because they are achievable but have not been realized. n Operational matters. Does the level of operating costs (selling, general and administrative expenses) shown in the historical financial

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Be wary of tempting offers Enlist a qualified team of M&A advisers to manage sale process By CHARLES AQUINO

erhaps you’ve spent a lifetime building your business, sacrificing personally for the betterment of your employees and company. Or maybe you are the caretaker of four generations of growth and sacrifice, and it’s your turn to preserve the family legacy. You look back many years with pride at the challenges you’ve hurdled, the value you’ve built and the expectation that when the time finally comes to sell Aquino the business, you and your family will be justly rewarded. No doubt hungry buyers will be chomping at the bit. In a market this frothy, however, it’s not uncommon for a potential buyer to seek you out first. They may tell you yours is just the business they’ve been looking for, as they have a unique perspective and resource set to vastly ex-

pand your company’s horizons. In addition, your employees will be protected, your legacy preserved and, most importantly, their valuation will be fair and compelling. Sounds great, doesn’t it? But how do you really know if their offer is fair? And how do you judge whether or not it’s compelling? efore you can find answers to your questions, the buyer wants an answer to theirs. They know they’re not the only party calling, and that the sooner they lock you into exclusivity, the better their chances of avoiding a costly, competitive process. They assure you that their offer is consistent with other deals in the market. If it’s a financial buyer, they’ll illustrate how the real value lies in a subsequent sale after several years of imparting their strategic wisdom and capital. In the end, they will tell you why it’s in your best interest to save yourself the time, distraction and fees of a formal process and move forward with them exclusively. It will sound

both attering and convincing. Beware, however, because once you grant a party exclusive rights to negotiate a deal, any leverage you had previously quickly goes away. You no longer have any tangible “market check” by which to judge, counter or improve their offer. It’s just you and the buyer, and the courtship is over. Now is a good time to ask yourself: who will have your back in the myriad legal, business and financial negotiations? Who will be in your corner helping you stand up to the buyer’s horde of advisers who would like nothing more than to impress their client by finding or justifying a price reduction? Like anything critical in life, selling your business really should be handled by a complementary team of specialists. A good M&A attorney will protect you on important deal terms and conditions without exposing you to above-market risk. An accounting firm with extensive transaction services

and quality of earnings experience will help you get through an exhaustive due diligence process. An investment banking firm with relevant industry experience can apply competitive pressure on the buyer, even in a one-off situation, with a compelling marketing package that’s ready to share with others once the window of exclusivity closes. Throughout the process, this team can serve as that elusive market check on matters involving valuation multiples, credible IT A ad ustments, working capital mechanisms and other key deal terms. This can give you peace of mind when competing bidders cannot. Perhaps the greatest benefit of having a full team of advisers in your corner is their collective ability to shoulder the heavy lifting throughout the process. As a seller, you may not fully appreciate the considerable time and energy involved in gathering information, answering questions, populating the data room and adhering to an extensive diligence schedule.

And, by the way, you don’t get a break from your day job. If performance slips because you or your management team were distracted by a needy buyer, you can bet that same buyer will endeavor to amend the terms of the deal in their favor. Not only will your advisers take much of this burden off your shoulders so you can continue to run your company, they will advocate aggressively on your behalf should there be an unexpected hiccup. So, should you ever be tempted by a buyer who wants you all to themself, remember a little sage advice. Is it generally better to have more than one buyer competing for your company? es. o private sellers regret not talking to other parties before committing to the first one who knocks at the door? All the time. And is it worth having a complementary team of M&A specialists in your corner should you find yourself mano-a-mano with a sophisticated buyer who’s dialed down that pre-exclusivity charm? Only if you want to assuage any doubts as to whether you’re getting proper value for a lifetime’s worth of work. Charles Aquino is a managing director at Western Reserve Partners. Contact him at charles.aquino@citizensbank.com.

We Understand the Language of Business At Tucker Ellis, we appreciate that legal issues are not resolved in a vacuum—almost all require a customized solution. In collaboration with our clients, we strategically analyze how the issue at hand relates to and affects their business, and we help them solve it from that perspective. In short, Tucker Ellis attorneys understand the language of business. visit our blog: tuckerellis.com/lingua-negoti-blog @linguanegoti

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Early preparation and team-building is essential for successful acquisitions By JOHN MCGUIRE

ractitioners of transactional work generally agree that we are in a persistent sellers’ market. Pricing multiples remain high, sometimes breathtakingly so. Middle-market sellers are demanding that most, if not all, of their indemnity exposure be of oaded to representation and warranty insurance policies. What should potential buyers who do not regu- McGuire larly engage in acquisitions and dispositions do to be credible and competitive?

EVALUATE YOUR TEAM AND GET THEM INVOLVED A successful acquisition begins with having the right team around you who is engaged from the beginning. However, this may mean that your current team of professionals is not the one with whom

you should be heading into battle. Every professional has his or her strengths, but the general practitioner you have been using all these years, while incredibly good at what he or she does, may not be the right one to negotiate your multimillion-dollar acquisition. Take a moment for a cleareyed evaluation of your team and make an honest determination as to whether their skill set is appropriate for this specific engagement. If not, take the time to find an attorney or accountant who has deep experience in transactions and then put them to work. Flying solo in the early stages of a transaction, hoping to streamline costs, rarely accomplishes anything other than delays later, as issues are belatedly uncovered, misunderstandings revealed and differing expectations exposed. A well-seasoned team will ensure that you are asking the right questions upfront, spotting red ags early and, if necessary, taking that exit ramp

before too much time and money are wasted (and acquisition transactions can quickly consume both). Staging or otherwise managing team members’ involvement is fine, but being penny wise and pound foolish is not.

SET THE BASIC TRANSACTION TERMS EARLY

After engaging a well-qualified transaction team, a buyer’s next objective should be ensuring that it and the seller are on the same page regarding what the transaction will look like (and what it will not). Eagerness on both sides of the table often leads the parties to dive right into document drafting, heavy due diligence and negotiations. owever, most advisers find that spending a little time on a term sheet or letter of intent that eshes out the seminal transaction terms is worthwhile. Again, this is all about surfacing issues and mismatched expectations before time and money are lost by all concerned.

ASSUME THAT A REPRESENTATIONS AND WARRANTY POLICY WILL BE NEEDED Thanks to the continuing sellers’ market, as well as the maturing representation and warranty insurance industry, sellers are requiring that most (if not all) of their purchase agreement indemnity exposure be handled by a representation and warranty insurance policy purchased by the buyer. Financial buyers have been quick to adopt the use of representation and warranty policies, and strategic buyers will need to as well to keep pace and remain competitive in auctions. Upon embarking on a sale (particularly if the process is an auction, but even a non-auction purchase of a savvy seller), buyers should assume they will need to purchase such a policy. Buyers should engage early with their insurance brokers, who can price (at a high level) coverage at different levels

January 22, 2018 S11

and for different lengths of time. When the process is in full swing, buyers also should anticipate that they will be negotiating the coverage of the policy as much as (and, in some cases, more than) they negotiate with the seller the particular representations and warranties in the definitive documentation. Indeed, in this brave new world of middle-market transactions, there is now a third chair at the negotiating table: progress! In transactional practice, as with so many aspects of life, preparation is the key to success. While it is tempting to keep costs low early on, too lean-andmean of a strategy can send inexperienced buyers down rabbit holes from which they may never emerge. Make sure you have the right team, ask the right questions early, prepare for the inevitable side negotiation with your representation and warranty policy insurer, and you will find yourself in a much better position to win the deal and bring it to a successful conclusion. John McGuire is a partner at Calfee, Halter & Griswold LLP. Contact him at 216-622-8892 or jmcguire@calfee.com.

PARTNERSHIP Partnership is the reassuring voice that always answers the call when you need it most; it’s the collaboration between your team and ours that fuels your success; it’s having someone who’s focused on inspiring your leaders just as much as you inspire ours. Our experience handling nearly a dozen mergers and acquisitions each month for the last 15 years has taught us that partnership extends beyond what we share with our clients; it’s what we help them build with others.

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Employee considerations in a transaction By MICHAEL D. MAKOFSKY and JACK E. MORAN

hile there are many issues to prepare for in any deal, both sellers and buyers should be cogni ant of certain employee-specific issues as the transaction unfolds. In order for an acquisition to be successful, key employees must often be retained, reassured and motivated post-closing to keep the business moving. One method a company may implement is a golden handcuff, which is a collection of financial incentives that are intended to

encourage employees to remain with a company. These plans often help companies hold onto employees with whom they ve invested. rom a dealmaking perspective, both sides of the transaction should be mindful of whether any employees have stock options or profits interests. These benefits often vest over time however, it Makofsky is common for them to automatically vest and become operative upon a sale or change in control. Such employee agreements must be

analy ed to determine how the rights are triggered, how the shares are valued and other such terms to determine whether those agreements have an impact on the proper purchase price. The value of the transaction could also be affected by how well the company protected itself against departing employees. ffective employMoran ment covenants such as non-competition, non-solicitation and non-disclosure requirements can help preserve the value of the company and, in some instances, help retain

Momentum benefits sellers By ANDREW K. PETRYK

ggressive buyers. ungry lenders. Robust valuations. These are themes we have seen repeated over the last few years and

show no signs of abating. iquidity and the quest for growth are continuing to drive the M&A market with an almost insatiable fervor. Prospective acquirers have considerable buying power, calling attention to orporate

America’s burgeoning war chest and the billions in unspent private equity capital earmarked for deployment. The debt markets remain highly liquid new investors and capital continue to ow into private credit.

the employee. If, however, an employee’s tenure will be terminated as part of the acquisition, buyers will want to know whether the employee has already agreed perhaps in exchange for receiving a payout of stock rights — to sign a release agreement that waives any potential claims against the business. Further, if the employee has been paid a retention or other similar bonus, but has not fully performed under the agreement governing the payment, the company will want to analy e whether it makes sense to attempt recovery of some or all of the payment.

iven that employees are often a central asset of a target business, buyers and sellers should be evermindful of the legal landscape affecting those employees as they evaluate any potential deal.

The missing link is deals. M&A volume in North America fell to a five-year low in the third quarter of 2017, according to Mergermarket, which cited a Petryk 32.8% decline from the year-ago period. .S. private equity deal

ow through the first three quarters of 2017 was down 11% from the comparable period in 2016, reported Pitch ook, despite record fundraising activity. Scarcity of quality deals has resulted in fierce competition among buyers and lenders. oan demand continues to outstrip available acquisition financing opportunities,

Michael D. Makofsky is a principal in McCarthy Lebit’s Mergers & Acquisitions, Banking & Finance, and Business & Corporate practice areas. Contact him at 216-6961422 or mdm@mccarthylebit.com. Jack E. Moran is a principal in the Employment & Litigation practice areas. Contact him at 216-696-1422 or jem@mccarthylebit.com.

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Own success at every turn Navigating deals requires confident decisiveness to stay a step ahead of frequent shifts in complex government regulations and global market demands. Our professionals can help you move ahead boldly with the right insights at the right time for the right deals. We bring extensive regional and sector experience as well as an understanding of your culture and situation, so we can assist on a variety of your deal needs including: domestic and cross-border acquisitions, divestitures and spin-offs, capital markets transactions like IPOs and debt offerings, and bankruptcies and other business reorganizations. For more information on how we can help you, please contact Brian Kelly at (216) 875 3121 or Thorne Matteson at (216) 875 3441.

