MiBiz Crystal Ball 2015 by MiBiz

INTERVIEWS WITH: Gov. Rick Snyder • Kris Larson, Downtown Grand Rapids Inc. • Meredith Bronk, Open Systems Technologies • Pat Lennon, Honigman • Sen. Debbie Stabenow • U.S. Rep. Justin Amash • U.S. Rep. Fred Upton • U.S. Rep. Bill Huizenga • Dale Nesbary, Muskegon Community College • Kara Wood, City of Grand Rapids • Frank Stanek, Owen-Ames-Kimball Co. • Nancy Boese, Michigan Small Business Development Center • Bill Manns, Mercy Health Saint Mary’s • Tom Haas, Grand Valley State University • Doug Wagner, Warner Norcross & Judd • Carlos Sanchez, Hispanic Center of West Michigan • Raquel Salas, Avanti Law Group • Kathy Crosby, Goodwill of Greater Grand Rapids • Yang Kim, Peopledesign • Diane Maher, Fox Motors • Mark Miller, Cascade Engineering • Dan Scripps, Michigan Energy Innovation Business Council • Eddie Tadlock, SMG • Mike Guswiler, West Michigan Sports Commission • Jason Marvin, Plante Moran • Tim Mroz, The Right Place • Mike Preston, Micron Manufacturing • Andrew Samrick, Paragon Die and Engineering • Doug Saunders, Flexco Grand Rapids • Dave Warner, Next Level Manufacturing • Norm Brady, Associated Builders and Contractors Inc. • Brian Campbell, First National Bank of Michigan • Mike Houseman, Wolverine Building Group • John Kuiper, Colliers International West Michigan • Arnie Mikon, TowerPinkster • Mark Miller, Nederveld • Pete Michell, Rockford Construction Company • Todd Oosting, CD Barnes Construction • Tracy Larsen, Barnes & Thornburg • Jonathan Siebers, Smith Haughey Rice & Roegge • John Kerschen, Charter Capital Partners • Brandon Maat, Rua & Associates • Scott Norman, Priority Health • Kelley Root, Blue Cross Blue Shield of Michigan • Bob Hughes, Advantage Benefits Group • Jim Kenyon, Hylant Group • Garry Boyd, Barfly Ventures • Walter Catton, Coppercraft Distillery • Joe Infante, Miller Canfield Paddock & Stone • Jason Spaulding, Brewery Vivant • Mike Stevens, Founders Brewing Company • Tim Suprise, Arcadia Brewing Company • Max Trierweiler, The Mitten Brewing Company • Paul Vander Heide, Vander Mill Ciders • Brett VanderKamp, New Holland Brewing Company • Ben Zainea, Mika, Meyers, Beckett & Jones • Matt Miller, Blue Water Partners • Kevin Hirdes, NuVescor Group • Peter Roth, Varnum • Jeff Ott, Warner Norcross & Judd • Birgit Klohs, The Right Place • Ron Kitchens, Southwest Michigan First • Jennifer Owens, Lakeshore Advantage • Mike Finney, Michigan Economic Development Corp. • Rick Baker, Grand Rapids Area Chamber of Commerce • Cindy Larsen, Muskegon Lakeshore Chamber of Commerce • Jane Clark, Michigan West Coast Chamber of Commerce • Marti Lolli, Priority Health • Kirk Roy, Blue Cross Blue Shield of Michigan • John Arendshorst, Varnum • John Dunn, Western Michigan University • Mitch Stapley, ClearArc Capital Inc. • Paul Traub, Federal Reserve Bank of Chicago • Brian Long, Grand Valley State University • Ben Wickstrom, Erhardt Construction • George Erickcek, Upjohn Institute • Paul Isely, Grand Valley State University • David Smith, The Employers’ Association • Mike Wall, IHS Automotive • Melissa Anderson, IRN • Mike Dunlap, Michael A. Dunlap & Associates • Tom Reardon, BIFMA • Diana Sieger, Grand Rapids Community Foundation • David Ramaker, Chemical Bank • John Wheeler, Orion Construction • Steven Ender, Grand Rapids Community College • Carl Erickson, Atomic Object • Rob Fowler, Small Business Association of Michigan SPECIAL YEAR-END •David ISSUE Staples, DECEMBER 22, 2014 VOL. 27 Olivarez, • NO. 5 Aquinas College • Marilyn Schlack, Kalamazoo Valley Community College • Gov. Rick • Dennis Eidson, SpartanNash SpartanNash • Juan Snyder • Kris Larson, Downtown Grand Rapids Inc. • Meredith Bronk, Open Systems Technologies • Pat Lennon, Honigman • Sen. Debbie Stabenow • U.S. Rep. Justin Amash • U.S. Rep. Fred Upton • U.S. Rep. Bill Huizenga • Dale Nesbary, Muskegon Community College • Kara Wood, City of Grand Rapids • Frank Stanek, Owen-Ames-Kimball Co. • Nancy Boese, Michigan Small Business Development Center • Bill Manns, Mercy Health Saint Mary’s • Tom Haas, Grand Valley State University • Doug Wagner, Warner Norcross & Judd • Carlos Sanchez, Hispanic Center of West Michigan • Raquel Salas, Avanti Law Group • Kathy Crosby, Goodwill of Greater Grand Rapids • Yang Kim, Peopledesign • Diane Maher, Fox Motors • Mark Miller, Cascade Engineering • Dan Scripps, Michigan Energy Innovation Business Council • Eddie Tadlock, SMG • Mike Guswiler, West Michigan Sports Commission • Jason Marvin, Plante Moran • Tim Mroz, The Right Place • Mike Preston, Micron Manufacturing • Andrew Samrick, Paragon Die and Engineering • Doug Saunders, Flexco Grand Rapids • Dave Warner, Next Level Manufacturing • Norm Brady, Associated Builders and Contractors Inc. • Brian Campbell, First National Bank of Michigan • Mike Houseman, Wolverine Building Group • John Kuiper, Colliers International West Michigan • Arnie Mikon, TowerPinkster • Mark Miller, Nederveld • Pete Michell, Rockford Construction Company • Todd Oosting, CD Barnes Construction • Tracy Larsen, Barnes & Thornburg • Jonathan Siebers, Smith Haughey Rice & Roegge • John Kerschen, Charter Capital Partners • Brandon Maat, Rua & Associates • Scott Norman, Priority Health • Kelley Root, Blue Cross Blue Shield of Michigan • Bob Hughes, Advantage Benefits Group • Jim Kenyon, Hylant Group • Garry Boyd, Barfly Ventures • Walter Catton, Coppercraft Distillery • Joe Infante, Miller Canfield Paddock & Stone • Jason Spaulding, Brewery Vivant • Mike Stevens, Founders Brewing Company • Tim Suprise, Arcadia Brewing Company • Max Trierweiler, The Mitten Brewing Company • Paul Vander Heide, Vander Mill Ciders • Brett VanderKamp, New Holland Brewing Company • Ben Zainea, Mika, Meyers, Beckett & Jones • Matt Miller, Blue Water Partners • Kevin Hirdes, NuVescor Group • Peter Roth, Varnum • Jeff Ott, Warner Norcross & Judd • Birgit Klohs, The Right Place • Ron Kitchens, Southwest Michigan First • Jennifer Owens, Lakeshore Advantage • Mike Finney, Michigan Economic Development Corp. • Rick Baker, Grand Rapids Area Chamber of Commerce • Cindy Larsen, Muskegon Lakeshore Chamber of Commerce • Jane Clark, Michigan West Coast Chamber of Commerce • Marti Lolli, Priority Health • Kirk Roy, Blue Cross Blue Shield of Michigan • John Arendshorst, Varnum • John Dunn, Western Michigan University • Mitch Stapley, ClearArc Capital Inc. • Paul Traub, Federal Reserve Bank of Chicago • Brian Long, Grand Valley State University • Ben Wickstrom, Erhardt Construction • George Erickcek, Upjohn Institute • Paul Isely, Grand Valley State University • David Smith, The Employers’ Association • Mike Wall, IHS Automotive • Melissa Anderson, IRN • Mike Dunlap, Michael A. Dunlap & Associates • Tom Reardon, BIFMA • Diana Sieger, Grand Rapids Community Foundation • David Ramaker, Chemical Bank • John Wheeler, Orion Construction • Steven Ender, Grand Rapids Community College • Carl Erickson, Atomic Object • Rob Fowler, Small Business Association of Michigan • Dennis Eidson, SpartanNash •David Staples, SpartanNash • Juan Olivarez, Aquinas College • Marilyn Schlack, Kalamazoo Valley Community College • Gov. Rick Snyder • Kris Larson, Downtown Grand Rapids Inc. • Meredith Bronk, Open Systems Technologies • Pat Lennon, Honigman • Sen. Debbie Stabenow • U.S. Rep. Justin Amash • U.S. Rep. Fred Upton • U.S. Rep. Bill Huizenga • Dale Nesbary, Muskegon Community College • Kara Wood, City of Grand Rapids • Frank Stanek, Owen-AmesKimball Co. • Nancy Boese, Michigan Small Business Development Center • Bill Manns, Mercy Health Saint Mary’s • Tom Haas, Grand Valley State University • Doug Wagner, Warner Norcross & Judd • Carlos Sanchez, Hispanic Center of West Michigan • Raquel Salas, Avanti Law Group • Kathy Crosby, Goodwill of Greater Grand Rapids • Yang Kim, Peopledesign • Diane Maher, Fox Motors • Mark Miller, Cascade Engineering • Dan Scripps, Michigan Energy Innovation Business Council • Eddie Tadlock, SMG • Mike Guswiler, West Michigan Sports Commission • Jason Marvin, Plante Moran • Tim Mroz, The Right Place • Mike Preston, Micron Manufacturing • Andrew Samrick, Paragon Die and Engineering • Doug Saunders, Flexco Grand Rapids • Dave Warner, Next Level Manufacturing • Norm Brady, Associated Builders and Contractors Inc. • Brian Campbell, First National Bank of Michigan • Mike Houseman, Wolverine Building Group • John Kuiper, Colliers International West Michigan • Arnie Mikon, TowerPinkster • Mark Miller, Nederveld • Pete Michell, Rockford Construction Company • Todd Oosting, CD Barnes Construction • Tracy Larsen, Barnes & Thornburg • Jonathan Siebers, Smith Haughey Rice & Roegge • John Kerschen, Charter Capital Partners • Brandon Maat, Rua & Associates • Scott Norman, Priority Health • Kelley Root, Blue Cross Blue Shield of Michigan • Bob Hughes, Advantage Benefits Group • Jim Kenyon, Hylant Group • Garry Boyd, Barfly Ventures • Walter Catton, Coppercraft Distillery • Joe Infante, Miller Canfield Paddock & Stone • Jason Spaulding, Brewery Vivant • Mike Stevens, Founders Brewing Company • Tim Suprise, Arcadia Brewing Company • Max Trierweiler, The Mitten Brewing Company • Paul Vander Heide, Vander Mill Ciders • Brett VanderKamp, New Holland Brewing Company • Ben Zainea, Mika, Meyers, Beckett & Jones • Matt Miller, Blue Water Partners • Kevin Hirdes, NuVescor Group • Peter Roth, Varnum • Jeff Ott, Warner Norcross & Judd • Birgit Klohs, The Right Place • Ron Kitchens, Southwest Michigan First • Jennifer Owens, Lakeshore Advantage • Mike Finney, Michigan Economic Development Corp. • Rick Baker, Grand Rapids Area Chamber of Commerce • Cindy Larsen, Muskegon Lakeshore Chamber of Commerce • Jane Clark, Michigan West Coast Chamber of Commerce • Marti Lolli, Priority Health • Kirk Roy, Blue Cross Blue Shield of Michigan • John Arendshorst, Varnum • John Dunn, Western Michigan University • Mitch Stapley, ClearArc Capital Inc. • Paul Traub, Federal Reserve Bank of Chicago • Brian Long, Grand Valley State University • Ben Wickstrom, Erhardt Construction • George Erickcek, Upjohn Institute • Paul Isely, Grand Valley State University • David Smith, The Employers’ Association • Mike Wall, IHS Automotive • Melissa Anderson, IRN • Mike Dunlap, Michael A. Dunlap & Associates • Tom Reardon, BIFMA • Diana Sieger, Grand Rapids Community Foundation • David Ramaker, Chemical Bank • John Wheeler, Orion Construction • Steven Ender, Grand Rapids Community College • Carl Erickson, Atomic Object • Rob Fowler, Small Business Association of Michigan • Dennis Eidson, SpartanNash •David Staples, SpartanNash • Juan Olivarez, Aquinas College • Marilyn Schlack, Kalamazoo Valley Community College • Gov. Rick Snyder • Kris Larson, Downtown Grand Rapids Inc. • Meredith Bronk, Open Systems Technologies • Pat Lennon, Honigman • Sen. Debbie Stabenow • U.S. Rep. Justin Amash • U.S. Rep. Fred Upton • U.S. Rep. Bill Huizenga • Dale Nesbary, Muskegon Community College • Kara Wood, City of Grand Rapids • Frank Stanek, Owen-Ames-Kimball Co. • Nancy Boese, Michigan

CRYSTAL BALL 2015

Insights, economic sentiment and forward-looking strategies from the region’s business leaders.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Leveraging Lists

t’s no secret that West Michigan collectively fawns over itself every time we make a new “best of” list telling us how good we are.