© 2018 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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Overcome hurdles, improve deal outcomes Various insurance strategies help buyers, sellers achieve goals

By JAY MOROSCAK

he dearth of desirable acquisition targets has created a highly competitive landscape in the M&A market. This competitive situation dictates that buyers be prepared with strategies and tools that facilitate potential transactions. Transaction liability insurance, a relied upon tool for all M&A practitioners, has emerged as an essential element of the M&A landscape and can be a viable

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sending enterprise values and leverage multiples to historically high levels. S&P Global Market Intelligence reported the following metrics for the lower middle market defined as enterprise values between $25 million and $500 million) in December 2017: n Median EBITDA multiples for strategic and financial buyers were 7.2 x

alternative to an escrow or indemnity. The ability to manage and allocate risk on the front end of a deal allows buyers to bid more aggressively because sellers can extract more funds at closing. Tax insurance protects a taxpayer in the event the IRS or a state, local, or foreign taxing authority successfully challenges his or her tax position. M&A buyers and sellers can use tax insurance to avoid unanticipated tax payments that could compromise the economic upside of a deal. Tax insur-

ance can be an effective alternative to an escrow or a large indemnity. It can also be used outside of a transaction — simply to manage a large contingent exposure. Institutional tax equity investors rely on tax insurance to ensure an anticipated tax credit will be available as projected and not recaptured. Representations and warranties insurance covers liabilities arising out of a breach of one or more of the representations and warranties in an M&A transaction. Policies can be

tailored to address a client’s specific indemnity needs. Buy-side improvements include achieving a lower purchase price by trading for lower escrow. The buyer realizes greater deal protection through use of insurance. The auction process can be eliminated in favor of the buyer by accepting Moroscak seller representations “as is” because the insurance provides the indemnity. Sell-side improvements from rep-

and 7. x, respectively, on transactions valued less than $250 million, and 11.2 x and . x on transactions valued between $250 million and $500 million. n Total leverage (total debt to EBITDA) inched up to 4.89x, steadily increasing from a low of 4.57x in April. Total leverage of 5.5x was reported for the broader middle market (EBITDA less than or equal to $50 million).

While investors have a cautionary eye on the economy given the length of the current business cycle, companies are continuing to perform. According to an earnings report released in December by S&P Global Market Intelligence, 7 % of the reporting S&P 500 companies beat earnings expectations for the third quarter of 2017, with nearly half % citing double-digit

or better year-over-year growth. Even cyclicality has not slowed investor appetite. Building Products, one of the cyclical sectors that has seen transaction activity rise on the heels of improving fundamentals, may have even extended its run as recent weather-related events have seemingly lengthened the replacement cycle in affected markets. Market conditions should continue to

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resentations and warranties insurance include a sharp reduction of escrows, transformation of some or all of indemnity, increased speed of a deal-closing and minimizing “claw-back” exposures. Transaction liability insurance is becoming a staple in any strategic M&A, offering protection for both buyers and sellers.

remain strong into 2018, with liquidity a primary catalyst. Without a material increase in deal ow, capital will continue to chase tight supply, keeping multiples elevated for the foreseeable future.

Jay Moroscak is a senior vice president in the Cleveland office of Aon Risk Solutions. Contact him at 216-272-2155 or jay.moroscak@aon.com.

Andrew K. Petryk is a managing director and principal at Brown Gibbons Lang & Company. Contact him at 216-920-6613 or apetryk@bglco.com.

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PAA, along with our partner, Pease & Associates, CPAs, leverage our experience with several hundred deals, while offering due diligence, taxation, and other M&A related services.

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Sidestep private equity’s potential landmines Buyers, sellers should consider these potential issues during deal phase By DAVID KERN and JON STEFANIK

t its core, an M&A transaction involving a private equity buyer or seller is no different than any other M&A transaction that involves all of the usual suspects: due diligence

checklists, working capital adjustments, baskets, caps, survival periods, carveouts … you name it. There are, however, several under-the-radar issues unique to deals involving private equity buyers or sellers which, without planning, can become potential problems.

1 PAYMENT OF FINDER’S FEES

The Securities Exchange Act of 1934 (the “Exchange Act”) requires most brokers or dealers to register with the SEC and to join a self-regulatory organization such as FINRA. Section

3(4) of the Exchange Act broadly defines a broker as any person engaged in the business of effecting transactions in securities for the account of others.” Section 3(5) of the Exchange Act defines a dealer as any person engaged in the business of buying and selling

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securities for his own account through a broker or otherwise.” Private equity firms are often approached by individuals or organizations who are not registered with a self-regulatory organization to source investments and raise capital in exchange for a “success fee” payable upon closing of the sourced investment. Per Section 15(a)(1) of the Exchange Act, it is unlawful for any person to “effect a transaction in securities” or to “induce the purchase or sale of” any security other than through a broker or dealer registered Kern under an SRO. Section 29(b) of the Exchange Act renders voidable every contract entered into in violation of the above-referenced broker-dealer registration requirements and Stefanik gives the investor the right to rescind its purchase of securities. Private equity firms should be cautious when working with employees or other unregistered persons in connection with solicitations for investor capital.

ULMER.COM

Private equity firms often concentrate investment in a specific industry. In the M&A context, this industry-specific focus has the potential to implicate U.S. anti-trust laws, including Section 1 of the Sherman Act, which generally prohibits the exchange of competitively sensitive information (including pricing and cost information) among competitors. A private equity firm must take documented precautions to avoid violating the Sherman Act when acquiring a competitor of one or more of its portfolio companies. Of course, any such precautions must be weighed against the need to conduct proper due diligence — a legitimate business concern for the buyer. In order to reduce the risk of violating antitrust laws, a confidentiality agreement prohibiting use of any disclosed information must be in place prior to disclosure. Furthermore, such agreement should limit internal disclosure of pricing and cost information to individuals who are not involved in establishing pricing of competitive products or services. The information exchanged should be provided in summary format, or at least sanitized (to the extent possible) to remove commercially identifying information. Additionally, a “clean team” agreement should be considered to permit disclosure of commercially sensitive information for confirmatory due diligence only to third-party consultants, including accountants CONTINUED ON NEXT PAGE

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Market dynamics tilt deal favor toward seller By ALBERT D. MELCHIORRE and MATTHEW M. SWEET

he M&A markets are dynamic and constantly evolving. These trends continue to have implications for buyers and sellers. It is particularly important that business owners understand these trends to prepare themselves for a successful transaction. From a global perspective, transaction volumes have decreased and are now below the fiveyear average, while cross-border transactions continue to make up 20% to 2 % of global deal ow.

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and investment bankers. If absolutely necessary, the agreement may also apply to employees who do not provide any input on pricing or costing of competitive products or services, and in each case who agree to be bound by the restrictive terms of that agreement. Finally, disclosure of commercially sensitive information could be withheld and used as part of confirmatory due diligence

U.S. companies have shifted their attention to targets in Europe, the Middle ast and Asia, with dollar ow into the regions increasing over 20% during the last 12 months. Global valuations have surged to 14.1x EBITDA, forcing buyers to pay a premium in order to get deals done. Melchiorre Domestically, valuations have surged as well. Solid earnings have propelled public equity markets to all-time highs. Strategic buyers have amassed record amounts of cash on their balance sheets, with the S&P 500

non-financial companies holding more than $1.6 trillion in cash alone. Private equity in the U.S. continues to grow, with the number of buyout funds and overall “dry powder,” or uninvested capital, increasing significantly in recent years to over $600 billion. PriSweet vate equity fundraising, in particular, has grown due to private equity’s long-term outperformance of most other asset classes. Competition for deals is high. Transaction multiples have surged, with middle-market EBITDA multi-

ples increasing an entire turn over the last 12 months. uyers have taken a modified approach to the deal process to remain competitive. Buyers who elect to participate in competitive sales or marketing processes are conducting meaningful due diligence even before an indication of interest is due, with the hope of identifying growth opportunities that can be factored into an offer, potentially boosting the offer price. They are getting more creative to get deals done, often bridging gaps in the purchase price with a combination of seller financing or earnouts. As buyers continue to struggle

to find businesses to acquire, banks continue to aggressively support quality companies. The economy remains strong. Valuations have risen to records levels. There are a number of baby boomers who are looking to transition their businesses. Both domestically and internationally, it is a great time to be a seller and a challenging time to be a buyer.

immediately prior to the closing, while remaining sub ect to confidentiality. In addition to criminal prosecution, a violation of the Sherman Act may result in treble damages.

directors to the boards of competitors, or from having the same directors sitting on the boards of competitors. Subject to statutory exceptions related to industry, capital and sales, Section 8 of the Clayton Act provides that “[n]o person shall, at the same time, serve as a director or officer in any two corporations ... that are (a) engaged in whole or in part in commerce; and (b) by virtue of their businesses and locates of operation, competitors, so that the elimination of competition by agreement between

them would constitute a violation of the antitrust laws.” Section 8 of the Clayton Act is interpreted as prohibiting any firm from appointing the same or different individuals to sit as its agents on the board of directors of two competitors. A violation of Section 8 of the Clayton Act is a strict liability offense, so a private equity firm’s intent in appointing directors is not relevant. A violation of Section 8 of the Clayton Act may result in treble damages.

While these issues do not arise in all M&A transactions involving private equity firms, they do arise frequently enough that they merit serious consideration.

INTERLOCKING DIRECTORS

When acquiring a competitive entity, private equity firms must be aware of potential violations of the Clayton Act that may arise from their power to appoint

Albert D. Melchiorre is president of MelCap Partners. Contact him at 330-239-1990 or al@melcap.com. Matthew M. Sweet is an associate at MelCap Partners. Contact him at 330-239-1990.

David Kern and Jon Stefanik are partners in the Business Practice Group at Buckingham, Doolittle & Burroughs LLC. Contact David at 330-258-6489 or dkern@bdblaw.com. Contact Jon at 330-643-0209 or jstefanik@bdblaw.com.

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Be strategic when evaluating path to a successful business transition By SCOTT MCRILL

s the baby boomer generation ages and the Gen Xers and millennials come of age and go off to do their own thing, many businesses owned by boomers are left without a natural successor. Many of these business owners are finding that their children and grandchildren do not want to take over the family business. The good news for them is that McRill there are many other options. But no matter what type of change an owner decides to embark on, planning well

in advance is the key to a successful transition of the business. The following is an outline of steps to take when considering a sale or transition of your business. Take a long look in the mirror. Are you truly ready, emotionally, to let go of the business? It has been your baby for years, so it’s understandable why it may be difficult to cede control and let someone else run the business. Make sure you have taken stock of what you will do in terms of hobbies or other interests to fill the void after letting go of the business. Too often, sellers think they are ready to let go but struggle to pull the trigger when the time comes. This can result in frustration, wasted time and money, and can

be a huge distraction to the business. Determine what you “need” for the business, not what you “want” for the business. Many sellers launch into the process of selling their business with a desired purchase price in mind. Often, however, those sellers have no idea if that sale price will be sufficient to fund their retirement and other plans after the sale. Before taking a business to market, the owner should take stock of their entire personal balance sheet, including all assets and liabilities outside the business, and future cash ow needs. A professional wealth adviser should be engaged to guide the owner through development of a complete retirement plan. Be clear about what goals and

desires you have for retirement, such as a second home, education for children or grandchildren, travel or bequests to charity. Once the full picture is put together, the business owner can determine how much they “need” to sell the business for in order to achieve their goals. That number may differ from what they “want” for the business or what it is truly worth today. Do the right homework to determine what the business is currently worth. Now that you know what you need to get from the sale of the business, it’s time to take stock of the current state of the business and get a realistic professional view of what it’s worth. Many business owners rely on their gut feel or a “country club” value, based on nothing more than conversations with other business owners at “the club” who recently sold businesses. This is a risky approach and may not be realistic. The owner should consider engaging investment banking, transaction advisory or valuation professionals to analyze the numbers through a quality of earnings effort — at least at a fairly high level — to put a rough box around the cash ow potential and therefore the rough value of the business today. Having a realistic view of current value is key to a successful transition. The current value falls short of my “need.” Now what? Although disappointing to learn, it is certainly better to know if the value falls short before embarking on a full-blown sale process, rather than after a failed transaction. The owner can now focus

on internal efforts to grow revenue and profitability, which will enhance the future value of the business. The owner may also consider turning the tables and seeking out acquisition targets to expand the business’ product line offerings or geographic reach. This extra time will also allow the owner to prepare well in advance of the actual sale. These preparations may include cleaning up historical books and records; building a base of externally prepared, audited or reviewed financial statements and building data-supported projections with deeper details of revenue and profitability by product and customer. This information will be important when it is time to go to market. The current value of the business meets my “need.” Now that you know the value meets your need, and you are emotionally ready to sell, you can move full steam ahead. At this stage, it is important for owners to surround themselves with the right team of professional advisers to achieve a successful transaction. This team should include an investment banking firm to market the business, a transaction advisory services team to perform quality of earnings work on the business and add deeper credibility to the numbers presented by the investment bankers, an experienced M&A attorney and a tax adviser. With thoughtful re ection, a clear goal, an accurate valuation and a solid team, you’ll be well prepared to transition your business and step into your new role as “former owner.” Scott McRill is a shareholder in the Private Equity and Transaction Advisory Services Practice at Clark Schaefer Hackett. Contact him at 216-526-8125 or slmcrill@cshco.com.

WHERE WILL YOUR GROWTH COME FROM? Copper Run’s merger and acquisition advisory professionals provide senior level attention on every transaction. We help our clients transition ownership, grow through acquisitions, or secure financial partners for future growth.

SELL-SIDE ADVISORY | BUY-SIDE ADVISORY | VALUATIONS Copper Run Capital LLC | 614-888-1786 | Copperruncap.com

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Private equity continues to evolve T

he Riverside Co. has seen a lot of change in private equity since our founding nearly 30 years ago. Part of that change has been seeing some of the things we did become much more common and even necessary for success in this increasingly competitive and challenging environment. We see modern economics founder Adam Smith’s invisible hand at work, guided by demanding limited partners as well as sellers. Kohl Today, it is not enough to just bring financial capital it must be married with intellectual capital. As a result, only the best private equity firms will survive and thrive. The days of relatively easy money and virtually guaranteed returns are long gone. Success today demands sophisticated systems, processes and professionals. That’s especially

true in today’s very competitive environment, which has increasing compliance requirements, strong competition from within private equity and other alternative asset classes, and very high purchaseprice multiples in well intermediated markets awash in liquidity. Here are some key areas where private equity has adapted and become better in recent years:

GLOBALIZATION When Riverside was founded in 1 , dealmaking was largely confined to the U.S. The European market outside of the UK was in its infancy, and private equity was almost unheard of in the Asia-Pacific region. Today, being global is becoming a prerequisite for success. Even if you’re only working on North American deals, you need to be able to understand, tap and access markets across the world. Private equity firms have learned to capture opportunities wherever they may be, using global resources and connections to help them grow.

‘‘

With locals on the ground in different countries looking to source deals, reach and help operate companies in which they invest, successful private equity firms have adopted a “glocal” mindset.

We consider global markets and international competition when investigating industries and companies with which to partner. With locals on the ground in different countries looking to source deals, reach and help operate companies in which they invest, successful private equity firms have adopted a “glocal” mindset.

SPECIALIZATIONS At our founding, we considered ourselves a generalist firm and that is still in our DNA. However, to succeed today you must have deep industry expertise in order to pick the winners, recognize patterns, add value during ownership and avoid adverse selection to stay relevant and succeed.

OPERATING Gone are the days of buying a great company and hoping it keeps growing. Today’s private equity firms are much more hands-on, lending expertise and talent to help companies fundamentally improve so they can sustainably grow more quickly.

TECHNOLOGY Firms like Riverside can no longer say “we don’t do technology deals.” Today, every entity in some way is a technology company, and any industry could be impacted tomorrow by the likes of Ama on, artificial intelligence, robotics and big data. Only a few years ago, we might have said that a New York City taxi

‘‘

By STEWART KOHL

medallion is a “safe investment.” Then along comes Uber and Lyft, and the value plummets by over 80% in four years.

EXPECT MORE CHANGE These are just a handful of trends in private equity, which we expect to keep changing as the world keeps spinning and moving forward faster and faster. Nimble, clever and proven firms will capitali e on these changes and continue to fill the demand for this rewarding investment option. Stewart Kohl is co-CEO of The Riverside Co. Contact him at 216-344-1040 or info@riversidecompany.com.

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Mitigating risk in M&A transactions

Strategies to protect buyers, sellers from unforeseen setbacks By JACOB B. DERENTHAL

articipants in merger and acquisition transactions all tell you they intend to mitigate risk. But in a marketplace with aggressive timelines and competition, too often deals close without parties taking simple precautions. M&A risk broadly falls into three categories financial, operational and legal. These concerns are different and sometimes directly contradictory when viewed by sellers and purchasers. Sellers want to avoid overpaying and limit business disruption while maximizing strategic and operational

synergies. Buyers look to maximize returns, limit post-closing liability, and provide that employees, customers and other stakeholders are treated fairly by new management. The best remedy is always due diligence. Sellers who fail to conduct internal diligence risk re-pricing before closing and are more likely to suffer indemnification claims after closing. Sellers should also review buyer backgrounds to verify adequate resources to complete the transaction and confirm a history of fulfilling promises made during negotiations. Purchasers who implement a rigorous diligence process can avoid

buyer’s remorse. Buyers commonly perform a deep dive into financial data but miss operational, cultural or personnel issues that, in hindsight, made a transaction unwise. Allowing counsel to review legal diligence can similarly uncover non-balance sheet liabilities in time to Derenthal negotiate pricing, increase escrows or walk away from the deal. In all M&A deals, parties should analyze insurance coverage to determine if adequate protection exists. Often businesses have not increased legacy

limits to re ect recent growth or failed to add necessary coverage types. Even when existing coverage is appropriate, the purchase of “tail policies” or representation and warranty insurance specific to the deal may be needed. With advice from deal professionals, it is possible to further reduce risk through transaction structure and agreement terms. For example, buyers typically prefer to acquire assets rather than equity to avoid unknown liabilities but need to consider if such structure prohibits the transfer of material contracts and permits. Holdbacks, escrows, seller financing and earnouts provide purchasers with added comfort in knowing that a portion of their

purchase price remains available to pay for unknown liabilities. Sellers can limit downside risk by including materiality and knowledge qualifiers, and indemnification baskets, caps and time limitations. Remember, specialists should always be consulted to review tax implications. As is typical in business, the ultimate takeaway is that owners and management who plan ahead have a variety of tools to minimize M&A transaction risk. Jacob B. Derenthal is a partner in the Corporate Transactions Practice Group of Walter | Haverfield. Contact him at 216-781-1212 or jderenthal@walterhav.com.

Don’t let due diligence deflect from the deal of a lifetime By CHRISTAL CONTINI and EMILY JOHNSON

or many small business owners, founders and management teams, selling their business is a once-in-a lifetime transaction. Most have spent years focused on managing and growing their business — not on

the task of selling. When it is time to sell, though, it is important to be prepared for the buyer’s due diligence investigation. During the due Contini diligence phase of a sale transaction, a buyer will seek to

Johnson

documents

identify and evaluate the value proposition and risk factors associated with the target business. A buyer will request that a seller locate and assemble numerous and information about

Aon Risk Solutions

the business, including confidential information about its financial status, customers and suppliers, employees, strategy, price lists, and sales and marketing data. A buyer may also request that a seller provide personally identifiable information. Personally identifiable information is defined by state law, but generally includes any information that can be used to identify, contact or locate an individual, either alone or in combination with other sources. It includes, but is not limited to, Social Security numbers, driver’s license numbers, credit and debit card numbers, passport numbers, bank account information, date of birth, medical information, biometric data such as fingerprints, mother’s maiden

name, and e-mail or username in combination with password or security question and answer. efore any confidential information is shared with a buyer, a seller should understand the following key strategies to ensure that missteps during the due diligence phase do not detract from a lifetime of building a valuable business:

EXECUTE A PROPER 1 CONFIDENTIALITY AGREEMENT BEFORE

SHARING ANY INFORMATION. Most business owners have a standard confidentiality agreement they use in the ordinary course of dealing with CONTINUED ON NEXT PAGE

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vendors and customers. This is not the time to use this document. The sale of a business requires a customized confidentiality agreement that addresses topics which may not be in a standard agreement. or example, if the potential buyer is a competitor, a seller may want to include tailored non-solicitation of employees and customers disclosed during the due diligence phase. The confidentiality agreement should also address safeguarding any personally identifiable information disclosed during due diligence. onfidential information should be defined to include personally identifiable information and protected health information if due diligence involves disclosure of protected health information. When representing the disclosing party and where possible, the receiving party should be obligated to indemnify the disclosing party for any unauthori ed disclosures of personally identifiable information.

‘‘

January 22, 2018 S19

Only disclose the minimum amount of identifiable information necessary to enable the parties to conduct due diligence.

an unauthori ed manner, which could impact the value of the transaction.

THE BUSINESS 4 KNOW BETTER THAN THE BUYER.

A potential buyer of a business will engage its internal management team and

external lawyers and accountants to review every aspect of the target business. efore this occurs, the seller should have its own team vet the business so that the seller can be prepared to respond to questions and disclose any issues that a buyer may find.

‘‘

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The due diligence phase of a sale transaction is often the time when a buyer decides and or confirms how much it will pay for the target business. usiness owners who employ the above strategies and engage a competent team of advisers will be better prepared to

maximi e the value of the business they have spent a lifetime building. Christal Contini is a member and cochair of the Mergers and Acquisitions Practice Group at McDonald Hopkins LLC. Contact her at 216-430-2020 or ccontini@mcdonaldhopkins.com. Emily Johnson is an associate in the Healthcare and Data Privacy and Cybersecurity Practice groups. Contact her at 312-642-1798 or ejohnson@mcdonaldhopkins.com.

DUE DILIGENCE 2 PROVIDE RESPONSES IN STAGES.

Often, business owners take the approach of responding quickly and openly about requests for information because they believe they run a good business and do not have anything to hide. While this may be true, it is customary and reasonable that a seller provides in stages its responses to questions asked during the due diligence process. The rationale for taking this approach is that a buyer is not obligated to purchase the business until a definitive purchase agreement is executed. Therefore, a seller should only provide high-level information about its business at the beginning of the process and save detailed responses until after the buyer has demonstrated a commitment to buy the business by either preparing a letter of intent or drafting a definitive purchase agreement.

DO NOT OVER 3 DISCLOSE PERSONALLY IDENTIFIABLE INFORMATION.

Only disclose the minimum amount of identifiable information necessary to enable the parties to conduct due diligence. This is particularly true if the due diligence phase will include disclosure of protected health information. If a particular document contains more information than necessary, the document should be redacted to remove any unnecessary information. or example, if employment contracts are disclosed that include the employee’s name, date of birth or Social Security number, and the purpose of reviewing the employment contracts is to review the language of the agreement irrespective of the identity of the individual employee bound by the agreement, then any identifiable information should be redacted from the agreement. ailure to disclose only the minimum information necessary can trigger substantial notification obligations in the event the information is disclosed in

Make the mark.

Serving more than 900 private equity and portfolio companies nationwide From evaluating investments and closing transactions, to mapping out a value-creation plan and exiting successfully, we’re focused on your success. We provide expertise throughout the investment lifecycle. • •

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S20 January 22, 2018

Championship-caliber dealmakers understand the language of business By CHRISTOPHER J. HEWITT and JAYNE E. JUVAN

s LeBron James has certainly witnessed this season with the subpar start by the Cavs, building a team that includes the right players who understand the game on all levels is critical to cultivating a winning ball club. LeBron is regularly touted as being a player with a high basketball IQ, and his comprehensive understanding of the language of basketball Hewitt has led to three NBA championships, three NBA Finals MVP awards and four NBA MVP awards. Similarly, in the context of corporate transactions, making sure that attorneys on the deal team have the capacity to understand the language of

business, or lingua negoti, is critical to accomplishing a client’s objectives. Lawyers who understand business on all levels ensure that corporate transactions close and help their clients accomplish their goals with skillful precision. Conversely, the absence of business-savvy attorneys on a deal team can become an impediment to closing the deal. From the perspective of most business people, many attorneys tend to speak in legalese — the formal and Juvan technical language of law that is often hard to understand. But understanding the language of business means more than having a common vernacular. It also encompasses understanding how business people approach and solve problems.