So when Forbes ranks Grand Rapids the best place to raise a family and the fourth-smartest city in the country, or when Livability.com rates Grand Rapids as the sixth-best beer city in the U.S., the news spreads like wildfire on social media.

We like local beer as much as the next guy (actually, some would say more than the next guy, based on our collective consumption), but here’s another ranking that seems to have flown below the radar of West Michigan’s Twitterati: Kent County has the lowest unemployment rate in Michigan at 4.0 percent, according to the most recent data released in December by the Michigan Department of Management and Budget. Not far behind at number three is Ottawa County with 4.1 percent; number five is Barry County at 4.2 percent. Digging deeper into the data broken down by metropolitan statistical area reveals another impressive statistic: The number of unemployed people dropped by more than 30 percent from a year ago in five of the six MSAs in West Michigan. The only outlier was Battle Creek, which still posted an impressive 28.3 percent reduction in the number of unemployed workers year-to-year. In the Grand Rapids MSA, the unemployment numbers are the best they’ve been since May 2001. But as more people find employment in the postrecession economy, that’s led to a smaller pool of available workers at a time when many companies in West Michigan are looking to hire. Talk to any executive in manufacturing, I.T., construction, health care or the nonprofit sector and they’ll tell you that they just cannot find people — particularly skilled workers. Part of that struggle is a lingering symptom of the recession. When the recession hit, companies slashed their training budgets, stopped hiring and let go many of their experienced workers. The result: Skilled workers either left the region for jobs elsewhere or retired — or they simply didn’t get the necessary skills training they would have received in a normal economy. Now, many companies we talked to for this report are finding that they must resort to stealing skilled workers

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from their competitors in the region. Skilled workers have the luxury of being selective — meaning that they’ll leave one company for another if they’re offered a better benefits package or a more attractive schedule. And who can blame them? But while training budgets have started to rebound, most companies and industry associations will admit they can’t keep up with the current demand for workers. They’re at their wit’s end, looking for a partner to help. The state says it wants to be that partner. It’s pumped money and effort into technical training like the Michigan Advanced Technician Training, a Germanstyle apprenticeship program offered at community colleges across the state. Gov. Rick Snyder says that talent will be the focus of his second term, after laying the groundwork for an improved business climate in his first term. But it would be foolhardy to think the state could do it alone.

Associate Publisher Denise Schott / dschott@mibiz.com Managing Editor Joe Boomgaard (automotive industry, manufacturing) jboomgaard@mibiz.com Senior Writer Mark Sanchez (finance, health biz, life sciences) msanchez@mibiz.com Staff Writers Jayson Bussa (sports, entertainment, web editor) jbussa@mibiz.com Lindsay Patton-Carson (nonprofi t) lpatton-carson@mibiz.com Nick Manes (real estate & development, small biz) nmanes@mibiz.com John Wiegand (manufacturing, agribiz, econ. development) jwiegand@mibiz.com Contributing Reporter Jill Hinton Contributing Photographers Katy Batdorff, Jeff Hage Columnist Melissa Anderson Senior Advertising Consultants Shelly Keel / skeel@mibiz.com Molly Rizor / mrizor@mibiz.com

One key idea expressed by a handful of executives: Federal reform of the immigration system would really help Michigan access a global pool of talent. (Attention Michigan Congressional delegation: Make it happen.)

Sales & Marketing Assistant Madison Edwards

Mark Miller, the CEO of Cascade Engineering, told us that he’d like to a see the MEDC unveil a full-out marketing campaign to help companies like his recruit talent to the state.

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After all, Pure Michigan has plenty to offer. We’re a good place to live and raise a family. We’re smart. We’re up-and-coming.

Creative Director Kim Kibby / kkibby@mibiz.com Design Director Kristi Kortman / kkortman@mibiz.com

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And yes, the beer is pretty damn good, too.

Brian Edwards Editor and Publisher

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Q&A: GOV. RICK SNYDER Gov. Rick Snyder views workforce development as the next key area for further improving Michigan’s business climate. As he prepares for a second four-year term in Lansing — and after implementing fiscal policy and tax reforms in his first term — the Governor said he intends to emphasize initiatives to get more people into training for manufacturing and skilled trades jobs. He plans to address the issue further in his annual State of the State address to the Legislature. Snyder spoke with MiBiz about his policy agenda for the upcoming year, including his plans to introduce a new long-term state energy policy within the first six months of 2015. Looking ahead to the next legislative session, what’s on your agenda to further improve the state’s business climate? Number one would be career tech education for the skilled trades. If you look at it, people know about (becoming a) welder, plumber and electrician. Those are great careers. But now the skilled trades really define most people in manufacturing and agriculture in terms of needing additional training. We have tens of thousands of open jobs that are critically important for business to be successful. This is a huge national problem, so I want Michigan to lead the charge in solving that. By doing that, we put a lot of Michiganders in a great position in terms of good jobs and helping their families, but also it’s a competitive economic advantage that businesses will actually want to continue to grow in Michigan and relocate to Michigan because of the talent supply we would have.

From a public policy standpoint, what are some of the ways to achieve that end? We’ve already started and we have several already in the pipeline, and so this more of putting them all together in a comprehensive strategy. One of them is MAT2 , the Michigan Advanced Technician Training program, which has been going for two years now and we’ve had dozens of people in it. It’s basically the German apprenticeship model brought to Michigan. You start working for a company, you alternate going to school, the company pays your tuition costs and after three years, you come out with an associate’s degree and certificate — and a guaranteed job and a work commitment for two years with really no college debt. That’s a great deal. There’s something in the Grand Rapids area called the Advanced Manufacturing Partnership, which is very similar. So it’s putting programs together like that. That’s a big opportunity.

What’s the next step? Will we see more on this front? You’ll see more. I’ll (have) some of that in the State of the State address. It will be continuing to expand programs like this and make sure we’re covering the state, particular the MAT2.

When you took ofﬁce in 2011, you proposed and the Legislature enacted, changes in business taxes that included eliminating many state tax credits and incentives. Do you plan to revisit incentives in your second term or are you satisﬁed with the status quo? I’m primarily satisfied. If you look at it, I think we found good success with how we revised them — and with a much lower cost to the state. So we do have dollars that we use in a strategic fashion, but what we found is that it can be a fraction of what we used to give (out) in tax credits. Companies like the fact that they get more certainty. They get cash instead of just the tax credit, and what we get is a lot more certainty so we don’t have tax credits hanging out there forever. We do it through an appropriations process so it’s more open and transparent in how we’re operating.

Assess the job the Michigan Economic Development Corp. is doing these days. Will Mike Finney continue as CEO in your second term?

How do you plan to fund those programs?

Mike Finney and I have been working together a long time (back to when the governor was a director at Ann Arbor SPARK and Mike Finney was its CEO). As part of the normal transition, we’re talking about a lot of things for the next term in terms of how our administration shapes up. But we’ve had great relations and they’ve done great work, so the MEDC is an important element. What I would say is we’re going to continue to do what I call continuous improvement so we can continue to be a better partner with our local partners and (look at) how we can better serve the business community to bring more jobs to our state.

We did a skilled-trades training fund this last year. We downloaded $10 million to it, and it got taken up pretty quickly within the first couple of months because demand was so strong from companies wanting additional training. … We offered a $50 million opportunity for capital equipment for community colleges in kind of a competitive bid situation, and we have strong demand of those dollars. So we have a lot of stuff going on.

The state has invested heavily in creating more venture capital here. It invested in the formation of the Grow Michigan mezzanine fund, and most recently was an investor in Michigan Capital Partners, a new private equity fund. Will the state continue to make these types of investments to spur capital formation in Michigan?

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

MIBIZ FILE PHOTO: JEFF HAGE

I would see that moderating more in terms of government investing in these kinds of funds. As it develops, the private sector needs to be looking to do that on its own more.

Are you satisﬁed the state’s getting the return it needed for those capital investments? I think there were some challenging investments they made in the last decade in terms of the 2000-to-2010 period. I’m not so sure some of those programs will be as successful as they were expected to be, and I had my own issues with them back then. Since I’ve been in office, the ones we’ve been doing I think are relatively sound and were an improvement over what was done in the past.

You were in that ﬁeld – venture capital – prior to running for public ofﬁce. What do you think the industry needs to do next to continue the growth and momentum of the past several years? The good part is we’re seeing a lot of good momentum. It’s mainly continuing the maturing of the venture capital market in our state. We’re one of the few states that had more firms set up, more capital under management compared to the rest of the country. We’re not a Silicon Valley or a couple other places, but we’re clearly the next tier … in that regard, so let’s keep growing the industry. We have a lot more funds in our state.

From a legislative standpoint, what else do you have as a priority in your next term? We want to continue good government, which is basically balancing our budgets and paying down our long-term debt, and we’ve been successful at that. That needs to continue and you need to be devoted to that. Another issue that would be of potential interest to the business community is we’ll be rolling out in the first half of the year our long-term proposal for an energy policy. We set the framework for that a year or so ago and then we sort of put it more in the background with the election season coming. It wouldn’t have gotten the appropriate attention. Now that that’s over, we’ll be coming back to talk about what’s a good, long-term, sustainable energy policy for the state of Michigan.

What’s the end result you’d like to see the energy policy provide? What we’re trying to do is improve reliability, improve cost structures, improve environmental responsibility and make it all in an adaptable fashion. One of the challenges we have is there’s a lack of a federal energy policy, and so that could change it. So what we want to do is have an adaptable energy policy that helps address issues of reliability, cost and environmental responsibility. Interview conducted and condensed by Mark Sanchez.

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Partisanship aside, Michigan’s D.C. delegation wants to cut red tape By NICK MANES | MiBiz nmanes@mibiz.com

U.S. REP. FRED UPTON

emocrats and Republicans in Washington, D.C. don’t see eye to eye on much these days. But where the three Republican U.S. Congressmen from West Michigan and the state’s two Democratic Senators do agree is that burdensome regulation and a culture of uncertainty has contributed to slower-than-desired economic growth. 2015 will also be a year of changes for West Michigan’s D.C. delegation. That’s because Senator Carl Levin steps down at the end of this year after six terms in office, and a fellow Democrat, current U.S. Congressman Gary Peters, succeeds him. However, Peters and Sen. Debbie Stabenow will be in the minority as the Senate shifts to Republican control after the results of the 2014 election. Meanwhile, in the U.S. House of Representatives, all three of West Michigan’s Congressmen – Justin Amash (R-Grand Rapids), Bill Huizenga (R-Holland) and Fred Upton (R-St. Joseph) – return this year and remain in the majority. Amid calls for reforming or repealing the Affordable Care Act and partisan bickering over a host of business and economic issues, the five members aligned in calling for an easing of burdensome regulations on small businesses, one of the key engines of growth in the current economy. Here’s what each of them told MiBiz they plan to work on in the coming term to support businesses in the state.

R-St. Joseph

SEN. DEBBIE STABENOW D-Mich. “West Michigan businesses are growing our economy by making new investments and hiring workers. As we turn the page to 2015, one of my top priorities remains making it easier for our businesses to create good-paying jobs. To keep West Michigan growing, we need to cut red tape and increase access to credit for small businesses, invest in clean energy and advanced manufacturing, and make sure future tax reform legislation gives Michigan companies the certainty they need to keep investing in our state. It’s also critical that West Michigan businesses can find workers with the right skills to fill available positions, which is why I remain committed to passing my job training legislation that will help close our current skills gap. “The new bipartisan Farm Bill that I authored was signed into law earlier this year, and now the focus shifts to putting the law into practice. Thanks to the Farm Bill, food processors and small business owners will have a number of opportunities to sell their products to more consumers at local farmers’ markets, schools and grocery stores. And businesses in rural towns and manufacturers of innovative bio-based products can benefit from financing to expand and hire. “From our farmers to our furniture makers, we are seeing more products grown and made in Michigan every day. I will continue leading efforts that support our businesses and workers with the right policies that create new economic opportunities.”