Understanding the language of business requires an intelligent approach to due diligence in M&A transactions. Legal due diligence should focus not only on identifying issues that need to be solved to close the deal, but also on identifying issues that may inhibit effective integration of the acquired company. The latter is often overlooked and is more likely to drive return on investment. For the former, lawyers need to focus on the diligence items that are most material and, when undesirable facts are discovered, be creative in order to minimize their impact on the closing. The language of business requires listening to clients to gain an understanding of the issues that are most important to them. In some instances, lawyers will negotiate hard for issues that their clients have less concern over, yet neglect or be entirely unaware of other issues that impact

the business. Lawyers who understand their clients’ priorities can assist with advance planning that addresses these issues before the deal closes. The language of business requires experienced judgment. Many business decisions move at the speed of light. Business clients are constantly asking their legal counsel to answer questions or provide guidance based on their experience and judgment, even when the available information may be imperfect. Experienced legal counsel do not shy away from these opportunities and can be a real value-add to the client by providing insight in real time. The language of business requires succinct and clear answers. Businesspeople usually want a yes or no answer. Especially in the fastpaced M&A context, nothing is more frustrating to a businessperson than to ask a question that should require a simple yes or no answer only to

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receive an incomprehensible 10-page memorandum that asks more questions than it answers. Even if the advice requires some explanation, busy executives expect a succinct executive summary that clearly provides an answer, possibly followed by a more robust explanation that the executive can read if she so chooses. The language of business requires legal counsel to understand their clients’ operations. Reviewing websites for most companies can provide a trove of information on their products, customers, core values, business philosophy and almost all aspects of their business. In addition, public company clients have robust disclosure in their federal securities filings about matters that would not be included on their websites. Being equipped with this level of detail can help lawyers work with their clients to identify the most important objectives in a transaction. Understanding the language of business can help source opportunities for clients. The amount of dry powder chasing deals is staggering. With all the cash in private CONTINUED ON NEXT PAGE

Calfee congratulates Blue Point Capital Partners as the 2018 ACG Cleveland Deal Maker Award Recipient in the Private Equity category.

Calfee is honored to represent companies like Blue Point Capital Partners that continue to drive middle-market growth through Mergers & Acquisitions as well as Corporate Finance. Congratulations to all 2018 ACG Cleveland Deal Maker Award honorees! Cleveland | Columbus | Cincinnati | Washington, D.C. | Calfee.com

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equity funds, in family offices and on company balance sheets, together with even a minimal amount of leverage, there is over $10 trillion on the sidelines looking to be deployed. Attorneys who understand their clients’ businesses and the industries in which they operate by keeping abreast of trends, reading trade publications and attending events are the best dealmakers because they can help clients identify proprietary buying opportunities. On the sell side, these attorneys can help clients find strategic buyers to maximi e sales price. Understanding the language of business can help deal professionals of all types get their deals closed. usiness-savvy deal lawyers do not focus on keeping score of deal points won or lost. ather, they focus on whether

‘‘

Business-savvy deal lawyers do not focus on keeping score of deal points won or lost.

a provision makes sense in the context of the transaction and, on the buy side, how the acquired business strategically fits into the client’s existing business. ust as e ron needs to surround himself with teammates who have a high I for the game, lawyers who understand the language of business are critically important when building a championship-caliber deal team. Christopher J. Hewitt is a partner, M&A Group chair and Corporate Governance Group co-chair at Tucker Ellis LLP. Contact him at 216-696-2691 or christopher. hewitt@tuckerellis.com. Jayne E. Juvan is a partner, Private Equity Group chair and Corporate Governance Group co-chair at Tucker Ellis LLP. Contact her at 216-696-5677 or jayne.juvan@tuckerellis.com.

January 22, 2018 S21

Making earnouts work

A carefully constructed arrangement can increase value of business By JAMES D. VAIL and JAMES M. GIANFAGNA

n the sale of a business, an earnout entitles a seller to additional purchase price if the target business meets certain post-closing benchmarks. The benchmarks are usually based on the target’s financial performance generally revenue, gross profit or IT A. arnouts can bridge a difference in the value each party attributes to the target business. Thus, the buyer pays a fixed price at closing, with future additional proceeds if certain Vail benchmarks are met. arnouts are unsecured promises to pay. sually buyers can better finance litigation if a dispute arises. Sellers should recogni e these risks by limiting

the percentage of purchase price represented by the earnout, doing appropriate due diligence and drafting carefully. ere are some issues to consider

earn from the buyer, your investment banker or independently about the buyer’s track record for paying earnouts.

hoose a benchmark appropriate for your transaction, preferably one over which you have control and one that is not easily manipulated by the buyer.

3 4

eep the earnout period short.

ou may face less risk if your Gianfagna deal is part of a rollup. ou may learn how the buyer treated previous sellers. And buyers in a rollup want to avoid a reputation of not paying earnouts because they will have

difficulty finding future sellers.

Measuring post-closing performance is easier if the target business remains a stand-alone division, rather than merging into the buyer’s business.

Owners of the seller who become employees of the buyer post-closing typically have some control over the target’s operation and knowledge of its post-closing performance.

7 8

onsider liquidated damages if the buyer itself may be sold before the earnout period expires.

nsure you get documentation supporting the buyer’s earnout calculation. arnouts can increase a business’s value, but involve risk and must be crafted carefully. James D. Vail is managing partner at Schneider Smeltz Spieth Bell. Contact him at 216-696-4200 or jvail@sssblaw.com. James M. Gianfagna is an associate at Schneider Smeltz Spieth Bell. Contact him at 216-696-4200 or jgianfagna@sssb-law.com.

S22 January 22, 2018

CORPORATE GROWTH&M&A

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Managing risk and liabilities as global M&A grows By JEFF SCHWAB

homson Reuters reported worldwide dealmaking grew 12% in the first quarter of 2017 over the same quarter in 2016, to $777.7 billion. The number of deals in the same time fell 9%. Fewer deals, with larger dollar amounts, result in increased pressure and risks that are more complex. From a risk advisory perspective, earlier involvement is the No. 1 best practice. Making your risk management

and benefits advisers early members of the M&A team allows your team to examine, understand and find solutions for risks in categories that can slow or mitigate a deal. Best practices involve products and services that protect the buyer and seller. Comprehensive dil- Schwab igence, including data analytics, can uncover material issues, such as identifying and managing an undisclosed

self-funded medical plan and finding an insurance arrangement that enables a smooth transaction. We see representations and warranties insurance in almost every significant transaction. Protecting buyers from breaches or inaccuracies in the statements made in the purchase agreement, representations and warranties also benefit sellers through faster deal closing. Other services and products, such as tax liability protection and contingent liabilities, are long-

standing best practices used to protect buyers by transferring risk and covering unique circumstances such as unforeseen taxes, indemnifications and successor liabilities. In addition, environmental insurance, vital in many industries beyond manufacturing, is an area almost always worth review. Beyond standard best-practice insurance products, we see many applications for cyber and privacy liability coverages, and review existing coverage and exposures due to

sensitive and proprietary information. Experience matters when it comes to navigating your deals. Choose risk consultant and employee benefit advisers who understand all areas of M&A, and can help you find the best practice solutions that meet your needs today and grow together with you to tackle the risks around the corner. Jeff Schwab is a senior vice president and director of Private Equity Services at Oswald Cos. Contact him at 216-658-5208.

Enlist a buy-side adviser to gain the advantage By DAVID PEASE

ergers and acquisitions represent a key strategic growth tool for business owners and executives in today’s business environment. Given the desire and popularity for growth by using this approach, opportunities to acquire targets have become increasingly more difficult to source in a competitive climate with a growing number of strategic and financial buyers looking to place available capital. Now

more than ever, investors in businesses in the mid- to large-sized markets are looking to leadership teams to complete acquisitions to help fuel growth and ultimately increase the value of their stock. So, what does the typical company do once it decides that growth through acquisition is in its strategic plan? Of the various ways to find acquisition opportunities, there are two main methods to source and complete a deal. The first method is to identify and contact companies in a targeted

industry. The second method is to look for investment bank deals that are put through an auction process. Both methods can provide success, but have their set of challenges that can be difficult to navigate without the proper experience, resources and guidance. The first method starts by the acquiring company reaching out directly to known companies within a targeted industry. After a company reaches out to known acquisition targets and is unsuccessful in closing a deal,

TMA Ohio Chapter announces 2017 award winner!

Alan R. Lepene, Thompson Hine LLP, winner of the 2017 Lifetime Achievement Award, pictured with Mark Kozel, TMA Ohio Chapter President.

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

it will have to find and identify new acquisition targets. Most companies will find it difficult to uncover and engage additional targets, as well as devote the proper time needed. It tends to be easier to source and have success with this approach — outside of using an adviser — when the buyer is visible and well-known to the market. Sellers tend to view wellknown companies more favorably because of their perceived ability to offer a significant exit. Well-known companies are more attractive to the prospective buyers, which makes the acquisition search process easier. Lesser-known companies do not have this advantage. They will proba- Pease bly have to go through a lengthier, time-consuming process to find and identify acquisition targets beyond the known ones. A buy-side firm can help bring value to the process. Relying on the expertise and experience of a buyside firm’s ability to manage the acquisition search process can be key to the ultimate success of the search. The second method companies use to identify target opportunities is contacting sell-side investment banking firms. Sellside focused investment banking firms put their clients through a competitive auction process. It can be difficult to get a deal done when the buyer enters the auction process to acquire the target because the buyer has to compete against other attractive buyers. Other buyers can be difficult to compete against and may be able to move through the initial diligence process faster, allowing them to offer a higher multiple of earnings. Additionally, this may also lead the prospective buyer to overpay for the target because of the competitive bidding nature of the auction process. In contrast, when a buyer purchases a target in a proprietary deal, the buyer will typically pay a lower multiple of earnings than they would in an auction process. The likelihood of a deal reaching the closing stage, given

the auction process, is significantly diminished. Searching for deals primarily in the auction market, as opposed to using a buy-side adviser who can run a process that results in proprietary opportunities, will increase the buyer’s odds of paying a higher premium for the target company. The ability to speak to attractive targets, when no other prospective buyer is, can be very valuable for the buyer at closing. That ultimately leads to success when measuring the results of your acquisition goals. Because of the challenges presented by the two main methods to source and complete an acquisition, engaging a qualified buy-side adviser as a professional intermediary is usually the most proactive way for a prospective buyer to be successful in acquiring the target company. In these situations, the buyer engages the adviser to execute a comprehensive buy-side process for identifying and facilitating the successful closing of one or more transactions. It is important to understand a buyside firm’s methods and tactics while managing the search process. You will want to know how they will execute a search process that is measurable and backed by the performance statistics of the firm. This will ultimately lead to a successful engagement. Additionally, you may also want to find an adviser who not only is an expert in closing transactions from a deal prospective, but from the tax side as well. If your adviser understands deal structure and how post-transaction taxes can affect the seller, there may be an alternative deal structure that helps increase the amount made by the seller, without increasing the purchase price. Using a buy-side adviser to help with your acquisition growth goals can be a very smart strategic decision that will lead to a successful result. David Pease is vice president at Pease Acquisition Advisors. Contact him at 216-472-4455 or dpease@peaseacq.com.

CORPORATE GROWTH&M&A

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ACG Cleveland 2017-18 Officers and Board of Directors OFFICERS President – Brian Kelly, PwC President Elect – Dale Vernon, Bernstein Executive Vice President, Brand – Brad Kostka, Roop & Co. Strategic Integrated Communication Executive Vice President, Programming & Innovation – John Grabner, Hylant Group Executive Vice President, Resources – Joseph C. Adams, Plante Moran Treasurer – Brian Leonard, Edgewater Capital Partners Secretary – M. Joan McCarthy, MJM Services LLC Immediate Past President – John Saada, Jr., Jones Day

BOARD OF DIRECTORS Kevin Bader, MCM Capital Partners Tricia Balser, CIBC Rudy Bentlage, Chase Business Credit Mark Brandt, Northern Trust Jeffrey Fickes, Vorys Sarah Gregg, Partners Environmental Consulting

NORTHEAST OHIO’S LEADING DEAL MAKERS TO BE HONORED Park Place Technologies

ACG Cleveland, Northeast Ohio’s leading organization for merger and acquisition and corporate growth professionals, will recognize the winners of its 22nd Annual Deal Maker Awards at 5:30 p.m. Thursday, Jan. 25, at the Hilton Cleveland Downtown.

Private Company Category

Park Place Technologies is a global leader in third-party hardware maintenance and service. It provides an alternative to postwarranty storage, server and networking hardware maintenance for IT data centers. Acquisitions have played an important role in Park Place’s rapid growth. Over the past year, the company has made six acquisitions, enabling it to increase its client base, broaden service offerings, improve customer support, streamline operations and expand its geographic reach both domestically and in international markets.

The Deal Maker Awards are a tribute to Northeast Ohio’s preeminent corporate deal makers for their accomplishments in using acquisitions, divestitures, financings and other transactions to fuel sustainable growth. The 2018 winners are:

Blue Point Capital Partners

Parker Hannifin Corp.

Private Equity Category

Deal of the Year

Parker Hannifin is a global manufacturer of motion and control technologies and systems. In 2017, the company completed its largest transaction ever with the acquisition of filtration products manufacturer CLARCOR Inc. It acquired CLARCOR for $4.3 billion in cash, including the assumption of net debt. The strategic transaction creates a combined organization with a comprehensive portfolio of filtration products and technologies. It can offer customers a single, streamlined source for all of their purification and separation needs. The transaction is expected to be accretive to Parker’s earnings, after adjusting for one-time costs.

Blue Point is a private equity firm that partners with entrepreneurs and management teams, investing in and growing lower-middle-market companies. The firm earned a Deal Maker Award because of the torrid pace of transactions and exceptional results it has generated for its investors. Blue Point has made 24 acquisitions, composed of four platforms and 20 add-ons, since November 2015 and has divested four portfolio companies since June 2015.

Karen Tuleta, MPE Partners

Women in Transactions Deal Maker of the Year

Nordson Corp.

Karen Tuleta is a partner with MPE Partners and has been with the firm (including its predecessor, Morgenthaler Private Equity) since 1995. She serves on all transaction deal teams and works closely with the firm’s portfolio companies to help drive their growth. Tuleta has more than 25 years of corporate finance experience and has been involved in more than 60 transactions over the course of her career. She has served on the local and global ACG boards and is currently on the ACG InterGrowth Task Force Committee. Beyond her aptitude for transactions, she has been a helpful mentor to many women in the dealmaking community, helping them to further their careers.

Public Company Category With operations in more than 30 countries, Nordson is the leader in precision dispensing, fluid management and related technologies. Since August 2014, the company has completed 10 strategic acquisitions, which added nearly $300 million in top-line growth, strong EBITDA margins, differentiated technologies and nearly 1,500 employees. In 2017 alone, it made four acquisitions, including ACE Production Technologies, InterSelect GmbH, Plas-Pak Industries Inc. and Vention Medical Advanced Technologies.

Beth Haas, Cyprium Partners Chris Hogan, KeyBanc Capital Markets

January 22, 2018 S23

Sponsors supporting the 2018 Deal Maker Awards include Benesch, Grant Thornton, Huntington, KeyBanc Capital Markets, Oswald Cos. and Roop & Co. Strategic Integrated Communication.

Megan Horvath, Resilience Capital Partners Jonathan Ives, SCG Partners Tom Libeg, Grant Thornton Martin McCormick, Huntington Capital Investment Co.

2018 ACG Events Calendar

For more information and to register, visit www.ACGcleveland.org

Jay Moroscak, Aon Risk Solutions

DATE

EVENT

TIME

LOCATION

Jan. 25

22nd Annual Deal Maker Awards

5:30 p.m.

Hilton Cleveland Downtown

Kevin Murphy, Deloitte

Feb. 6

Regional Networking, East | Scot Lowry, CEO, Fathom

5:30 p.m.

Cedar Creek Grille

Matt Roberts, MelCap Partners

Feb. 15

Regional Networking, Central | A.J. Petitti, President, Petitti Garden Centers

5:30 p.m.

Lockkeepers

Jeff Schwab, Oswald Cos.

Feb. 15

Young ACG Winter Social

TBD

Margaritaville

Peter Shelton, Benesch

Feb. 20

John Gordon, President, Ultimate Air (joint event with FEI)

5:00 p.m.

Union Club

Feb. 22

Regional Networking, West | Mike Malley, President, Malley’s Chocolates

5:30 p.m.

Lakewood Country Club

March 8

Laurel Stauber, Regional Economic Development, NASA

11:45 a.m.

Union Club

March 22

Young ACG Professional Development Program

TBD

May 10

New Leadership in Fortune 500 Companies

4:00 p.m.

Ritz Carlton, Cleveland

May 22

Young ACG Professional Development Program

TBD

June 12

Spring Social

5:30 p.m.

Shoreby Club

Sept. 5-6

Great Lakes Capital Connection

TBD

Marriott Indianapolis Downtown

Sept. 24

14th Annual Golf Outing

TBD

Firestone Country Club

Bertrand Smyers, New Heights Research Cheryl Strom, The Riverside Co. Theodore Wagner, Bober Markey Fedorovich William Watkins, Harris Williams & Co. Thomas Welsh, Calfee Halter & Griswold LLP Rebecca White, Kenan Advantage Group

PWC

PA G E 3 8

J A N U A RY 2 2 - 2 8 , 2 018 |

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

THE LIST

Largest Commercial Property Sales of 2017 Ranked by Price THIS YEAR PROPERTY (1)

PROPERTY TYPE

PRICES/ESTIMATES PRICE QUALIFIER (2)

SQUARE FEET OR # OF UNITS

PRICE PER SQ. FT. OR PER UNIT

DATE

BUYER

SELLER

Key Center (office tower and hotel) 127 Public Square, Cleveland

Office; hotel

$267,500,000 confirmed

1,321,000; 403 units

$126.72/sq. ft.; $248,400/unit (3)

1/31/2017

Millennia Cos.

Columbia Property Trust

Belden Park Crossing 5496 Dressler Road, Canton

Retail

$67,000,000 confirmed

483,984

$138.43

10/13/2017

Stark Enterprises

DDR Corp.

Cleveland Technology Center 1425 Rockwell Ave., Cleveland

Industrial

$60,700,000 approximate

333,215

$182.16

1/25/2017

H5 Data Centers

ByteGrid

Rockwell Automation building 1 Allen Bradley Drive, Mayfield Heights

Office

$52,000,000 confirmed

460,000

$113.04

12/18/2017

Mohr-Mayfield LLC

Norman Rockwell LLC

Park Center Plaza I, II & III 6050-6150 Oak Tree Blvd., Independence

Office

$50,025,000 confirmed

418,999

$119.39

1/5/2017

Joseph Greenberg-led group

Five Mile Capital

Macedonia Commons 8210 Macedonia Commons Blvd., Macedonia

Retail

$45,000,000 confirmed

312,216

$144.13

8/30/2017

DOTRS LLC

DDR Corp.

Southland Crossings 1100 Doral Drive, Boardman

Retail

$41,700,000 confirmed

537,057

$77.65

3/27/2017

Tabani Group

DDR Corp.

Pat Catan's HQ and distribution center 13000 and 12850 Darice Parkway, Strongsville

Industrial

$40,000,000 confirmed

552,078

$72.45

8/15/2017

VEREIT

AIC Ventures

Residence Inn by Marriott Downtown 527 Prospect Ave. E., Cleveland

Hotel

$39,582,000 confirmed

175 units

$226,182.86

11/29/2017

Summit Hotel Properties

Noble Investment Group

Rose Building 2060 E. 9th St., Cleveland

Office

$37,900,000 confirmed

381,176

$99

9/18/2017

Medical Mutual of Ohio

Bentley Forbes Group

Embassy Suites Cleveland, Rockside 5800 Rockside Woods Blvd., Independence

Hotel

$35,420,000 approximate

271 units

$130,701.11

1/19/2017

AHIP REIT

Blackstone

Parker Place (4) 7960 Center St., Mentor

Senior housing and care

$34,144,859 allocated

124 units

$275,361.76

9/7/2017

Columbia Pacific

Hawthorn Retirement Group

UH Avon Rehabilitation Hospital 37900 Chester Road, Avon

Medical

$33,429,000 approximate

54,800

$610.02

6/1/2017

Health Trust of America Inc.

Duke Realty

Riddell 38889 Center Ridge Road, North Ridgeville

Industrial

$30,650,000 confirmed

347,205

$88.28

3/31/2017

LCN Capital Partners

Scannell Properties

Former Bridgeview Crossing development site 200 Granger Road, Independence

Development site

$29,700,000 (5) estimated (5)

3,202,880

$9.27 (5)

11/17/2017

Craig Realty Group

Bridgeview Crossing LLC

Landerbrook Corporate Center I, II and III (6) 5900-5920 Landerbrook Drive, Mayfield Heights

Office

$29,600,000 confirmed

330,000

$89.70

6/29/2017

Shelbourne Global Solutions

Lone Star

6001 Canal Road 6001 Canal Road, Independence

Retail

$28,100,000 approximate

189,156

$148.55

8/3/2017

EPR Properties

Stark Enterprises

May Co. building/2025 Ontario (7) 158 Euclid Ave.; 2025 Ontario, Cleveland

Office

$25,750,000 confirmed

1,006,906

$25.57

8/15/2017

Bedrock Real Estate

Morgan Reed Group

Costco 1409 Golden Gate Blvd., Mayfield Heights

Retail

$25,000,000 approximate

149,716

$166.98

8/25/2017

Costco

MAS WGG LLC, et al.

Shoreline 5455 N. Marginal Road, Cleveland

Apartment

$25,000,000 (8) estimated (8)

138 units

$100,594.39 (8)

7/7/2017

Landmark Cos.

Aspen Square

Chagrin Highlands One and Two 2000, 3000 Auburn Drive, Beachwood

Office

$24,501,000 confirmed

224,988

$108.90

4/7/2017

Shelbourne Global Solutions

Richard E. Jacobs Group

Metropolitan Plaza (6) 22901 Millcreek Blvd., Beachwood

Office

$24,169,000 confirmed

163,105

$148.18

6/29/2017

Shelbourne Global Solutions

Lone Star

Corporate Plaza I and II 6450-6480 Rockside Woods Blvd. S., Independence

Office

$24,000,000 confirmed

226,498

$108.96

12/19/2017

Joseph Greenberg-led group

Five Mile Capital

Mulberry Gardens (4) 395 S. Main St., Munroe Falls

Senior housing and care

$23,681,112 allocated

86 units

$275,361.76

9/7/2017

Columbia Pacific

Hawthorn Retirement Group

Park Hill at Fairlawn (9) 619 Park Hill Drive, Fairlawn

Apartment

$21,666,600 allocated

200 units

$119,000

6/13/2017

Haley Associates

Dan Zarkovacki

Midway Market Square 230 Market Drive, Elyria

Retail

$20,500,000 confirmed

1/17/2017

Midway Market Square Elyria LLC

New Plan of Midway Inc.

Amazon 8685 Independence Parkway, Twinsburg

Industrial

$20,250,000 confirmed

248,000

$81.65

5/10/2017

Omega Industrial Realty

Scannell Properties

Mickey Thompson Tires and Wheels HQ 4651 Prosper Drive, Stow

Industrial

$19,500,000 confirmed

219,765

$88.73

9/29/2017

Monmouth REIT

Geis Cos.

The Gables of Hudson (10) 5400 Darrow Road, Hudson

Senior housing and care

$18,092,326 allocated

112 units

$161,538.63

8/31/2017

Kayne Anderson Real Estate Advisors

Sentio Healthcare Properties

Home Depot 6173 Wilson Mills Road, Highland Heights

Retail

$18,007,200 confirmed

109,000

$165.20

2/21/2017

Spirit Realty Capital

Hauck Holdings Ltd.