U.S. REP. BILL HUIZENGA R-Holland “When I meet with job creators across West Michigan, there is one topic that consistently comes up in conversation – the need for certainty. My goal in the coming year is to provide West Michigan businesses with the certainty they need to create jobs and grow the economy. “Let’s start by getting the amount of regulatory red tape pouring out of Washington under control. This year alone, over 70,000 pages of regulation have been added to the federal register. How are small businesses supposed to navigate this bureaucratic nightmare? Implementing a cost-benefit analysis would go a long way. No one wants to breathe dirty air or drink dirty water, but let’s not assume all regulations are created equal. Reforming the regulatory structure would provide certainty for businesses of all sizes in West Michigan. “Another way Washington can increase certainty for businesses across West Michigan would be through making the tax code simpler and fairer. Small businesses shouldn’t need to hire teams of attorneys simply to file their taxes. Let’s stop with the temporary and retroactive tax extenders and enact permanent pro-growth reforms that allow businesses to plan, invest and hire more people in West Michigan. “There are multiple ways Washington can increase certainty for businesses along the Lakeshore and throughout the greater Grand Rapids area. Regulatory reform and tax reform are big issues, but I am hopeful that 2015 will bring about a pro-growth Congress that will focus on fostering an economic environment where the private sector can do what it does best: create jobs.”

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“We have made tremendous progress here in Michigan toward strengthening our economic recovery. But while we have accomplished much over the past few years, we can do better. That requires having the right policies in place to give Michigan employers, large and small, the certainty they need to create jobs, grow our economy and invest in innovation. As Chairman of the House Energy and Commerce Committee, my focus has remained job creation and economic growth here at home. “Earlier this year, I launched 21st Century Cures Initiative, accelerating the pace of new cures and treatments here in the United States. By closing the gap between the science of cures and how we regulate them, we will not only help save countless lives, we will ensure Michigan employers — companies like Perrigo, Pfizer, Stryker and MPI Research — continue to lead the world in medical innovation. “We will also continue our efforts to keep energy prices down for Michigan businesses by supporting an all-of-the-above North American energy strategy. By supporting the responsible development of American energy, we can ensure a safe, affordable energy supply and help kickstart a manufacturing renaissance. “Finally, we need to provide Michigan companies with greater regulatory certainty, not more Washington red tape. That includes shielding employers and families alike from the harmful impact of the President’s health care law, including the individual and employer mandate, the 30-hour work week rule, and the medical device tax. “My committee has built an impressive record of delivering bipartisan solutions that support Michigan jobs and economic growth first and foremost.”

SEN.-ELECT GARY PETERS D-Mich. “Michigan’s small businesses are the engine of our economic growth and the heart of our middle class. My top priority in 2015 is helping Michigan businesses continue to grow and create jobs. One of the main concerns I hear from business leaders is the need for access to capital. That’s why I created the State Small Business Credit Initiative that leverages private capital and targeted federal investments to provide small businesses with access to capital so they can make critical investments to grow and hire workers. I also helped create the Small Business Lending Fund, which helped Michigan’s credit unions and community banks provide capital to small businesses in the wake of the financial crisis. I will continue working to strengthen these programs so that businesses have reliable sources of capital to grow. “Businesses also need a climate of certainty to grow and thrive. I recently voted to extend several expired tax provisions, including small business expensing and the research and development tax credit, which are commonsense measures that help businesses focus on growth while Congress works toward comprehensive tax reform. In 2015, Congress must work on passing a comprehensive tax reform plan that simplifies the tax code for Michigan families and businesses. “Finally, Congress must also support businesses by reducing unnecessary regulations. I recently worked to pass a bipartisan bill eliminating outdated paperwork for auto dealers and consumers. Removing these outdated provisions that put an unfair burden on small businesses is a practical way Congress can improve efficiency while supporting private enterprise.”

U.S. REP. JUSTIN AMASH R-Grand Rapids “Congress can help our economy prosper again by simplifying the tax code and reducing the regulatory burden on the private sector. I will work next year to advance those goals, which all are achievable with the right attitude and the right people in office. And in 2015, I will continue to fight for individual liberty, economic freedom and the Constitution.”

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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YANG KIM CREATIVE DIRECTOR PEOPLEDESIGN Grand Rapids

After a period in which companies across the board slashed their marketing budgets during and after the recession, the improving business climate of late has caused executives to loosen the purse strings, leading to a signiﬁcant reinvestment in advertising, said Yang Kim of Peopledesign in Grand Rapids. Increasingly, the better economy has also led companies from a variety of industries to look at marketing as a strategy to remain competitive. “We’ve been busier this year than in the last few years, but it’s different. New customers have been coming to us rather than the same kinds of clients. … If you’re working for a manufacturer, they might do brochures all the time and that’s what they do — which is fine. But I feel like the people we talk to these days are more interested in reaching new audiences and not doing the thing they’ve always done. That’s refreshing because it’s hard to get a different result if you’re doing the same thing. It sounds very simple, but the trend has been moving toward more in the digital space. More and more design will be geared toward the web and for devices and not so much (on) actual products. On the flip side, I still think there will be more special products. People want a really special book or card that’s well-made and printed very well — more of a keepsake than a marketing piece.”

PHOTO: KATY BATDORFF COMPILED BY JOHN WIEGAND

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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DOUGLAS WAGNER MANAGING PARTNER, WARNER NORCROSS & JUDD LLP Grand Rapids

The Grand Rapids-based Warner Norcross & Judd law firm expanded further across Michigan in 2014 with the opening law offices in Kalamazoo and Southfield, plus the formation of a data solutions group to work with clients to manage data and electronic documents to ensure compliance with rules and regulations.

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“While conflicting indicators in the economy make 2015 a difficult year to predict, our law firm is looking forward to a year of consolidating gains, navigating changes in the legal landscape and investing further in key practices areas. There are a number of trends impacting the private practice of law. With institutional clients that have a regular demand for legal services increasing their in-house capabilities, we must find ways to complement the work being done by in-house and general counsel while managing costs and adding value. In addition, rapid changes in technology have resulted in advancements that have eliminated or greatly reduced the time spent by attorneys on routine tasks. We are also seeing an increase in merger-and-acquisition activity, which promises to continue, at least in the short term. And after several years of quiet on the commercial real estate front, we are seeing a strong uptick in this area. Patent work is also on the rise, and we have made a significant investment in our Southfield office to meet that demand.”

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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KATHY CROSBY CEO GOODWILL INDUSTRIES OF GREATER GRAND RAPIDS Grand Rapids

Goodwill Industries helps people within the West Michigan area achieve self-sufﬁciency. It does this through career services and training resources, various Goodwill stores and the Blue Spoon catering and event planning hospitality work experience program. With last winter’s harsh weather conditions, donations were down, so Goodwill had to get creative in making it easier for people to donate. “Indicators show the U.S. economy will continue in a recovery mode through 2015 with low inflation, low interest rates, and steady growth in key business sectors. However, for families, the financial squeeze will tighten as wages hold flat and the cost of living creeps up. Families are struggling. The cost of ‘staying connected’ via cell phones and Internet service has exploded. Health care costs are up 24 percent the past five years. The cost of food continues to climb. … We also feel the squeeze in retail sales. People have less to spend on clothing and household goods. Family spending on household textiles has dropped more than 25 percent. Spending on women’s apparel is down 18 percent. When sales drop, Goodwill has less income for our mission of helping people go to work. … Preparation for work, learning life skills, training in technical skills, it all takes time. … We’re a social enterprise focused on investing our business’ net income in building personal income for people who would otherwise be unemployed. The trends for 2015 will continue to put pressure on that effort.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

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DAN SCRIPPS PRESIDENT, MICHIGAN ENERGY INNOVATION BUSINESS COUNCIL Lansing and Grand Rapids

At a time when many energy-based companies are diversifying into the gas and oil industries, Dan Scripps, a former State Representative who now leads the trade association Michigan Energy Innovation Business Council, sees alternative and advanced energy sources such as solar, wind and biodigesters becoming a more prevalent part of the energy mix, even amid regulatory uncertainties.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

“I get the sense that there’s real optimism about where things are among advanced energy businesses. We just conducted a survey of advanced energy businesses where 70 percent of companies plan to add people while only 5 percent plan on shrinking. There’s a lot of confidence going forward. Over the last couple of years, we’ve seen almost all of the new generation of energy being added to the grid in wind and solar — it’s all been on the alternative side. The uncertainties come with state and federal regulatory requirements. We’re seeing the state debate if credits should be expanded one or two years, and it’s hard to make investments in that environment. Also, we’ve had the Michigan alternative energy standards driving the industry for years, but we don’t know what to do from here. We’re waiting for the legislature to react. As we get clear policy signals, I’m more confident the market will respond.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

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DALE NESBARY PRESIDENT, MUSKEGON COMMUNITY COLLEGE Muskegon

With the construction of a new downtown campus located in the former Muskegon Chronicle building expected to begin in 2015, as well as a continued focus on Muskegon Community College’s core curriculum, Dale Nesbary says the school expects a year of investment, leading to minimal growth in its primary revenue sources.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

“MCC will respond to increasing talent demands in a broad range of fields. Registered nurses, computer systems analysts, engineers and educators continue to lead high-demand and high-wage jobs over the short and medium term. In addition, our programs in the STEM fields, manufacturing, allied health and entrepreneurial studies are likely to experience continued growth. Our basic arts and sciences programs will continue to receive emphasis to ensure that employers have students trained in the soft and hard skills (that are) so important in today’s economy. To meet our current and future needs, our campus is undertaking its most significant facilities upgrade since the construction of our current site in 1967. Improvements and expansion are occurring in the college’s health, science, technology, advanced manufacturing and arts infrastructure. These changes will help MCC to remain nationally and internationally competitive by connecting our exceptional faculty and staff with new state-of-the-art facilities.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

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DIANE MAHER PRESIDENT AND COO, DP FOX VENTURES LLC Grand Rapids

Increasingly conﬁdent consumers with more cash in their pockets have Diane Maher optimistic about the automotive retail market going into next year. The ﬁrm’s Grand Rapids-based Fox Motor Group LLC — a so-called ‘mega dealer’ that generated $631 million in sales last year — sells 43 brands at two dozen locations in Grand Rapids, northern Michigan and Chicago.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

“The 2015 outlook for the retail automotive business is bright. Job growth, consumer confidence, low interest rates and available credit are all factors that have a positive impact on the retail automotive sector. Many OEMs are launching new products, which will have a positive effect on sales and push consumers to consider upgrades to their vehicles. The average age of a vehicle on the road remains higher than it has been in decades. This aging continues to push consumers to buy as the reliability of their vehicles continues to decline. Overall, the conditions are right for a very good year in the retail automotive business, and I expect the OEMs to continue to offer deals to the public to entice them to buy. … At Fox Motors, we are projecting double-digit growth in vehicle sales overall. Our expectations for growth represent a combination of natural growth due to (industry) factors and some market share gains in the regions we operate in.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

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MARK MILLER CEO, CASCADE ENGINEERING INC. Grand Rapids

Mark Miller took on the role of CEO at Cascade Engineering Inc. in September after founder Fred Keller stepped down from the company’s day-to-day operations. The manufacturer of plastic injection moldings and components for a multitude of industries, including automotive and renewable energy, plans to see doubledigit growth in 2015. While strong commodity prices are creating some headwinds, the company’s overarching concern is talent.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

“The exit of technical skills from the state during the recession coupled with an aging workforce who possess those skills is a challenge most manufacturers will be confronting for years. As far as making manufacturing sexy, we need to build ties with local school districts and colleges to educate staff about the opportunities in our industry. There are too many misconceptions. Cascade Engineering’s meeting/presentation to the Kent Intermediate School District teachers was one example of the manufacturing marketing we do in our community. Perhaps the MEDC should create a commercial or campaign geared toward recruiting the next generation of manufacturing talent to our state.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

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CARLOS SANCHEZ INTERIM EXECUTIVE DIRECTOR, HISPANIC CENTER OF WEST MICHIGAN Grand Rapids

The Hispanic Center has been providing unmet social services to West Michigan’s Hispanic community since 1978. That’s important because over the last 14 years, Kent County’s Hispanic population has grown 45 percent. The Hispanic Center offers family services, GED programs, language services and more. The organization hosts the annual Hispanic Festival in downtown Grand Rapids, which features music, food and, new this year, the Mercado, a showcase of local artists in the Hispanic community.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

“I see the economy improving in 2015 as it has been improving in the past few years. The Latino business community, in particular, is experiencing steady growth in the traditional areas such as food service, cleaning services, bookkeeping, insurance, law, etc. However, there are other areas where more Latino entrepreneurs are making inroads such as print and electronic media, marketing, design and others. One of the keys to this growth is access to bidding opportunities. Latino business owners are as capable of delivering exceptional, quality products and services as anyone else. An intentional reach to the Latino business community from purchasing agents and the community in general is the first step to gain the trust of the client. … Understanding immigration is a controversial topic, I would only say that immigrants are a key component in the ‘comeback’ of the state. Making it easier for them to come, helping them develop their skills and supporting the opening of new businesses will only result in a stronger, more diverse economy where innovation happens every day, everywhere.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

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MEREDITH BRONK PRESIDENT, OPEN SYSTEMS TECHNOLOGIES INC. Grand Rapids

Amid planning for a year of double-digit growth in revenue and single-digit growth in new hires, Meredith Bronk wants OST to be involved in state, local and university-level training initiatives. She also believes that for the company to succeed, Grand Rapids must be a desirable, urban place.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

“The demand for I.T. and tech talent is huge, and I see that continuing this year in all sectors. OST and other local employers aren’t content to simply sit back and complain about the situation, however. Get us involved! We want to work together in collaboration to develop a ground-up strategy for training and educating greater numbers of technology professionals, and for raising public awareness regarding the benefits of employment in the West Michigan technology sector. We also want to brand West Michigan and the entire state as a regional culture hub with a vibrant nightlife and a booming technology sector.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

KRIS LARSON PRESIDENT AND CEO DOWNTOWN GRAND RAPIDS INC. Grand Rapids

2015 could be a transformative year for downtown Grand Rapids, says Kris Larson. With a number of new downtown living options expected to come online in the coming year, the central business district’s population is on the rise, which could spur new retail and entertainment options. “We are experiencing high levels of interest and confidence in the downtown as a place to invest. There is much optimism and excitement in the air as transformative projects such as the Grand River and riverbank restoration projects make steady progress to becoming a reality. On the development side, demand for residential housing has generated considerable interest in redevelopment sites suitable for high-density housing. There is much more interest than the number of sites available. The office market is stable and strengthening, and many buildings close to the historic core of downtown have or are undergoing strategic repositioning, which has breathed new opportunity into some of the older B-class properties. Urban retail is also improving, and as the downtown population eclipses 7,000 people in 2015, we’ll continue to see steady improvement to the quality of downtown retail amenities and offerings.”