Levin Furniture (11) 1801 Nagel Road, Avon

Retail

$17,689,000 confirmed

75,000

$235.85

11/28/2017

VEREIT

RL Ohio Investment LLC; 1801 Nagel Road LLC

Barrington Place 28600 Detroit Road, Westlake

Apartment

$17,000,000 (8) estimated (8)

164 units

$73,170.73 (8)

6/13/2017

APM Management

Harbor Group

Cross Creek 1300 Cross Creek Drive, Brunswick

Apartment

$17,000,000 estimated

312 units

$54,487.18

2/10/2017

Wynn Investments LLC

Niederst Management

RESEARCHED BY CHUCK SODER (CSODER@CRAIN.COM)

Want the full version of this list Ă&#x2018; and every other Crain's list? Become a Data Member: CrainsCleveland.com/data The full digital list includes 54 property sales. Crain's does not independently verify all information and there is no guarantee these listings are complete or accurate. Send all feedback to Chuck Soder: csoder@crain.com.

(1) Source: Real Capital Analytics Inc. RCA is an independent data and analytics firm focused on the investment market for commercial real estate (www.rcanalytics.com). Additional information from Alec Pacella, managing partner, senior vice president, NAI Daus, and Crain's research. (2) Definitions from RCA: A) Approximate - Price is from qualified source (ie, title records or industry publication). B) Allocated - Property was part of a portfolio sale; price is estimated based on gross deal price and market averages. C) Estimated - Based on market averages calculated by RCA unless otherwise noted. Confirmed means the price has been confirmed by RCA or Crain's. (3) Price per square foot/unit based off allocated prices of $167.4 million for Key Tower and $101.1 million for the hotel. (4) Columbia Pacific acquired Parker Place and Mulberry Gardens when it bought Hawthorne Retirement Group. (5) Through Garfield Hope Acquisition LLC, Craig Realty bought the defaulted $29 million loan on the property in 2011 for an undisclosed amount; it received the property in November, following a long legal battle. (6) Landerbrook Corporate Center and Metropolitan Plaza were sold as part of the same deal. (7) These buildings are attached. (8) This price estimate, from Alec Pacella, consists of a mortgage issued in conjunction with the transaction, plus an assumption that the buyer put down roughly 20% in additional capital. (9) Park Hill at Fairlawn and Forest Ridge in Cuyahoga Falls were sold as part of the same deal. (10) Kayne Anderson acquired The Gables of Hudson and Kentridge in Kent when it purchased Sentio Healthcare Properties. (11) part of multi-property sale/leaseback

CRAIN’S CLEVELAND BUSINESS

HIGLEY

CONTINUED FROM PAGE 1

“We don’t move our offices far,” Higley said in a Jan. 16 interview. “We’re within 1,300 feet of our former office and our new one.” Later this year a|m|Higley, as the firm now markets itself, will move its 100 staffers to a new, three-floor headquarters at 3636 Euclid Ave., from its home for the last 50 years at 2926 Chester Ave. The new office building was purchased last Nov. 16 through a related company, Chester Holdings LLC, for $2.1 million from 3636 Euclid LLC, an investor group, according to Cuyahoga County land records. The structure was built in 1999 with Fairport Asset Management, now located elsewhere, as its anchor tenant. With the move, the firm will switch to a high-profile site on the Cleveland Health-Tech Corridor, also home to the Healthline, the bus rapid transit line connecting downtown with University Circle. Ironically, the company will shift to a new location from a similarly high-profile one. Its current home is next to the exit of the Innerbelt at highly trafficked Chester Avenue. “I regularly meet people who say, ‘I know where your company is from seeing your sign,’ ” Higley said. “ ‘What do you do?’ ” Moving to the new office will give the company room to expand. With 22,000 square feet, it’s 47% more than the 15,000-square-foot current building. Jeff Epstein, executive director of MidTown Cleveland, said he is glad the company looked hard to be able to retain its address in the neighborhood. “It’s terrific to see a long-term stakeholder grow and stay here,” Epstein said.

INDIANS

CONTINUED FROM PAGE 1

The ensuing sales surge was followed by another unexpected development — the three-year, $60 million contract the Tribe gave slugger Edwin Encarnacion prior to the 2017 campaign. It was the ideal version of Barren’s business plan — a quality on-field product that generated increased sales, which led to significant payroll increases and an improved roster that helped to produce yet another revenue bump. The Indians, even with several significant free-agent defections this offseason, should have a payroll that approaches $140 million on Opening Day. That would mark a 10% to 12% increase from 2017, when the Tribe’s then-record Opening Day payroll climbed to 17th in MLB. (From 2010 to ’16, the Tribe’s payroll ranked in the low to mid-20s.) In 2017, Forbes estimated that the Indians had $271 million in revenues, which ranked 17th in MLB and put the Tribe within range of the likes of Toronto ($278 million), Detroit ($275 million) and Atlanta ($275 million). A sizable chunk of those totals stem from such leaguewide revenues as MLB’s eight-year, $12.4 billion TV deal with Fox, ESPN and Turner. But the segment the Tribe can control — the local revenues — are even more crucial in a sport without a salary cap. Forbes projects that about 24% of the Indians’ 2017 revenues — $65 million — stemmed from gate receipts. The Indians don’t make such

Later this year, the Albert M. Higley Co. will move 100 employees to a three-floor space at 3636 Euclid Ave. (Stan Bullard)

Gareth Vaughan, Higley president and CEO, said in the Jan. 16 interview that the new space will give the company room to grow its headquarters staff and meet other needs. “The new space will be more collaborative,” Vaughan said. “There will be more opportunities for meetings, we’ll have more conference rooms and space for training.” The new site also will have more parking than Higley’s cramped lot of its own in the parking-dear vicinity of Cleveland State University. Higley has engaged Allegro Realty Advisors to sell the current building, which has a contemporary glass and woodrich interior and open offices for its various departments. One of the things Higley will shed in the move is a link to the past of the construction industry. A tiny conference room next to its entrance once served as a plan room where subcontractors would come to review blueprints to prepare estimates for Higley

jobs. That’s now done online. For Higley’s part, the general contractor gains more than 90% of its construction volume ($200 million in 2017) from relationships rather than bidding for work, Vaughan said. Its workload is up 25% over the last two years, which Vaughan and Higley credit to the groundwork the company put in place with a strategic plan and restructuring during the downturn. That’s where the new Detroit office in that city’s downtown Chrysler Building comes into play. Along with updating internal processes, Higley researched other markets where it could grow. Previously it had a Columbus office, which it closed in 2010 during the economic downturn. Vaughan, who joined Higley in the central Ohio office, said the company decided to try a new market because it feels that its relationships in the state capital, Dayton and Columbus area are strong and can be managed from here.

numbers public, but they have continually stressed that ticket revenue, beginning with a season-ticket base that lingered well below the MLB norm from 2010-16, is the most important part of their business. It’s also the fastest-growing segment, and the reason the Indians are on target to reach their “15 and 5” goals by the target year of 2019.

Where they stand

Quarter plans are the ticket

Partial-season purchases: 8

Barren’s third-floor office at Progressive Field has the “15 and 5” plan illustrated via charts on a wall opposite his desk. The Indians’ MLB rankings in each category are displayed, and the numbers are highlighted in green (signifying a year-over-year growth), yellow (flat) or red (a decrease). There are three ticketing segments — revenue, total tickets sold and dollars per capita (gate receipts divided by paid attendance). Each of the three are broken into seven categories — overall tickets, season tickets, full season tickets (81game purchases), partial season tickets, groups, mini plans and single-game tickets. The Indians’ year-over-year numbers are up in 19 of the 21 total categories, and are down in just one (mini plans in the dollars per capita segment). When it comes to revenue, the most important of the three ticketing segments, the chart is all green. The Indians are 19th in overall ticket revenue, a seven-spot improvement from 2016, and 17th in the big leagues in season-ticket revenue. The Tribe is eighth in partial season-ticket revenue and seventh in

A look at the Indians’ MLB revenue rankings in the following ticketing categories: Overall: 19 Season tickets: 17 Full-season purchases (81 games): 20

Single-game sales: 15 Mini plans: 7 Group sales: 27

money generated by sales of mini-ticket packages (the popular six packs). “It’s a way to try and bring what I call the scoreboard from a business standpoint all the way back to what we’re trying to get done here,” said Barren, who joined the Tribe after 24 years at Cincinnati-based consumer goods giant Procter & Gamble. “Teams that have payrolls within the top 10, within the top half, make the playoffs more than two-thirds as frequently as teams within the bottom half of Major League Baseball,” Barren said. “So we want to put ourselves in position to be as competitive as possible on the field, and this is kind of how we go about that from a planning, execution and tracking standpoint.” Barren and the business team track everything. And they take great pride that the core of the business — their season-ticket holders — is now the 16th-largest group in MLB. The Tribe finished the 2017 season with 12,300 full-season equivalents.

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PA G E 3 9

However, Vaughan said Detroit offers growth opportunities and many similarities to the Cleveland area, from a resurgent downtown to a substantial institutional and industrial market. The new Higley office will be led by Ryan Doyle, a veteran of the Michigan construction market that Higley executives met while sizing up the market with architects, building firms and prospects. Doyle is hiring core staff such as project managers and a superintendent, though Vaughan would not say how many. The goal is to do more than $25 million in construction work annually in a “couple” years, Vaughan said. “It’s a larger market than Cleveland,” Higley said. Over the years, Higley has performed work out of town as its clients ask them to do. It most recently built a service center for Progressive Corp. in Sterling Heights, Mich. Higley also has done work for the Cleveland Cavaliers, constructing the Independence practice facility, and the renovation of the Ritz-Carlton Cleveland. Both are owned by affiliates of Detroit-based billionaire Dan Gilbert. The moves come as the building business rebounds in a big way after the Great Recession. Higley handled that differently than most of its competitors. Vaughan said it used that slower time to review its organization and procedures. Most contractors dealt with the downturn by seeking jobs in unfamiliar product types or cutting prices to win work. Vaughan said Higley did neither, because it knew how much it would lose with existing overhead. However, losses could be unknown from cutting costs too much to win work. “We’ve gone through other downturns before,” Higley said of the way the company navigated the blood-letting in early 2000 in the building

business. One example of change was standardizing scheduling to ensure consistency between different executives. Vaughan said Higley needs top-tier methods to remain competitive with the national construction titans who do similar work. One change was ensuring staffers a voice because they know their area better than anyone else, Vaughan said, as “I can’t be right about everything all the time.” Higley also realigned roles, added to the professionalism of its staff and continued to diversify its workforce; 25% of its staff is female or minority. Vaughan was named president in 2010 to undertake efforts to modernize the company, Higley said. Higley, who retained the chairman role when Vaughan was elected CEO in 2017, said the company has had consistent family leadership, but is not family owned. Its ownership is spread among multiple senior and ranking employees. The actual number of owners was not disclosed. Higley operates in multiple segments of the construction business, from health care, education and institutional work (the Rock and Roll Hall of Fame is a serial client), which make up the largest component of its jobs, though the company would not disclose market areas by percentage. Its projects range from transportation to hospitality projects. “In the beginning, most of our work was industrial because that was how Cleveland was growing,” Higley said. He paused to point to a picture of a farm-sized Collinwood building it constructed for a defense contractor in World War II. The structure was built of timber. Steel was dedicated to the war effort and was suspended for private building. “We’ve changed as the city has evolved,” Higley said, “from industrial to health care and other industries.”