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DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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FRANK STANEK PRESIDENT OWEN-AMES-KIMBALL CO. Grand Rapids

With a growth strategy that involves expanding its workforce through full-time employees as well as temporary workers at Owen-AmesKimball, Frank Stanek says he sees a good year ahead for the construction industry. With a diversiﬁed roster of clients in both Michigan and Florida, the general contractor has found growth in K-12 and higher education, commercial projects and religious institutions. The company expects single-digit growth in both its revenues and its number of employees. “We anticipate the economy will continue to improve slowly and steadily back to its pre-recession state, which will definitely have a positive impact on the construction industry. Moving forward, we will see increased opportunities to work with new clients and projects. This will allow us to be more selective when determining which projects to pursue. We intend to focus on the areas in which we excel, thereby best serving our clients. … I spend a lot of time thinking about managing our growth while servicing our clients to the best of our ability. This is a delicate balance that must be closely monitored. I feel strongly that it’s all in the details. The small things are important, not only for our success, but also for the success of our clients. We have to make a very conscious effort to do things right the first time by dotting our Is and crossing our Ts.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

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MIKE GUSWILER EXECUTIVE DIRECTOR, WEST MICHIGAN SPORTS COMMISSION Grand Rapids

West Michigan has proven it can sustain a myriad of semi-professional sports teams such as the Grand Rapids Grifﬁns, West Michigan Whitecaps, Kalamazoo Wings and others. But over the past few years, the region has also become an attractive destination for national-scale youth and amateur sports. Mike Guswiler is tasked with promoting the area as a viable venue for such events. The West Michigan Sports Commission has a long list of local and national events on the docket for 2015.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

“Youth and amateur sport tourism has typically been a growth industry based on consumer willingness and the desire to involve kids in sports. Families use tournament weekends as mini-vacations and spend an average of $500 to $600 per trip. This, multiplied by the increasing amount of events the sports commission and its partners are bringing to this community, indicates continued growth through 2015. … In 2014, the Smith Travel & Research report of national hotel statistics indicated a double-digit growth in hotel room revenues for greater Grand Rapids over the course of 2014. … This needs to be tempered with the fact that the travel industry, like so many others, took a big hit during the recessionary years of 2007-10 and we are now just seeing a recovery and growth above pre-recessionary levels.”

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RAQUEL SALAS ATTORNEY, AVANTI LAW GROUP PLLC Grand Rapids

Grand Rapids-based Avanti Law Group practices in the areas of immigration law, criminal defense, family law, estate planning, labor and employment, civil litigation, class action lawsuit, personal injury and wrongful death. Co-founder Raquel Salas believes the 2015 economic outlook varies between individuals and industries, but she’s bullish on her ﬁrm’s prospects.

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“In the legal industry, employment of lawyers is projected to grow as compared to 2014. However, we continue to have the disadvantage that more students graduate from law school each year than there are jobs available. Competition among law firms for new legal work is high. A trend I have seen is that corporate counsel are relocating their budgets, focusing on more in-house work. At Avanti Law Group, we continue exploring the many different opportunities we have available for growth. It is simply natural that after five steady years of operation and a progressively growing customer base, we are considering opening a second office. But we understand our final decision must always be based on verifiable business logic — not merely a desire to duplicate the success of our existing location.”

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

KARA WOOD ECONOMIC DEVELOPMENT DIRECTOR CITY OF GRAND RAPIDS Grand Rapids

With a current boom in residential housing construction — primarily apartment rentals — along with a slew of retail and entertainment options, Kara Wood says Grand Rapids is on a positive track heading into 2015. She’s also bullish on the potential return of condominium construction. Transportation infrastructure spending is the primary legislative issue Wood would like to see championed. “The economy will continue to make slight but steady growth in the new year. We will see more residential housing develop downtown and in the near downtown commercial districts, and hopefully, for the first time in a few years, new downtown condos. The rehab of existing vacant buildings and a growing downtown population will ensue. Office space improvements will take place as a result of the renovation and rehabilitation of existing buildings and the demand for a business presence in the city. … Strategic public infrastructure improvements supporting economic development will occur, including roads, parks and transportation enhancements. Regional entrepreneurship and innovation will lead to more support for technology startup successes and failures and growing the entrepreneurship ecosystem across West Michigan. Increased growth in the availability of capital for innovation will hopefully lead to new job growth and investment in Grand Rapids.”

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DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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EDDIE T.L. TADLOCK ASSISTANT GENERAL MANAGER DEVOS PLACE CONVENTION CENTER/ DEVOS PERFORMANCE HALL Grand Rapids

Attracting coveted out-of-town dollars is important to any city. Eddie Tadlock and his staff at the SMG-managed DeVos Place Convention Center and DeVos Performance Hall in Grand Rapids are a powerhouse when it comes to facilitating everything from concerts and Broadway shows to trade shows and sporting events. “DeVos Place Convention Center has been a staple of the state and local meetings industry, and some significant changes could be in store for us in 2015. Our economic forecast for 2015 is positive as we are realizing similar numbers to 2014 for events booked at the center. We are also anticipating greater ancillary revenues by convention groups (i.e. event space fees, equipment rental, vendor services and other costs associated with producing an event). In addition, many of the groups contracted in 2015 are also booking hotel rooms in the city. … While we are looking at booking fewer events in 2015 — 105 contracted versus 198 in 2014 — those events currently under contract will be using more space than in previous years and extend the number of days they are using our venue and area hotels. … More than $60 million is forecast to be spent in 2015, creating a positive cycle of economic activity for local Grand Rapids businesses.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Participants in the manufacturing roundtable were (l-r) Joe Boomgaard (MiBiz), John Wiegand (MiBiz), Mike Preston (Micron Manufacturing), Dave Warner (Next Level Manufacturing), Doug Saunders (Flexco Grand Rapids), Andrew Samrick (Paragon Die and Engineering), Jason Marvin (Plante Moran) and Tim Mroz (The Right Place). PHOTO: JEFF HAGE

Manufacturing Roundtable Manufacturers invest in training, systems as business improves By JOHN WIEGAND | MiBiz jwiegand@mibiz.com ooking ahead to 2015, manufacturers by and large predict another year of steady growth. Strengthening balance sheets have encouraged companies to increase their investments and have created a positive climate for M&A in the middle market. While talent continues to be a leading concern for regional manufacturers, companies are adapting through technology and lean business practices to manage growth and guard against the next downturn. MiBiz sat down with manufacturing executives from a wide range of industries to discuss their challenges and opportunities for the year ahead. Participating in the roundtable discussion were:

L ■ ■ ■ ■

Jason Marvin, CPA and partner at Plante Moran PLLC Tim Mroz, vice president of communications and marketing at The Right Place Inc. Mike Preston, president of Micron Manufacturing Co. Andrew Samrick, managing director of the advanced manufacturing division at Paragon Die and Engineering Co. ■ Doug Saunders, operations director of Flexco Grand Rapids ■ Dave Warner, president of Next Level Manufacturing LLC Here are some highlights from the discussion.

What are a few mission critical actions that you’re taking to plan for next year? PRESTON: For us it’s interviewing the customer like you would an employee and making sure there’s a good fit before the quoting process. It’s being with the right customers because once you get plugged in, very few people tend to cut ties. We’ve been able to shed some accounts that have been difficult at times and that’s been a good thing for us.

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SAMRICK: Another piece that we’re working on is being able to follow those right customers and technologies. The customers that we choose to do business with help us understand what equipment to invest in. When we go into a market segment, it’s going to be a few years at a minimum. Continued investment in truly advanced equipment is going to be critical for us. WARNER: We’re heavily invested in value-add. We’ve spent the last couple of years getting ultrasonic cleaners and heavily investing in all these things that our customers wanted. … It’s really making sure business is tied up.

MARVIN: One of the other big trends I see right now is a lot of investment in ERP systems. I think business intelligence is a big thing for 2015. It becomes even more critical as you meet capacity constraints. MROZ: One of the things we’ve seen for ERPs on the M&A side is it’s almost been a prerequisite to selling your company. A lot of these companies were started in the mid-’70s by a guy that was 30. Now he’s 70-something and they’re looking to sell the company and he pulls out the financials from the vertical file. That’s not going to work. I wonder if that’s pushing adoption.

As the number of baby boomers transitioning out of the industry continues to increase, what does that mean for the manufacturing sector? MARVIN: If I had a top four trends for the manufacturing industry right now, business transition would be near the top. I’m seeing (it) like never before. Aging owners, a lot of buyers, the dollars in the private equity world — all of those things have created a really efficient climate in the middle market. I think what (will) really drive this is a lot of business owners who ran successful businesses for a really long time saw 40 percent of their business dry up in 2008. Now it’s come back and they see a runway of profitability. WARNER: I was approached three times in the past three years by owners that wanted to get out. The people that reached out to me were 65, they had made their money and want to enjoy their lives. There’s not a lot of people coming in that want to buy or have the money. … They wind up getting bought out by groups that don’t know about manufacturing or how to treat their employees and they have the highest turnover rates now.

SAMRICK: That’s why we did our expansion in Texas. It wasn’t only an expansion but a defensive position. We’d been working with a repair shop there to service our customers for a number of years and the ownership was (ready) to get off the bus. He had a legacy and wanted to make sure the business went to someone who would keep it going. Ultimately, we were in a spot that it was either us or a competitor.

How is buy-side M&A activity shaping up for the manufacturing sector in 2015? MARVIN: I’ve had four clients make tuck-in acquisitions over the past 12 months. That’s a pretty large chunk of my book of business and those are middle-market companies. (My clients) are seeing opportunities and that’s because there are sellers right now. But as prices go up, that makes it tougher. I saw a lot more than four deals get vetted and passed on. SAMRICK: I think one of things you see in Western Michigan is more conservative balance sheet management. We come to a more conservative approach as well. Over the next few years, we’d love to be able to buy the right pieces of small stuff, (but) we see the bigger mid-market buy-side opportunities coming when the next downturn comes (because) you can get more bang for your buck. SAUNDERS: Most of our acquisitions have been global. We (focus on) finding strategic areas and companies that complement our needs or those we’ve had relationships with. That has brought a couple companies’ manufacturing into the U.S. But we’ve seen the most acquisition outside the

See CAPITAL ROUNDTABLE on page 34

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

WARNER: I think people are going to continue replacing old technology with new technology and consolidate old machines. I think 3-D printing is going to make some leaps in the next two years. A lot of our customers are doing their R&D work internally, and I think that’s going to be a huge game-changer for people doing small prototype stuff.

Manufacturing Roundtable CONTINUED FROM PAGE 33

country. For us, we look for the right technology that’s scaleable.

Talent is the obvious challenge for manufacturers. What are you doing to address workforce needs? SAMRICK: For us, (talent) is the single-largest looming piece out there. We could get all the work on earth but there are things that you can’t automate away. We’re making significant investment in building larger-term educational programs because we have to. We have a couple hundred folks today, and if we keep growing we’re going to need add five to six apprentices a year for the next decade to keep up with growth. It’s frightening.

A lot of parents will say, ‘You’re not successful unless you go to college.’ I have someone on the floor, but their parents are pushing them to a college degree even though the pay structure isn’t that different. I’m losing people that are already in training to higher degrees. WARNER:

MARVIN: It’s not just parents, it’s the counselors in high schools that are steering them away from the skilled trades. I’ve seen a lot more of my clients working with high schools locally and taking time to explain what they do locally. PRESTON: One of the ways we’ve addressed the talent shortage is that we are on the boards with Kent Skills, Grand Rapids Community College and Ferris State University. I think that the boat has finally turned on the perception of manufacturing because if you look at enrollments, they’re high. The other thing is, it’s key to market yourself. You better have a clean, organized place and a great culture because that’s where the younger generation wants to be.

Some have likened the talent shortage to more of wage gap. Have your companies increased wages to attract more talent? SAUNDERS: We try to be in the top 75th to 90th percentile for wages in our market. On top of that, we have a very rich benefits package with a 401(k) and pension, full medical benefits, wellness program and workout room. Dollars and cents are a big piece of it, but it’s also what else you are bringing to the table. As much as people are going there for the money, they’re staying there for the culture, and you really have to put a lot of investment in that as well. PRESTON: Yes. We’re there to make a profit but also look at what we do in terms of employing people and giving them a standard of living. We tell our people that we have to make money and invest in the company and we have to pay ourselves and we shouldn’t shy away from that. SAMRICK: For us, it’s being able to tie that knot back to having a greater purpose. I think taking care of one’s family is an amazing purpose and that can get a person going to work every day but if the workplace doesn’t provide meaning as well, then the work isn’t meaningful.

Does that emphasis on culture and extraneous beneﬁts resonate better with the millennial generation? MARVIN: I think they’re less motivated by money than previous groups and more motivated by how they’re making an impact. They are

“(I)t’s key to market yourself. You better have a clean, organized place and a great culture because that’s where the younger generation wants to be.” — MIKE PRESTON, MICRON MANUFACTURING CO. PHOTO: JEFF HAGE

willing to work hard if they understand why and how they are adding value to the bigger picture. PRESTON: I think the high-tech equipment that really changed the industry over the last 10 years has helped. Who wants to work on the old manual equipment? I think that’s making an impact with the younger generation, too. They get excited about the possibilities.

How do you manage your internal training programs and guard against turnover afterwards? SAUNDERS: We have a review board and have them sign a contract saying that they’re going to stay with the company for two years after they get their degree or last schooling we paid for. SAMRICK: We’ve historically done that as well. But (when) you have a young person that goes through training and then someone else offers them a bunch more money quickly and they leave, they still don’t have enough net worth to pay you back, so what do you do? We focus much more on the selection of the incoming folks — the people that really fit with the culture and see the long game. PRESTON: We have a very comprehensive hiring process. We do one interview with (the management) and then the next interview is with people they are going to work next to. Everybody gets a say and that’s really helped us not have a big turnover rate. We create a profile for a machinist, and if they don’t match it, we don’t even interview them. That saves a lot of time.

How are emerging disruptive technologies like 3-D printing helping you stay competitive? SAUNDERS: We have 3-D printers in our engineering and manufacturing facilities in Grand Rapids. It’s really helping us fail faster and find that final solution. They’re developing these parts and we’re getting them as prototypes on rigs and getting them out to the shop to test them out. It can be anything from a sensor to a new product that will eventually make it out on to some type of conveyor system. It’s been fantastic getting those types of technologies in.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

What are some key lessons your companies learned over the past eight years that will help you when the next downturn eventually happens? PRESTON: We have to make money and pay ourselves, but we have to put money away to withstand a downturn and that’s what we did back in 2009. We had to lay some people off, but we kept a core of people. I’d walk into the plant and see no machines working, so we’d work on training and maintenance and we’d do the same thing again because you want to keep that core with you. SAUNDERS: We do a lot of cross-training internally. If the floor slide department is slow, they can go to assembly or the assembly department can move to the machine shop. We have our own temporary internal labor pool that permanently resides in our facility. WARNER: We’re growing through technology rather than people. When things slow down, it’s a lot easier to unplug a machine and roll it into the corner. We’ve grown a lot with the same amount of people. SAMRICK: The cross-training piece is something we’re learning as well. As we grow, we’re focusing in on not having to hire as many people. Right now, we’re staffing up with young folks and we know when the next downturn comes, we’ll be in a place where we’ve had folks retire and the people coming up are so well cross-trained. Before, it was, ‘I can work this one machine,’ then it became, ‘I can work in this machine department.’ Now, we’re saying we want you to be able to do both 2-D, 3-D and five-axis work, or being able to jump from machining to light assembly. MARVIN: Balance sheets are important. Companies with debt-to-equity over three-to-one are the ones that went out of business. Inventory does not equal cash. It was uncontrolled inventory levels before, and people are really keeping it tight now. Also, (it’s important to) have metrics in place and be ready to react to changes in demand. It’s too late next month to know that you didn’t need what you were doing.

Looking at the larger picture, what are your projections for 2015? SAUNDERS: One of our growth indicators are housing starts and permits for the aggregate market because we do a lot in mining. There were a lot of good permit pulls this year, but we just didn’t see a lot of business come from it. So we’re hoping that people were preparing for this coming year and in which case that should help aggregate boom. SAMRICK: We’re seeing significant underlying demand in automotive, aerospace and defense. We also see a lot of tie between light truck sales and housing starts — there’s a significant correlation there. If you look back over the last 20 years, they tend to move in tandem and they continue to move upwards. We’re in the cautiously optimistic stage. PRESTON: From my industry, we had a really great year. Talking with our customers and going to the trade shows, everyone is very upbeat. Growth may not be as good (in 2015) but I think 10 to 15 percent for us, if not more. MARVIN: For 2014, it was continued profitability almost across the board in manufacturing. Everyone was doing well, but there’s still some caution there with my clients. No one wants to overcommit or do any big projects. But I’d say into 2015, I expect more and larger investment in businesses from equipment to expansions.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

AUTOMOTIVE MANUFACTURING

Q&A: Mike Wall IHS Automotive Group LLC While auto analyst Mike Wall at IHS Automotive Group projects production to hit 17.4 million units in 2015, he sees a series of trends including platform globalization, emerging technology and market uncertainty as driving the industry going forward. He spoke with MiBiz about the opportunities and challenges facing the automotive industry in the year ahead. Lightweighting is very prevalent in the industry right now. What’s the impact going to be on the supply side? We are going to see more suppliers increasingly look at creative ways to execute lightweighting initiatives. Some of it’s going to be material-based but it’s not just that. It’s thinking about the whole module and component as a system holistically and finding ways to pull weight out of that system. I know there are a lot of suppliers that are creating an assembly that pulls weight out of that part for the automaker – and (automakers) are paying for that. How is production shaping up for 2015? We’ll end this year around 17 million units and next year we’re forecasting 17.4 million units. The growth rate will slow a little bit but that’s because we are well back to pre-crash levels from a production standpoint. Beyond next year, we see production getting close to 19 million units by 2019. What’s driving that growth? We’re seeing growth on the sales side, but there are two other legs to the stool – one being the increasing capacity coming to North America. We’re reducing imports … and they are building those vehicles here so you get that import substitution factored in. Then, we are exporting more vehicles out of the North American market. All of that is supporting production. What are some headwinds facing the industry? It’s incumbent on both automakers and suppliers to be flexible and adjust on the fly as … issues

come up and to be responsive to them. I don’t think the risk of supplier volatility is going to be larger than it was last year or two years ago, but that’s always something that percolates out there. This year seemed to be defined by vehicle recalls. What effect has that had on customer confidence? In all honesty, we still see the automakers that have been the subject of those recalls (have good) sales. … What it does set up, for suppliers in particular, is the complexity involved. It’s all high on the radar now for the automakers and certainly increasing from suppliers. There are quite a few family-owned businesses in the automotive supply chain whose baby boomer owners will be looking to make an exit in the next few years. Can we expect to see more M&A among suppliers? I think we are in the early stages of this M&A activity, and there have been some deals like that floating out there. The only thing that’s been a headwind has been the multiples being so high because frankly, business has come back. Certainly, there’s interest from private equity firms and other suppliers to pick up strategic assets as well. As these multi-generational companies go out and see if that next generation will want to take over the reins or not, it will certainly be an opportunity and they’ll have an attractive environment to do that. Interview conducted and condensed by John Wiegand.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

AUTOMOTIVE MANUFACTURING

Mor of the same in 2015 will present More mor complexity for auto suppliers more By MELISSA ME ANDERSON | Vice President, IRN Inc. MiBiz Auto Focus Columnist Th auto industry has done well in 2014 and we expect to see more of The the same in 2015. For suppliers and automakers, this is good news that carries some complexity, given the caution with which everyone is approaching decisions on when to add capacity. Light vehicle sales in the U.S. will likely end the year around 16.2 million units. We believe there is enough gas in the tank to get that figure even higher next year, potentially even to 17.2 million, as economists anticipate a slightly higher GDP growth rate, consumer confidence is rising, and unemployment is continuing to drift downward. IRN is expecting light vehicle production in North America to end up at approximately 16.8 million units for 2014 and rise to 17.3 million units in 2015. There will be plenty of drama in the marketplace. Ford has started shipping the new aluminum-intensive F-150 pickup to dealers, so 2015 will be the year that we get to see how buyers respond. In particular, we’ll see whether the Chevrolet Silverado, redesigned in 2013, will continue strong or start to fade and whether the Ram 1500, which has been reaping the benefit of Ford’s slow launch, will be able to hang on until its own major redesign in 2017. Another area to watch is the mid-size pickup market. After yielding the field to the Nissan Frontier and Toyota Tacoma, GM rejoined the segment with the new Chevy Colorado and GMC Canyon this fall. The big unknown is whether that will increase the size of the pie or if all the contenders will duke it out for the same number of buyers. Both Nissan and Toyota have scheduled major model changes for 2015, so they are not giving up easily. The calendar for 2015 is filled with multiple launches from every major automaker, so there will be many hot contests to watch. The challenge that might keep supplier executives up at night in 2015 is how to meet the requirements of the growth market and keep an acceptable profit margin. In IRN’s annual survey of the supply base this fall, we asked whether suppliers had sufficient capacity to support a sustained increase in demand. The percentage saying “no” was up to 42.4 percent this year from 28.3 percent in last year’s survey. In theory, high demand is a good problem to have, but it has reached a point that it is beginning to negatively impact the bottom line for many companies. Part of the problem is that the OEMs are similarly hesitant to face reality and make firm commitments that would enable suppliers to invest capital for their programs. Needing to support a different mix or total volume than was contracted requires stopgap measures, such as premium freight, overtime, renting offsite facilities, etc. — all of which tend to add expense. Addressing these additional costs should be part of the dialogue of suppliers with their customers so relief is granted where appropriate. Suppliers hesitating to add capacity may be wondering how long they would be able to enjoy it before the next cyclical downturn. Looking longer term, IRN’s Autofutures North America light vehicle production projection indicates that the pace will start to slow after 2015 and the growth curve will start to flatten. There is no downturn in our five-year forecast window, so the end is not yet in sight, meaning that there will be plenty of decisions to be made in 2015.

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OFFICE FURNITURE OFFICE FURNITURE

Q&A: Tom Reardon Business and Institutional Furniture Manufacturers Association The office furniture industry picked up momentum in the third quarter and should remain in a steady growth mode through 2015, according to an updated industry outlook. The quarterly forecast from the Business and Institutional Furniture Manufacturers Association, prepared by IHS Global Insight and issued earlier this month, projects industry-wide shipments will end 2014 at $9.7 billion, up 3.7 percent from 2013. BIFMA expects shipments to grow 4.0 percent in 2015 to $10.1 billion. After a slow start to the year, shipments in the third quarter alone grew 6.4 percent from a year earlier to $2.58 billion. Orders in the period increased 9.5 percent to $2.48 billion, setting up the potential for strong growth in the fourth quarter if they translate into shipments. Year-to-date, shipments increased 3 percent to $7.17 billion and orders grew 3.3 percent to $7.28 billion. BIFMA Executive Director Tom Reardon told MiBiz that all signs point to the industry being well-positioned going into the new year. As we head toward 2015, how do you sum up the state of the industry? The strong second half of 2014 gives us some good momentum moving into 2015. Generally speaking, I think there’s a degree of optimism out there among the manufacturers I’ve been talking to. There are a lot of projects and the anecdotal indicators bode well for 2015. What’s playing into the industry’s favor? The primary drivers of business for us, and the ones lending the most positive momentum and influence on the forecast, are service-sector employment growth. It’s been painstakingly slow coming out of this last recession. Things crashed in 2008, and 2009 and 2010 were kind of slow. Here we are a good four, five years coming out of this recession and it’s just been so slow, particularly the employment growth. Now we have a good probably six, seven months of relatively consistent employment growth. That consistency is a good sign. It’s not really strong job growth, but it’s stronger than we’ve seen in a long time and it has been consistent. It’s kind of a slowand-steady increase in white-collar employment growth and that is giving some positive lift to our forecast. Are any other factors helping out your forecast? The indications are that non-residential construction, or office building construction, will rebound in 2015, too, and that should also lend some positive momentum for our industry.