(For accounting purposes, four 20game purchases is registered as one FSE, since the club has 81 home games to sell.) As of the second week of January, the Indians had already topped 13,100 FSEs for 2018. That marked a 51% gain from 2016 (8,700, which ranked 23rd in MLB) and was 7,100 ahead of the franchise’s 2012 total of 6,000. The most significant growth, which is reflected in the revenue rankings, is in the 20-game, or quarter-season, plans. Indians vice president of sales and service Tim Salcer said 6,000 of the franchise’s 8,800 season-ticket accounts are the result of 20-game plans. The Indians had 3,500 total season-ticket accounts as recently as 2016. “The growth has been strong,” Salcer said. The Tribe VP said more than 80% of the club’s new season-ticket purchases are 20-game plans. That group gives the Indians a much-needed cushion during less-attended games in the spring months, and it fueled a 29% overall attendance gain that was the largest in MLB last season. It’s the spring months that Barren attributed to the lone category in which the Indians weren’t in the top 20 in ticket revenue — group sales. The Tribe is 27th in group revenue and 28th in group sales. From his perspective, those are numbers that illustrate the significant work that still needs to be done for a franchise that believes it’s batting above its weight class in a field tilted toward economic heavyweights in New York (the Yankees), Los Ange-

les (the Dodgers), Boston (the Red Sox) and Chicago (the Cubs). “Getting to the middle of the pack (in MLB revenue) is absolutely stretching, and it is achievable,” Barren said. “We’re pleased that we’re able to crack into the teens on the metrics that matter on a few fronts, but we have plenty of room to grow and continue to develop and execute plans to get us in that neighborhood of 15th by 2019.” Getting to the middle doesn’t guarantee anything, of course. The 2017 World Series was won by the Houston Astros, who opened the season with the 18th-largest payroll — one spot behind the Indians. But Barren and the business team, because of their faith in a baseball operation led by president Chris Antonetti, general manager Mike Chernoff and manager Terry Francona, like their odds, as long as those who contribute to the office charts can hold up their end of the bargain. “What we’re really after is putting ourselves in a position to be competitive over the long haul as best we can from a business perspective,” Barren said. Salcer, who joined the Tribe in October 2014 (nine months after Barren), also has a background in consumer goods. He said his boss’ “office scoreboard” is inescapable. It’s the biz team’s version of the stock ticker that was so prevalent during Barren’s days at P&G. “It’s ingrained in our heads what we want to do,” Salcer said. “Fifteen and 5 is the battle cry for our business team. Like anything, when you have a really difficult challenge early on, it’s amazing how people have come to believe that’s possible.”

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CRAIN’S CLEVELAND BUSINESS

AKRON

Akron Family eatery where city’s movers and shakers meet By DAN SHINGLER dshingler@crain.com @DanShingler

The center of power in Akron, Ohio, might not be City Hall — it might not even be downtown. You could make a very good case that it lies about half a mile northwest of downtown, at 250 W. Market St. That’s the address of the Akron Family Restaurant, where a large percentage of the city’s most powerful and influential people regularly gather for breakfast and, perhaps less often, lunch. “The list goes on and on,” said Nick Corpas, who runs the restaurant and is working to take over the spot that his father, Dean, opened in 1986. Most days, you’ll find Nick or his mother, Mary, running the place. Most recently, Democratic gubernatorial candidate Richard Cordray kicked off his campaign at the restaurant, which was largely reported with nonchalance, as though the eatery would be the most natural place in the world to start such a major undertaking. That’s probably because journalists know it as a meeting place for movers and shakers. It’s difficult to cover the city for long without being taken there or asked to meet an executive or government official there for an interview. Often, you’ll meet more than the person you’re with, too, since guests frequently visit from table to table on their way out. “Akron Family is the spot to interact with a perfect cross-section of politics, business, nonprofit and education. I think it’s because of its unassuming nature, perhaps like the Diamond Grille, that it doesn’t get overwhelmed, and that’s what makes it perfect,” said Ian Schwarber, chief strategy officer for Akron-based DriveIT, a software training company, and former resource director of the University of Akron’s EXL Center. It’s not just Democrats who hang out there. You might, for example, see Don Taylor, president of Fairlawn-based Welty Building Co. and the husband of Republican Lt. Gov. and gubernatorial candidate Mary Taylor. Corpas — who said he’s seen the parade of power go through the restaurant since he began helping his parents there when he was just a kid — can rattle off a long list of wellknown regulars. Akron mayor Don Horrigan comes in often, as does former mayor Don Plusquellic. Longtime Akron politician and former city service director Ray Kapper is also a regular; he’s got his own table toward the back of the house. The hosts know not to seat anyone else there, Corpas said. What if someone sits there on their own? “I’ll politely ask you to move,” Corpas said, with the same broad smile he uses to gently move guests to another table. Before the current crop of politicians, there was the late Summit County executive Russ Pry, who was a regular, Corpas said. Current county executive Ilene Shapiro also has

been known to frequent the place. From the world of music, rocker Chrissie Hynde has been in a few times. A vegetarian, she is fond of salads or maybe a Corpas grilled cheese sandwich, Corpas said. And from the sports universe, Akron Family has served perhaps the brightest star of all. “LeBron (James) came in quite a bit when he played at St. V,” said Corpas, himself a graduate of St. Vincent-St. Mary High School, which is an easy walk away. So how does he do it? Corpas said he doesn’t really know exactly why the rich, famous and powerful choose his bacon and eggs over everyone else’s, though, he pointed out, “The food is really good!” He said he hasn’t done anything to entice powerful folks to visit and isn’t aware that his father, who was not a politician or corporate executive, did either. The food is a draw, he said, and most everyone who eats there raves about the bacon, eggs Benedict and other house specialties. But Corpas thinks there’s another factor driving business. “They come to see the staff,” he said, adding that he prides himself on low turnover when it comes to servers and high turnover when it comes to fresh cups of coffee. Most of the servers have worked there more than 10 years, and many of the cooks are 20-year veterans. The staff knows most customers by name, what they want for breakfast and how they take their coffee, Corpas said proudly. Whatever the reason for Akron Family’s magnetism, it’s known as the place to be if you want to network in the Rubber City. Schwarber said he’s long told students and emerging entrepreneurs that it’s the place to go. “I used to tell my students at EXL it costs $25 with tip to take someone to breakfast there. I would advise them to put aside $200 and set up two breakfast meetings for four weeks. At the end of that month, you will have — if you network — had the chance to meet the leaders of business, banking, philanthropy, education, health care and politics. “Where else is that remotely possible, for that minimal cost? Nowhere,” Schwarber said. On the site of a former auto dealership, Akron Family has a large parking lot, and inside it’s got seating for 300 people. That includes private rooms that were added in recent years to accommodate meetings, along with a new kitchen last year. For his part, Corpas said he’s more than grateful that so many important people come in — just as he’s grateful for all of his regular customers, who on any given morning make up about three quarters of his guests. “For me, it’s an honor to have all these people come in,” he said.

NüCamp RV CEO Scott Hubble shows off one of the company’s trailers at the firm’s Sugarcreek factory. The company has grown from eight employees in 2010 to more than 200 today. (Dan Shingler)

Big growth comes from nüCamp’s little trailers By DAN SHINGLER dshingler@crain.com @DanShingler

You can get way more than you think into those tiny, teardrop-shaped camping trailers you might have seen going down the highway in the slipstream of some couple’s SUV or Honda Accord. Forget the fishing rods and rain gear — think in terms of jobs and business. NüCamp RV in Sugarcreek, south of Canton, has pulled 225 jobs and $50 million in annual sales from the over-the-road version of the tiny house and some larger trailers it makes. The company says it’s churning out about 4,300 units a year; almost all of them are made because a customer has ordered it. “We don’t make them and sell them. We sell them then make them,” CEO Scott Hubble explained. Hubble was a distributor of the teardrop trailers before he joined the company in 2010. That’s when Hubble said he and nüCamp owner Joe Mullet drove to Elkhart, Ind., and acquired the U.S. rights to make and distribute the trailers — which are a Danish design — from Thor Industries. At the time, nüCamp had eight employees working in a 12,000-square-foot shop in Sugarcreek. Today, the vastly larger crew buzzes about a new 150,000-square-foot factory. Hubble said nüCamp built the plant, originally at 90,000 square feet in 2014, expanded it by 60,000 last year and will probably do a similar expansion next year. Apparently, America’s gone camping. NüCamp seems to have hit the market at just the right time with just the right product. When it began making the teardrop trailer in 2010 two big things were happening — gas prices were dropping from about $4.50 a gallon and the recession was

receding. Those two trends have continued, as have things such as the growth of empty nesters, trends toward minimization and an increasing number of people wanting to enjoy outdoor activities. If you haven’t seen a nüCamp on a nearby interstate, that might be because sales are hotter in other states, particularly states with a lot of retirees or where outdoor activities are a bigger part of the culture. “We do really well out West, especially in the Pacific Northwest, but also in places like Arizona,” Hubble said. To some degree, he’s riding the same trend toward smallness that has fueled a bit of a tiny house craze in the U.S., and Hubble hits all the tiny house conventions he can every year, he said. While millennials seeking to eschew the materialistic values of the tour-bus camper crowd are an important market, a lot of single women like the small trailers, too, and then there are older couples — nüCamp’s biggest market. “Empty nesters,” Hubble said. You’ll likely see more of the trailers, along with other RVs, on local roads in the future, too, said Tim Nicholson, sales manager at General RV in North Canton. Nicholson said older couples like that smaller trailers take less effort to hitch and unhitch. “The demand for smaller, lightweight, high-end trailers has grown substantially the last few years — (trailers) that can be towed by almost every SUV,” Nicholson said. NüCamp’s smallest unit, which it calls the T@G, can even be towed by a Honda Accord, Hubble said. The unit weighs only 990 pounds. It’s only 5 feet wide by 9 feet long, not including the trailer tongue. But inside are a table and booth that fold to make a queen-sized bed, a 19-inch TV, sink, stove and refrigerator. The trailer has air conditioning and high-efficiency heating that pumps warm fluid through the walls, Hubble said.

But small does not mean cheap, and Hubble makes no bones that the company emphasizes quality over the lowest price on the market. “I’ve got about 170 guys who would want no part of that,” Hubble said, referring to his mostly Amish skilled production workers. So cabinetry is solid wood and made in-house. Finishes are high tech. Materials are expensive aluminum for the shell and composites for floors. And customers can even special order their own color schemes. The company expects to sell about 1,800 of the T@G models this year, with retail prices of between $11,900 and $16,000, Hubble said. That would be up from about 1,675 units in 2017 but in line with the growth of sales since nüCamp introduced the trailer in 2011. A larger trailer, called the T@B, sells for between $19,000 and $29,000, and Hubble said he expects to sell about nearly as many of those as he does the smaller models. Plus, the company has a new line of truck campers that ride in the beds of pickup trucks and teardrops meant to haul cargo. Hubble figured he’s got a leg up on much of his competition. For one thing, he’s the big player in the tiny trailer business these days and competes mostly against much smaller shops that make 50 to 250 units a year, he said. He’s also got a great workforce, he said. Taking advantage of highly skilled Amish labor in Ohio has been touted as an economic development strategy by folks like Ohio State economist Edward “Ned” Hill. Hill said the Amish are very successful in modern manufacturing plants, and rising land prices in Ohio and a scarcity of good farming acreage has meant more Amish workers have gone into the trade in recent years. Their workmanship also helps in another way, Hubble said. He’s able to offer a longer warranty than most of his competitors and still have warranty-claim costs that are about a fifth of the industry average.