OFFICE FURNITURE OUTLOOK Here’s a look at office furniture shipments over the years along with the latest quarterly outlook from BIFMA. YEAR

SHIPMENTS

% CHANGE

*2015

$10.1 billion

4.0%

*2014

$9.7 billion

3.7%

2013

$9.35 billion

0.9%

2012

$9.27 billion

-1.1%

2011

$9.37 billion

13.0%

2010

$8.30 billion

5.8% *Projected

What’s the industry’s biggest opportunity next year? We’ve seen a rather concerning increase in imports. We call that consumption, or how much furniture is the U.S. market consuming, and buyers will consume that product from both domestic suppliers as well as imports. For a number of years, the percentage of domestic consumption that was attributed to imports kind of plateaued. It was right around 20 percent, or 21 or 22 percent, and it held there for five years. For the last two years, for 2013 and 2014, it’s been on the increase again, and I think it’s at about 25 percent of consumption right now. If we can reverse that trend, that would be an opportunity. What’s a trend that you saw emerge for the industry in 2014 that will continue in 2015? The pendulum seems to be swinging back from the very, very open office plan and the benching systems and the minimal privacy. One of the things I saw at Orgatec this year – the trade show in Germany (held in October) where U.S. and North American trends often come from – was a move to more visual and acoustical privacy. Lounge seating with kind of wrap-around backs that would provide some degree of acoustical privacy and even visual privacy were everywhere. There were lots of felts and fabrics and sound-absorbing materials to kind of minimize that noise that people are complaining about in more of the open-plan work space. We have already started to see that (in the U.S.) at NeoCon (in 2014). I would expect that we’ll see a lot more of that coming into our product development. What’s something that could occur in Washington that could help the industry? I’m a small government guy. The government that governs best governs least. So I’m all for just reduced regulation and restrictions and promoting more of the free market economy. Let innovation and free market creativity flow and less taxes and less burden on business. I hear a lot from manufacturers that health care costs are just going crazy and it’s a real impediment to hiring. Any other predictions for 2015? I would not be surprised by a correction in the stock market at some point during 2015. We’ve had a good five, six years of a bull market run without a correction. But overall, there’s relatively good economic health ahead.

Q&A: Mike Dunlap Michael A. Dunlap & Associates LLC West Michigan’s furniture manufacturers seem to have hit their stride. Despite projections cooling off from earlier in 2014, the outlook for the industry looks bright next year – driven by pent-up demand and greater willingness to invest, said Mike Dunlap, principal of Holland-based Michael A. Dunlap & Associates LLC. Dunlap spoke with MiBiz about his views on the industry and its challenges in 2015. The Business and Institutional Furniture Manufacturers Association (BIFMA) tempered its forecasts somewhat from earlier in the year. What do you see going into 2015? I’m much more bullish than the BIFMA forecast, actually. I think 2015 will be the best year that the industry has seen since 2000 when it hit $13.3 billion in sales for the U.S. market, which seems to be the benchmark that people use. My thinking is that the commercial furniture industry will grow by double digits between 2014 and 2015. I’m sticking my neck out, but I’m pretty confident that we’ll see that growth. What market do you see leading that growth? The one that’s not often spoken of is in the hospitality sector. In 2015, the hotel industry is going to embark on one of the largest remodeling and expansions that we’ve seen in two decades. The hotel room business is going to get a huge makeover. Over the last 10 years, we’ve seen individual hotel rooms become home offices. I foresee in this next year and coming years a huge change in the design of guest room furniture that will be much more office-like than what we’ve seen in the industry’s history. That will drive a lot of spending for commercial-grade furniture. What headwinds could the office furniture industry face in the new year? One of the biggest challenges we seem to have currently is capacity in the ports to have enough room for ships to load and unload containers. This is something that had not been anticipated in recent years. Globally, our infrastructure is not prepared for the amount of international commerce that’s going on around the world. It impacts every industry. There’s been talk of a shift to more private spaces from the open office concept. How do you think design trends are going to shake out? Many of the planned systems where we’ve eliminated walls and partitions have resulted in the inability for many people in the workforce to have a form of privacy. (I see it) as an opportunity for some new products that now will be able to provide visual and acoustic privacy. I think we are going to see the proliferation of private spaces that resemble the old telephone booth, except the phone will be replaced with video equipment for conferencing. What’s the number one thing the industry has going for it in 2015? The industry is profitable and I think it’s going to drive more product development, innovation and the ability to attract a younger and fresher workforce to design and produce the products that the market wants and needs. Last year, the main industry driver was pent-up demand. Is that still the case? I think it’s still driving growth. The business world is now in a position to make capital expenditures outside of production equipment and into people. That means new office furniture. The way people work today has changed dramatically in the last 15 years. The next generation coming into the workforce doesn’t know how to work in the environment the boomers established. They don’t like it and … this means new products. Interview conducted and condensed by John Wiegand.

Interview conducted and condensed by Mark Sanchez.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Participating in the capital roundtable were (r-l) Brandon Maat of Rua & Associates LLC, Jonathan Siebers from Smith Haughey Rice & Roegge PC, Tracy Larsen at Barnes & Thornburg LLP and John Kerschen of Charter Capital Partners. PHOTO: JEFF HAGE

Capital Roundtable Business owners can pick from many options for growth capital, M&A By MARK SANCHEZ | MiBiz msanchez@mibiz.com redit and capital remain readily available for companies seeking to make an acquisition or pursuing investors in 2015. That’s according to a panel of advisers MiBiz spoke with about the outlook for financing deals in the new year. Participating in the roundtable conversation on capital and M&A were four West Michigan professionals: ■ Tracy Larsen, managing partner of the Grand Rapids offices of Barnes & Thornburg LLP ■ Jonathan Siebers, a partner at Smith Haughey Rice & Roegge PC in Grand Rapids ■ John Kerschen, managing director of Charter Capital Partners and co-managing director of Michigan Accelerator Fund I ■ Brandon Maat of Rua & Associates LLC in Zeeland Here’s some of what they had to say.

From where each of you sit, give us the lay of the land. What are you seeing going on out there right now and where do you see it going next year?

interest to get capital deployed, so I don’t see that ending. I would have some concerns that there’s too much debt being placed on certain deals, and so it’ll be an awfully high bar of performance to meet those expectations.

KERSCHEN: From the M&A side, we see a high level of activity and a high level of valuation. Those high valuations are pulling the sellers in, and as the sellers have had a little more time in recovering their operating results, they’re coming into those M&A transactions with more confidence, better numbers, better results and a favorable environment. We don’t see a real end in the near term to the capital availability. There’s still plenty of debt capacity and capital available, there’s plenty of equity and there’s creative

LARSEN: This has just been a banner year for M&A, particularly in the middle market. You’re seeing a lot of the West Michigan companies involved in the game this year, many actually on the sell side. They’re out in the market because they are getting such great valuations right now. We’re seeing valuations on average up a turn and a half based just on averages a year to 18 months ago. I don’t think that’s going to change for the next year barring something that’s a little bit unforeseeable right now.

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There are just a lot of capital sources out there right now and we’re seeing the effects of that in the M&A market. Senior financing is available and we are kind of moving back to some of the covenant-lite deals that predominated before the meltdown in the late 2000s. We’re seeing leverage that looks a lot like it did back in 2007, 2008 and a lot of that, I think, is supply and demand. If you talk to most of the commercial bankers, I think they’ll tell you that they have more money they want to get out than they can get out right now, so they’re very competitive on terms and that makes capital more available in the world where I live in M&A, but also for growth capital. It’s a highly competitive market. SIEBERS: One of the things we’re starting to see more and more of are private equity groups that are coming downstream looking at smaller deals. I get inundated now with emails and calls from private equity groups that want to come into West Michigan and scope out deals and smaller companies. We’re talking companies with EBITDA ranges below a million to a couple million, and certainly that’s smaller than what historically private equity groups would go after. And they’re also offering to do minority recaps. I haven’t seen any of my clients go with any of those options yet … but I’m hearing more and more of them talking about doing it just because they have all of this capital out there. LARSEN: That’s the driver, right? They have capital they have to get deployed. SIEBERS: They’re fighting over deals and in some instances, they have to create deals by saying ‘we’ll do a minority recap’ instead of a buyout or a majority recap. And my clients are having a fairly easy time getting debt right now, a lot easier than four or five years ago.

MAAT: In general, the banks are a lot more aggressive, too, in terms of looking beyond conventionally financing deals. They’ll look at what type of government programs they can use, whether it’s the MEDC or SBA, and recently they’ve been looking a lot more at mezz financing as well to complement it. Grow Michigan (a mezzanine fund based in Plymouth) is one we’ve seen. They’ve been starting to implement that on some of the smaller deals. That’s been incredibly helpful from kind of the lower end of the market with some of those transactions.

Where a lot of banks used to be fairly limited on traditional financing, they’ve been able to use some of those other programs to make it a lot more competitive to where we don’t see the sellers having to carry near as much paper or the buyer having to put near as much equity down.

What do you see going on with the banks competing for those businesses that need credit? MAAT: One interesting thing I’ve seen on the line of credit side is the banks move away from the formula-based lines of credits. They’re not focused on the specifics and if they can increase the loan a little bit and move the line of credit a little bit higher, they’re open to doing that. From my end, that worries me a little bit. Those practices are there for a reason and they need to focus on those, and if they move away from that stuff, it kind of reminds a little of some of the stuff that got them in trouble before. LARSEN: The difference is now is we sort of laugh, ‘Did we learn our lesson?’ But it’s a

See CAPITAL ROUNDTABLE on page 40

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Capital Roundtable CONTINUED FROM PAGE 39

different environment now for banks from a regulatory perspective. It’s not just the big banks, but the smaller banks, too. There’s a lot more regulatory scrutiny. There’s a lot more care given. Yeah, it’s competitive on a pricing standpoint, but I think if you talk to the bankers they’ll tell you that oftentimes the commercial loan is a competitive entrée to sell other services that bank also offers. I, frankly, don’t see that we’re going to go back and see 2008 in the near term, and I don’t think we’re seeing that type of lack of discipline again. KERSCHEN: There are more controls now on bank lending than seven or eight years ago, so I would say what we see more often is the competitiveness on the pricing, more so than competitiveness on credit quality or relaxed terms, particularly in the lower to middle market where we spend most of our time.

How is it raising private capital today? KERSCHEN: I would say it’s still a very positive environment. Same kind of themes — that there’s plenty of capital available and looking for places to deploy. On an individual basis, we’re seeing active angel groups and organizations like that. In venture (capital), particularly in Michigan, the state of Michigan has done a nice job to promote that and provide some funding to get those organizations rolling. So that capital is prevalent. I would say some of the trend is a little bit from early stage to a little bit later. There’s been a history here in Michigan and West Michigan to invest it in some pretty early-stage companies,

“I was expecting to see strong upward growth all year (in 2014) for smaller-deal M&A and it’s been steady, but it hasn’t taken off as much as I thought it would. I think that we’re in for steady growth again in 2015 in terms of smaller M&A deals. Whether the floodgates are going to burst and all of the boomers are going to sell, who knows.” — JONATHAN SIEBERS, SMITH HAUGHEY RICE & ROEGGE PC PHOTO: JEFF HAGE

and it’s taken more capital than planned, it’s taken longer than expected, and you’ve had challenges with those small and early opportunities. A fair proportion of the investors are saying, ‘Well, let’s see something with traction. It may not be fully mature or a profit-generating, EBIDTAbased investment, but I can see revenues, I can see the customer markets are accepting whatever they’re offering,’ and so we make a little more of a growth-stage investment. LARSEN: The same old rules still apply. If you’ve never raised capital before, it’s still very hard to raise capital. The smaller your proposition is, I think, the harder it is to raise capital.

Are you seeing people who are selling their businesses and then putting some of that money to work and getting involved in private investing? SIEBERS: I see a lot of that. I’ve got clients that get the majority of their capital from (cashing) their chips out of their own company and they don’t want to just invest in the stock market, they don’t want to do mutual funds. They want to do something where they feel like they’re still involved, and they review all of the documents, and they can give input and they’re an adviser to the company. KERSCHEN: And they’re good at it. They’ve had success in their own business. They know what they’re doing. They have confidence and they’ve demonstrated they’re good at that. SIEBERS: My clients learned how to do it right and they find a couple of people that run in the same circles and then they get their groups of friends coming together and say, ‘We all want to invest with this group.’ And then they all have to go out and find deals to finance. MAAT: One of the things that we always try to help people out on is, ‘What are they going to do post-deal?’ That’s always a good option that we push toward people. If you still have that energy, help some of the people that are there, and we’ll have a number of people that are kind of sitting on the sidelines and if the right opportunity comes along, they may invest and, if they have enough energy, they may jump back in and run the business for a while.