CRAIN’S CLEVELAND BUSINESS

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PA G E 41

AKRON

Cycling studio trend pedals way to Summit By KATHLEEN FOLKERTH clbfreelancer@crain.com

Indoor cycling studios, which have become a staple in big cities, are starting to emerge in the Akron area as the first national franchise debuted recently in Hudson. CycleBar Hudson opened Jan. 10 with a two-week schedule of free sample rides. During a noon class on the first day, about 20 participants took a spin as instructor Megan Duffy shouted instructions and encouragement from her perch. “There’s a lot of excitement about something that is typically in a big city coming to a smaller town,” Duffy said post-workout. The studio is a franchise owned by Jackson Township couple John and Kelly Wood, who were looking to open a fitness business after working as pharmaceutical sales reps for many years. CycleBar Hudson, in the First and Main shopping district, joins Shifting Gears, also in Hudson, and Jackie’s Gym in Fairlawn as small gyms that specialize in indoor cycling classes. CycleBar is dedicated to cycling, while Shifting Gears and Jackie’s specialize in cycling but also offer personal training or other classes. Indoor cycling as it’s known today got its start in 1991 as Spinning, a name that is now trademarked. While classes have been offered at local gyms for two decades, contemporary indoor studios amp up the experience with video and lights, as well as technology that shows participants how effective their workout is. John Wood said he heard about CycleBar from a neighbor who was making the trek to Beachwood for

CycleBar, the latest cycling studio in Summit County, opened in January in Hudson. (Contributed photo)

classes. He visited that location and went to the company’s headquarters in Cincinnati to learn more about becoming a franchisee. “I took two classes and was immediately hooked,” he said. Classes include choreographed movement and exercises accompanied by high-energy music. “70% of class is taught out of the seat,” Wood said. “We move you around, up and down with the class.” The Hudson studio, which Wood said is about the 125th CycleBar to open nationally, has 46 bikes in its “theater,” which is equipped with two large monitors that can show the class’ stats. Wood said the new location features the special upscale touches that have become a hallmark of the brand. CycleBar provides cycling

shoes, towels, bottled water, fresh fruit and even accessories like hair ties. Other national names in cycling studios are SoulCycle and Flywheel, but neither has entered the Ohio market yet. Wood declined to say what he invested to become a franchisee but noted that the company states a range of $750,000 to $1 million to open under its brand. He has projected that the studio will generate a profit within a year. The Woods knew Northeast Ohio and its demographics well through their work as sales reps and jumped on the Hudson site when retailer Nicky Nicole went out of business there a year ago. With 80% to 85% of indoor cycling’s market professional females

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ages 25 to 50, Wood felt there was no cated indoor cycling gym in Akron. Banayan, a Bath resident, said he met better place to open. Wood said studios like CycleBar Spinning co-founder Johnny Goldare the workout of choice for 54 mil- berg more than 20 years ago and first lion Americans, and the Association brought the fitness endeavor to the of Fitness Studios (AFS) trade group area when he worked for the Shaw said the number of fitness studios is Jewish Community Center in West continuing to increase. AFS defines Akron. His current gym, at 3029 fitness studios as smaller gyms and Smith Road, is his second and brick-and-mortar sites of up to 5,000 opened in 2012. Banayan said indoor cycling is apsquare feet. “Anyone that doesn’t consider pealing because it’s something anythemselves a big-box gym,” said Josh one can do. His students range from Leve, founder and CEO of the Oak- 18 to 82, he said. “It’s a very simple activity — you land, Calif.-based organization. Leve said indoor cycling facilities pedal,” he said. “You can burn a high are part of that trend, along with Pi- amount of calories in a short amount lates and yoga, boxing and personal of time.” His students use heart monitors training studios, he said. “It’s actually the largest and fastest during their workouts, and his class growing segment of the fitness indus- stats are also collected wirelessly and try,” Leve said. “The market is so mas- shared on a big screen in the studio. “It gives me a better management sive that we like to say it’s larger than all the YMCAs, JCCs and fitness cen- of the class,” Banayan said. “I know what everyone is doing at any given ters combined.” His organization attributes many time. It gives the student a lot of inthings for growth, he said, such as the formation in real time.” Tom Arcoria and his wife, Cindy, easy availability of retail storefronts and the interest of millennials, who opened Switching Gears just nine see fitness as part of their social lives. months ago in Hudson. “I’ve been to New York and saw A recently released AFS trend report notes the increased use of tech- some places there and thought that nology in fitness. Boutique studios would be fun for the area,” said Arcotout the use of metrics and emailed ria, a Hudson resident who already reports that can help participants see was CEO at the Sagamore Compawhat they accomplished during their nies, a landscape company that resides in the building at 2001 Barlow workouts. “It’s the gamification side of Road. Switching Gears has 24 bikes and things,” Leve said. “People can be competitive. From the tech side, offers about 21 classes a week. Arcoria said he believes as more that’s worked out well because as technology begins to grow, consum- studios open in the area, awareness er devices are telling them more and of indoor cycling will grow. “I’m hoping there will be an explomore about what our bodies are dosion like CrossFit,” he said. “I’m just ing.” Jackie’s Gym owner Jackie Ban- hoping more people work out and feel good μabout themselves. ayan said his gym CRAIN'S was the CLEVELAND first dedi- BUSINESS JANUARY 22, 2018 μ PAGE 41

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Daniel Andrew has been promoted to Senior Vice President of Sales for Corcentric, a provider of cloud-based financial process automation solutions. In this role, he is responsible for overseeing the sales team, helping them formulate customer solutions and encouraging alignment with corporate sales goals and objectives. Andrew works with some of the country’s biggest companies to configure innovative payables solutions that can deliver ROI in the first year.

Matt has joined Korn Ferry’s Global Industrial Practice as Senior Client Partner. He will lead the firm’s efforts in Northeast Ohio. Prior to joining Korn Ferry, he was a partner at another executive search firm and was previously a partner with Gallup Consulting. His focus is helping private equity and public multinational clients acquire and develop their talent. Matt holds degrees from The Ohio State University, Colorado State University and the University of Southern Mississippi.

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D’Amico Wawrin & Company CPAs Michelle D’Amico and Valerie Wawrin have joined forces to form D’Amico Wawrin & Company CPAs (DWC), a niche accounting firm that focuses on audits of employee benefit plans (EBPs) and related consulting. DWC is based out of Akron and services EBP clients throughout the United States. The firm performs all types of EBP audits including profit sharing, health and welfare, 401(k), pension, 403(b), and ESOP plans. Consulting includes areas such as technical advice and audit preparation assistance. DWC also provides EBP audit and consulting expertise to other public accounting firms in need of outsourced staff, quality control reviews and/or training. Michelle and Valerie each have over 20 years of audit and consulting experience specializing in EBPs. Prior to founding DWC, Michelle and Valerie were leaders in the Northeast Ohio EBP practice at SS&G and then BDO USA, the fifth largest international accounting firm. For more information, visit www.damicowawrin.com.

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Kohrman Jackson & Krantz is pleased to announce the promotion of Laura Englehart to partner, serving clients with a variety of corporate law, real estate financing, government relations and other services. Much of Laura’s practice is focused on regional economic development, providing leadership and contract negotiation to the revitalization of MidTown’s Victory Center, the 2016 Republican National Convention and other major projects. Laura is a graduate of the Cleveland-Marshall College of Law.

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Meyers Roman is pleased to announce that Anne C. Fantelli has been promoted to a partner in the firm. Anne focuses her practice in the areas of domestic relations and juvenile custody matters. She has extensive experience in drafting Prenuptial Agreements as well. Anne earned her bachelor’s degree from Saint Mary’s College, master’s degree in public policy from H. John Heinz School of Public Policy at Carnegie Mellon, and her law degree from Cleveland-Marshall College of Law.

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Kohrman Jackson & Krantz is pleased to welcome James Sammon as a partner in the firm’s litigation group. Jim has built a career as a litigation generalist in Cleveland over the last 25 years, serving public and private companies as well as individuals. He is long-time president of the Michael D. Symon Foundation, co-chairing the celebrity chef’s Chefs Gala for Autism Speaks, and is president of the Irish American Civic Society. Jim is a graduate of Cleveland-Marshall College of Law.

The Direct Companies of Direct Recruiters and Direct Consulting Associates Jordan Freireich has been promoted to Director of Finance and Operations. Joining the Direct Companies in 2013, he previously served as IT Manager. In this role, Jordan managed, maintained, and implemented company technology initiatives. As Director of Finance and Operations, Jordan will be responsible for establishing financial policies, procedures, controls, financial reporting systems, and managing vendor relationships.

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Suzanne DeGaetano Co-owner and manager, Mac’s Backs-Books on Coventry Northeast Ohio has a strong literary community. There’s a wealth of independent bookstores, strong library systems including the Cleveland Public Library and the Cuyahoga County Public Library, and groundbreaking publishers like the Cleveland State University Poetry Center, said Suzanne DeGaetano, co-owner and manager of Mac’s Backs-Books on Coventry and board member of Literary Cleveland. “It’s very vibrant,” she said. DeGaetano has been with Mac’s Backs since 1982. Co-owner James McSherry founded the store in 1978, and it had locations in spots including Kent and Chagrin Falls before landing in Cleveland Heights. The shop has been in its current location since 1993 and is celebrating its 40th anniversary this year. — Rachel Abbey McCafferty

Five things Local writers she’d recommend DeGaetano listed three authors whose new books she’s excited for: Maj Ragain (poetry), Thrity Umrigar (fiction) and J. Mark Souther (nonfiction).

When she fell in love with reading As a little kid. Her family knew if they couldn’t find her, she was on the old steam radiator behind the couch with a book.

Hobbies She likes to bike and hike, but for years, her main hobby was actually work, as she moonlighted as a bartender at the Barking Spider Tavern.

Where she takes out-of-towners University Circle

Approach to life DeGaetano said she tries to live with kindness, because you never know what people are carrying.

Lunch spot Tommy’s Restaurant 1824 Coventry Road Cleveland Heights

The meal One had smoked tomato soup with water, and one had a tossed salad with tea, plus an order of fries to share

The vibe Tommy’s is a vegan and vegetarian friendly restaurant and a Northeast Ohio institution with plenty of seating for small groups.

The bill $20.09 with tip

Where do you see the bookstore in another 10 years? I think independent book-selling has a good future, and in 10 years I expect Mac’s Backs to be thriving with a committed and energetic staff inspired as we always have been by good books and engaging customers. I think we are living in a golden age for literature, and the bonds between writers, publishers, bookstores and readers are stronger than ever. How have bookstores adapted to a more digital world? Bookstores have adapted to a more digital world by creating a welcoming space for readers to browse books. People want to have an experience when they shop, and neighborhood bookstores provide that. It’s a unique cultural experience, like going to a gallery or museum. People don’t want to lose the personal connections and customers have supported all kinds of independent retailing as a result. Buying locally and being conscious about how shopping affects community is a philosophy and lifestyle. What role does a bookstore like Mac’s Backs play in the community? Mac’s Backs and independent bookstores are cultural centers in their communities and neighborhoods. People often need a spontaneous and informal place to discuss what’s going on in the world, and we have lots of conversations with customers that arise from current events. Last January, most of our staff went to the Women’s March, and there was lots of information shared and stories exchanged both before and after. Two of our staffers started a Feminist Book Club as a result of all the energy around that, and this has become one of our most popular regular events. Books naturally spark thoughtful discussion. Bookstores are a place we turn to when we need to make sense of our world. We also sponsor readings, discussions and a range of book and author events that bring people together, and we also offer free meeting space for groups or organizations that need a place to gather. Mac’s Backs hosts a lot of events. Has that always been part of the store’s mission? Mac’s has always hosted events. Our poetry reading with open mic on the second Wednesday each month has been ongoing since 1984 and,

though I don’t know for sure, would probably rank it as one of the longest-running series in the country. Book events are popular because it gives authors a chance to talk about or read from their work, and it gives readers a chance to interact with the writers and make that connection. For instance, this year I am looking forward to hosting David Beach from Green City Blue Lake and Joel Wainwright from Columbus. They will be discussing climate change. I am also eager to talk about a book that will be reissued on Jan. 30. “The Darkest Child” by Delores Phillips first came out in 2004, but the author, a Cleveland psychiatric nurse, died a few years ago. It’s a novel about a large African-American family in the south on the cusp of the civil rights era, and it deserves a wide audience. The author’s sister will visit to talk about it. Tell me about the book clubs. How did those come to be? The book clubs at Mac’s Backs have grown organically throughout the years. Our longest book club has been going for over 20 years and primarily reads recent literary fiction. The Feminist Book Club and the Science Fiction Book Club are the babies on the block — we just started those last year. We also host Cleveland Rights Readers — this is a group that discusses fiction and non-fiction related to human rights around the world. The Cleveland Vegan Society also meets at the bookstore to discuss vegan politics and culture. What’s your favorite part of working in a bookstore? There are several things that I love most about running the bookstore. One is the customers that walk in the door. Our business district on Coventry Road in Cleveland Heights is a diverse crossroads. There are those that make the neighborhood their home, students that live in the apartments, visitors from all over the region and international travelers. It has been my greatest honor to interact with them over the years. I am privileged to work with a dedicated, committed and loyal staff who are daily collaborators. And of course the books. I was an avid reader since I was a small child, and my parents nurtured that love with frequent visits to the library. My life has been impossibly deepened and enriched from a lifetime of reading.

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