Where do we still have voids in the capital continuum that need ﬁlling? LARSEN: There’s always going to be a challenge

for capital to back creative ideas. I think there’s always a challenge for capital to back smaller companies, just because there’s less risk tolerance there. There’s also the volatility risk that you can take in terms of any other place in the capital structure. It seems pretty full to me. People are aggressively trying to win the right to get their money out. SIEBERS: The small companies, they have to know how to sell themselves and a lot of them are really good at what they do, but what they do is not sell themselves to raise capital, and so they don’t get put together with the investors.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

equity groups around the country that want access to West Michigan companies. LARSEN: I think the vast majority of companies that are going to sell to private equity are going to sell to out-of-state private equity firms. It’s just the pure math. Every size of private equity firm is looking for deals in Michigan, from the very, very biggest to the guys who used to be more regional in focus. It’s just the sheer number of funds on the outside versus funds on the inside. We take a lot of local companies to market and the number of outside funds that bid is vastly greater than the number of in-state funds that bid because there are vastly more out-state funds. KERSCHEN: I don’t think geographic state boundaries matter in that context. There might be some romantic notion about doing it with a firm instate, but the reality is that you want a firm that is going to put a good deal together, that has experience in that industry, that has a philosophy that matches whatever your business philosophy is. Geographic location tends to be further down the priority list.

Certainly, the story has changed about Michigan in the last ﬁve years. What’s drawing that outside interest today? KERSCHEN: Historically, we’ve had conservatively, well-run businesses with fairly low costs of doing business here in Michigan and the Midwest. That’s attractive in certain industries. As an example, in the banking industry, we’re seeing the Indiana and Ohio banks looking for opportunities to get here to West Michigan or to Michigan in general. That wave continues. This is an attractive market because it’s economically stable. MAAT: We’re seeing that a lot with equity groups. They really resonate a lot with the character of people especially in West Michigan. Strong families, very ethical in how they run their businesses, hard-working, and stable. They like the idea of a lot of these family businesses that have been run close-knit and within the family and the history behind that. A lot of equity groups look at that and they appreciate the fact that it’s been conservatively run, but there’s a lot of opportunity with a business like that. You can inject sales and marketing, leverage and be able to grow something that is stable but had a lot of potential.

Are we seeing more outside capital continuing to come into Michigan?

SIEBERS: I hear a lot of the same comments, but my hunch is that these people are chasing deals everywhere. I don’t know that it’s necessarily West Michigan drawing them in, other than the fact that they need to find deals.

SIEBERS: I see it trying to get in. I don’t know if it is getting in. I see it personally because I’m getting emails and calls and visits from private

LARSEN: I think you’re spot on. The fact is that we have great companies that are coming to market that brings them in.

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The ability to raise equity via crowdfunding is now a year old after the passage of the Michigan Invests Locally Exemption (MILE) Act. What do you say to a company that asks about turning to crowdfunding? KERSCHEN: I haven’t seen it at all. I don’t see people using it. I read about it more than I hear or see actual companies that are considering it or have done it. It just hasn’t crossed our path much.

I don’t think it has, candidly, much of a future. Crowdfunding is not going to be the solution for most of the folks we’re working with. LARSEN:

SIEBERS: It seems inherently flawed to me that you are going to take the smallest, most risky category of business and put the smallest, least experienced, least financially capable investors together who are least able to stomach the losses.

What’s one prediction for 2015? KERSCHEN: Continued low interest rates. I don’t think they’re going up much at all. LARSEN: Significant and accelerated merger and acquisition activity. SIEBERS: I was expecting to see strong upward growth all year (in 2014) for smaller-deal M&A and it’s been steady, but it hasn’t taken off as much as I thought it would. I think that we’re in for steady growth again in 2015 in terms of smaller M&A deals. Whether the floodgates are going to burst and all of the boomers are going to sell, who knows. MAAT:

Continued aggressive buyer demand.

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They’re going to continue to stumble upon each other. I mirror what Jon says. I don’t think the floodgates are going to open. I think it’s consistent and steady. I think owners are comfortable in where they’re at in terms of their business. There’s a lot of owners that even if they’re 70, 75 years in age, or even older, they have the energy still. So I think they’re going to continue to run their businesses. What that means is there will be a lower supply, and that just means that buyers are going to be as aggressive as what they have been.

Where’s the money going next year? LARSEN: I think it’s going to continue to go into private investments. The stock market’s at relatively high valuations. Real estate’s been a challenging investment area. You’ve seen in the last five-plus years, 10 years, the emergence of family office investors. Those organizations are building on their area of expertise, which is ‘we are successful business people, we know how to run small companies and how to grow small companies, that’s where we’re going to put our money.’ Not all of it, but as a proportion of their portfolio that is larger. SIEBERS: The only point that I would raise is there’s going to be a lot of competition for those opportunities, so you may end up putting more of your money than you’d like to into those opportunities. KERSCHEN: The story and the differentiator that applies to privately held companies, particularly around West Michigan, is the indefinite hold period. If I’m a family office, I don’t have an LP base that I have to get my capital back to before my fund retires. Do I really want to face my company — that I started and grew — getting flipped again five years from now?

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Participants in the MiBiz craft beverage roundtable hosted at Founders Brewing Company’s corporate offices included, from top left, John Wiegand (MiBiz), Tim Suprise (Arcadia Brewing), Jason Spaulding (Brewery Vivant), Max Trierweiler (Mitten Brewing), Pat Evans (Mitten Brewing), Mike Stevens (Founders Brewing), Joe Boomgaard (MiBiz), Joe Infante (Miller Canfield), Walter Catton (Coppercraft Distillery), Paul Vander Heide (Vander Mill Cider), Garry Boyd (BarFly Ventures) and Brett VanderKamp (New Holland Brewing). PHOTO: KATY BATDORFF

Craft Beverage Roundtable Growth drives craft beverage producers to focus on evolving their business models By JOE BOOMGAARD | MiBiz jboomgaard@mibiz.com he evolution of West Michigan’s craft brewing industry can be measured in more ways than the growing volume of beer they produce. It can also be assessed by the quality of processes they’ve put in place to manage their increasingly sophisticated operations. Instead of chasing volumes, executives have shifted their focus more to profitability and perfecting the business models and strategic plans that drive their companies’ successes. The example set by the craft breweries has also charted a course for other players in the craft beverage industry, ranging from cider producers to distilleries to meaderies. To explore the transformation of the sector, MiBiz convened craft beverage executives for a wide-ranging roundtable discussion on the competitive landscape, the maturation process of their business operations and the role the industry plays in the West Michigan economy. Participating in the roundtable discussion were: ■ Garry Boyd, managing partner of Barfly Ventures LLC, an operator of bars and brewpubs including Grand Rapids Brewing Company and HopCat, which is in the middle of a regional expansion. ■ Walter Catton, co-founder of Coppercraft Distillery LLC in Holland, which opened earlier this year. ■ Joe Infante, partner at Miller Canfield Paddock & Stone PC in Grand Rapids who runs the firm’s alcoholic beverage team focusing on regulatory compliance. ■ Jason Spaulding, president of four-year-old Brewery Vivant in Grand Rapids. ■ Mike Stevens, CEO of Founders Brewing Company, which has started an expansion project that will take up an entire city block in Grand Rapids and give the company the space to potentially produce 900,000 barrels of beer. ■ Tim Suprise, president of Arcadia Brewing Company that started in Battle Creek and added a Kalamazoo brewery and pub this year. ■ Max Trierweiler, co-owner of Grand Rapids-based The Mitten Brewing Company LLC, which is in expanding into a new production facility. ■ Paul Vander Heide, co-founder of Spring Lake-based Vander Mill LLC, a producer of a growing line of ciders. ■ Brett VanderKamp, president of New Holland Brewing Company LLC, a Hollandbased brewer and distiller that’s planning an expansion to Grand Rapids. Here are some highlights from their conversation.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

What’s your outlook for the new year? What’s next for your companies? SUPRISE: I’m happy to say that getting our 2014 expansion behind us will get us a chance at Arcadia to get back to a few of the regional markets that we had been in for a few years prior to having to pull back. We’ve taken a pretty measured and deliberate approach to our growth. We didn’t build an awful lot of capacity into our facility, about 59,999 barrels is the maximum that can get produced on the site that we’re in. Given that we expect to be at or about 14,000 or 15,000 barrels this year, that gives us plenty of room to grow in our model, staying really focused on the Midwest. We’ve got a pretty cool space there in Kalamazoo that we’ve yet to fully develop. BOYD: At HopCat, we’re expanding the brand; 2015 for us is going to be a huge year. We’re going to do a lot of stuff that we’ve never done before. We’ve been positioning ourselves for the last year to do this. STEVENS: For us, ’15 obviously is about the expansion. It is a large expansion, but quite honestly, our leverage ratios are the smallest they’ve been even at the dollars that we’re sinking into it. We look at that quite heavily. We’re going to wrap that up mid-year. That’s our focus and our goal. SPAULDING:

For us at Brewery Vivant, we have a goal of 5,000 barrels, which we’ll be close to at the end of this year and we’ll hit next year. I see it being a powerful thing. We have a goal of so many barrels, and that’s as much as we can make. Going forward, we’ll have to start choosing who we’re going to partner with. … We can only make so much. TRIERWEILER: 2015 is going to be a little different for us. We’re going to focus on consistency more because we’re going to start looking for tap handles. Up to this point, we’ve embraced our

smallness. From one batch to the next, it doesn’t need to be exactly the same and we try to get as close as we can. Once we get that 20-barrel up and running, that consistency is going to be very important to us. CATTON: We spent heavy last year in capital for startup, so for us (next) year, it’s getting to full utilization. We’re not looking to open new markets. We’re looking to go deeper and broader to the markets that we’re in. And then, collaboration, relationships and continue our networking. (Our focus) will mainly be on production and building our distribution relationships. VANDER HEIDE: We’ve got a rat race right now in the cider industry. It’s been the fastest growing category at 60 to 80 percent. … We’re trying to stay focused on what’s in front of us and not worrying about what’s coming up behind us or who else might be in the industry. We’re going to continue to expand as we see the opportunity to do so. We’ve got a challenging mission like these guys have in years past with craft beer in that there’s a lot of education necessary for cider right now. We’re doing the best we can to try to educate people and try to show them a different product to what they’ve had before.

Are there any particular challenges that stand in the way of your growth as you’re starting to plan for 2015? BOYD: We have some challenges that we’re learning as we leave the state. Michigan is craft beer-centric. There’s a lot of things going on here. … We’re going into markets now where they’re not necessarily as ready for it as Grand Rapids was even seven years ago with what was going on in the Michigan beer scene then. VANDER HEIDE: The phenomenon for me is even worse: Cider is that much further behind craft

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beer. … We’ve got some of the bigger brands throughout the country that are just owning some of these other markets for our category just because, outside of Michigan, unless you’re up in the northeast or northwest where it’s more apple country, you’re teaching (customers) from the ground level. SPAULDING: Michigan’s got a strong enough culture that they’re kind of keeping some of the other regional breweries in neighboring states from attempting to distribute here. Some of them try, but I think we have such a strong Michigan culture of beer that it makes it less attractive. Everyone’s looking at Michigan, but I think it’s harder and harder to get into our market than they might have thought. STEVENS: It’s no doubt a hard market to penetrate, but I would also argue that it’s also hard for all of us to penetrate California, Texas, Florida. We’re obviously very strong in the Midwest — that’s half our volume. If you can’t do it in your backyard, then you’re really going to struggle because the numbers get pretty small as you get farther and farther out. The growth is there, but it’s from a much smaller base. TRIERWEILER: I think that’s why all these small microbreweries are doing well because I think everyone is trying to (feed) the local-centric movement. You have neighborhood breweries popping up. STEVENS: We’re struggling trying to get (tap) handles because there are so many little local brewers out there that deservedly should command a handle or a spot on the shelf. In my mind, (Founders’) business strategy was if you can get to that top 10, top 20 craft brewery status, then you’ve at least got a place on the stage and that will at least help isolate you from those problems.

How do your businesses keep evolving to become more sophisticated given the growth most of you have experienced? From New Holland’s perspective over the next three to five years, we see continuing growth, but we’ve really shifted big time to measuring our growth based on revenue and stopped looking at volume. Certainly, we keep an eye on volume and make sure we’re plugging along. But really, revenue and getting healthy on the balance sheet and the P&L, that’s where I see it going. VANDERKAMP:

We’ve shifted our focus a little bit — as a part of our expansion — away from total revenue generation and more to profitability and being in the areas and markets that made sense for us, geographically and philosophically, from a culture perspective. SUPRISE:

We are more focused on distribution than volume. We identify distribution points by a grade and those are the ones we attack, so that we’re not getting into the B and C accounts. We focused on distribution and rate of sale. As long as their distribution is growing and our rate of STEVENS:

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sale is continuing to grow, wherever the volume ends, it ends.

VANDER HEIDE: Or you just have to wait. I haven’t experienced it. Our business over the last three to four years, volume-wise, has been 100, 125 percent growth, so it’s like hanging on to a fast horse. Frankly, our bank has been there with us every step of the way. It’s SBA deals, which can be cumbersome and take a long time, but we have been able to support the growth just by showing profitability and opportunity. … I don’t know that I would have gotten any of our last two financing deals if I hadn’t been beating on the banker’s door. That persistence, I think, is necessary.

We also look at the bottom line number for us. That KPI that we drill in on is the EBITDA margin (earnings before interest, taxes, depreciation and amortization). We have a pretty high EBITDA margin, and we don’t allow ourselves to make decisions that would allow us to go below that. We won’t approve our budget at a board level if the EBITDA margin isn’t where we want it to be. That keeps you in check both on your revenue side and your expense side so you don’t start doing dumb things or discounting or pricing incorrectly. When Brett and I started New Holland, I didn’t know what HR meant, and now we’re all talking about EBITDA and stuff like that. (Laughter.) I think the business side of things is really starting to develop in this industry. You do have to be a smart business person. … We have to be efficient in our brew house. We can’t have empty tanks. We’ve got to maximize what we can make. We don’t want to leave people short. SPAULDING:

VANDER HEIDE: It’s getting more and more critical with the growth that we’ve had to really work on the process elements of the business. With fast growth comes a lot of opportunity for failure if you don’t get things figured out. For 2015, a big part of it for us is getting the right people in place and making sure that we have the ability to grow as the opportunity presents itself. BOYD: We changed the way we communicate as a company. Instead of looking back at the week — we used to do a week in review — we look out, and we focus on the people in the company and the people coming through the doors, whether that’s the front door or the back door. We focus on the quality of the experience and the product. Every communication starts with people and quality and then there’s a third one that we don’t really spend that much time with, which is profit, because we think that the top two lead to the bottom one.

Can craft beverage companies access the necessary capital to grow and expand? INFANTE: From my perspective, the problems are still finding financing. So many of my clients just can’t get money. Banks just aren’t lending to them for the expansion. I’ve got at least two or three right now who want to expand, but are just having a hard time getting (financing) — and they’re profitable. The banks are looking at the industry, and a lot of banks just don’t understand the growth that’s there. They still lump (craft breweries) in with restaurants and (their) failure rate. SPAULDING: I did talk to one banker who said that they’re all excited to loan breweries money, but there are so many breweries opening that now they’re worrying about it. They think the bubble is going to burst and they’re going to get caught.

“We won’t approve our budget at a board level if the EBITDA margin isn’t where we want it to be. That keeps you in check both on your revenue side and your expense side so you don’t start doing dumb things or discounting or pricing incorrectly.” — MIKE STEVENS, FOUNDERS BREWING CO. PHOTO: KATY BATDORFF

What are your options if the banks won’t lend? STEVENS: Raise equity. That’s how we did it. A lot of us in this room started that way. You bring equity on and then you bring some debt into the picture as you can.

CATTON: Persistence with results. From a distilling standpoint, we lay (product) down and then we kiss it goodbye. We’re a working capital nightmare. Everything we put into a barrel has to age, two, four or six years, so I don’t get the immediate return. The first couple of years, you’re selling clear spirits at a dismal margin. We have zero value and your bank won’t give you value for your inventory. They can’t take possession of it, they can’t take a position in it. So it has to be non-collateralized and you have all these barrels sitting around that are worth nothing — but all your money’s in the barrel.

Given the struggle with ﬁnancing, how do the new intrastate crowdfunding rules play into your industry? TRIERWEILER: I don’t think it will play a very big role. You’ve got to be careful of who you go into bed with, too. VANDERKAMP: That’s where I see big problems with it. … Say you’re incredibly successful and you’ve just done this crowdfunding platform. Are you going to have a class action lawsuit? Are people going to be coming back for you saying, ‘Well, I did give you that money. Now I want a piece of your company.’ SPAULDING: When you’re trying to start something and you’re running into all these roadblocks, there’s a desperation. Your approach with banks is off, or your business plan is not good. You’re trying to do anything you can. I can see why people would try to do it, but I don’t think it’s a good way to go for our industry. But I’m sure some people will do it. VANDER HEIDE: It’s time to be a grown-up and go borrow some money.

Are you saying that the owners need to be more vested in their ideas? VANDER HEIDE: There’s a Churchill quote: If you play for more than you can afford to lose, you’ll learn the game. That’s another part of crowdfunding. In order to be a successful small business owner, I think you have to jump in with both feet and you have to believe in it so strongly that you’re willing to give up everything to make it work.

See CRAFT BEVERAGE ROUNDTABLE on page 44

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Craft Beverage Roundtable CONTINUED FROM PAGE 43 CATTON: (People wanting to start a craft brewery or distillery) say, ‘I’m going to do this parttime while I keep my full-time job. I’m going to do this nights and weekends.’ My advice is always … if you’re going to do it, you’ve got to go all in. You’ve got to feel that sense of drowning at some point.

(Sometimes) for years and years. I wrote a business plan 20 years ago, quit my job and said, ‘This is what I’m going to do.’ We never broke even until 2008, 14 years later. STEVENS:

How can craft beverages be competitive with the much larger, wellcapitalized international brands that have dominated the market for so long, particularly as they’ve started to acquire small craft breweries across the country? SUPRISE: We have to continue to be cultureoriented. … When you look at what’s going on in today’s millennial market, these guys are targeting the same people that we are — with a lot more dollars and a lot more creative (resources) to sell what we consider to be less than the culture of our product. They’re going to come at it from a different perspective, and I think we can all count on that. We all have to be true to our culture in the face of whatever that next phase will be.

It will be interesting to see how the consumer reacts to whatever they decide to do. Thus far, the consumer has been smarter than them. They’re trying to buy people out and put out craft beer products, but everyone points the finger back to the big brewing industry and everyone knows they’re not buying it. TRIERWEILER:

STEVENS: I think the big guys are going to buy maybe four to six breweries apiece. It’s going to be based on geography, and they’re going to own a piece of this pie. They could own three or four million barrels of the pie. My money is betting that’s going to take place in the next couple of years. … The big guys are smart, and they do have a lot of money, and they’re going to get in. It doesn’t mean they’re going to own a big chunk of it, but they could be selling 30 percent or 40 percent of the volume.

the simple fact that (today’s) kids saw mom and dad growing up drinking nothing but a New Holland, a Founders, a Bell’s — craft beer — they don’t really know what the hell a Budweiser or MillerCoors is. That, to me, is key for the future. We’ve got a whole new generation that’s growing into beer that did not grow up in the big domestic beer world. You’re not going to take that away. For that consumer, it’s hard to bring that palate back down to a light domestic beer. VANDERKAMP: When people want to learn more about real people making real beer in their community, that’s where we need to shine. It’s back to the point about culture and being true and being real. SPAULDING: That’s why brewpubs are so important because it helps create that culture. The big breweries are never going to do that. BOYD: When you look at how the country was founded, the center of the community was a brewery. People brewed beer at home. We’re slowly making our way back to this. The center of the community is all these little pubs. SUPRISE:

We’re all patriots.

Back to the notion that we’re in a craft beer bubble: How do you counter that argument? We view it as this is actually more of a pendulum swinging back to normal as opposed to where we were in a bubble that was peaking in the ’80s and ’90s with the big beer when we were down to so few folks and the industrialization of the industry. We think it’s moving back to more of a balance. I think we have a long way to go yet. VANDERKAMP:

STEVENS: I think the big domestic guys could be nothing more than a tiny little blip in the whole history of beer. The way it’s been for centuries has been lots of breweries. They might own 100 years of the beer history, but that’s tiny. They’re 10 percent of the history of beer.

Looking out at the other two tiers of the beverage industry — distribution and retail — what’s the lay of the land these days? SUPRISE: The middle tier, the distribution tier: As we’re exploding, they’re reducing. That’s a consideration for us. It may not be a competitive threat. It may be a strategic opportunity depending on who you’re aligned with and how it’s working out. But nonetheless, it’s a landscape and a potential game-changer if it keeps going like this. From a retail perspective, there’s only so much shelf space. We are not going to see the age of 80- or 100-foot cold boxes any time in the near future, certainly from the biggest and most prevalent distribution points in the state — the major chains.

How does distribution factor into the business model for craft breweries going forward? SUPRISE: Those business models for those smaller breweries that are just getting started, they’ve got to have the right model, the right capitalization plan, the willingness — if they’re in that packaging component — man, you’ve got to slog it out into a really competitive market. STEVENS: I think the days of opening up large are very, very dangerous. It is very, very competitive. The amount of SKUs that are coming out far outpace the rate that the shelf space is growing. SPAULDING: For us, our model is to stay small on purpose. … There’s a lot of danger if you have to sell so much beer to pay for all this equipment that you just purchased, and there’s only so much shelf space, and it’s going to continue to get more competitive, and there’s only so many taps. Sometimes, just being a local brewpub is a strong model in itself. You don’t have to try to do everything. You don’t have to get bigger and bigger and bigger. If people spend too much money at the wrong time and the shelves are already full, I think that’s the danger. STEVENS: We all have to make our own business decisions and create our own models. We were getting to the point that we were getting large

“It’s getting more and more critical with the growth that we’ve had to really work on the process elements of the business. With fast growth comes a lot of opportunity for failure if you don’t get things figured out.”

What’s driving the growth in the consumers’ palate for craft beverages? STEVENS:

SPAULDING: I think we have our own culture here. It’s significant, it’s noticed nationally. I think we’ve got bigger tasting beers in Michigan than in other parts of the country. Part of that’s just the tradition of beer that we’ve established already from Bell’s to Founders to moving on. That’s our thing. STEVENS: When we started, I can remember Dave (Engbers) and I talking about, ‘Well, we better at least make beers as good as Bell’s or better or we’re not going to make it.’ The bar has always been pretty high, and I’m sure it’s kind of the same theory now as people open the next brewery. ‘Well, we better be at least as good as New Holland or Founders in making beer.’ It keeps evolving and the bar just keeps going higher and higher and higher. VANDERKAMP: To Jason’s point, I think we have a real breadth of product that we’re producing. … I think one area we could all push further on and that we all support is local ingredients to give us our own terroir, if you will. There are some opportunities that we’re seeing with some Michigan-strain hops that were discovered growing wild. We continue to support them and cultivate that and get a unique flavor profile to some of our beers. I don’t know if it could be a game-changer in the next five years. But certainly, looking out 10, 20 years, I could see that becoming really key and giving us more of a Michigan identity.

Why do you think there’s so much attention being paid to the craft beverage industry in West Michigan these days?

How else could corporate-owned craft operations or even the largest craft producers affect your business?

VANDERKAMP: It is a part of a bigger question of chasing volume versus quality and how you build your business model. Certainly, people are building their business models that want to move a lot of volume through and that’s going to put a downward pressure on pricing for all of us.

There are many places around the country that are known for craft beverages, whether it’s wine in California or beer in Oregon. What can West Michigan do to foster its own identity within the national craft beverage scene?

CATTON: We contracted with a local farmer for a certain plot of land, basically, for the rye and the wheat and the spelt and the triticale and whatever he’s growing is all for us. But next year, it’s going to taste different and you’re going to have variation in product. To the terroir point, we’re going to celebrate that. … Rather than try to blend it away and get that consistency, I think one of the benefits we have as a small producer is to say this rye is going to taste different. It’s got a little more character.

VANDER HEIDE: In the cider world, these guys did not wait like they waited with craft beer. You’ve got national brands that launched in no time with Sam Adams and Miller and Bud. I think… there’s so much market share yet that all these guys are doing is all the heavy lifting for us. If they’re going to turn a Miller Lite drinker into a Miller Lite Cider drinker and get them into a product, eventually they work their way through that and get to us.

STEVENS: There’s a lot of competition out there when it comes to pricing. I don’t think it’s going to turn into an ugly war. I just think there’s going to be a bit of an adjustment that has to take place.

enough that we weren’t really a small regional (brewery) and yet we weren’t national. For us, the decision was let’s go at it for the next two years and get national. (At the retailers), let’s face it: 300 breweries are not going to have space on the shelf. So put yourself in whatever market you want to be in, be smart about how you finance it, always make sure that you’re not over-levered and you can weather through any storms, and that’s just what you do.

— PAUL VANDER HEIDE, VANDER MILL LLC

If you really stop and think about

VANDERKAMP: The story is much larger than craft beer or spirits or cider. I think what you’re seeing is a return to craftsmanship and I think we’re just fortunate that we’re on the front wave of it. People are very emotionally attached to the beverages because you’re ingesting it and it’s something very personal. I see craftsmanship making a huge resurgence here in the next five to 10 years. Whether you’re a saddle maker or whether you’re a shoemaker, I think it’s a much larger trend than what we’re seeing. We’re on the front edge of it. TRIERWEILER: We’re also changing neighborhoods. That was one of our goals when we went over (to Grand Rapids’ west side neighborhood), and I can’t believe it’s happened so quickly. We wanted to revitalize the neighborhood, and that’s what craft breweries are doing. I think we’ll see it in Cedar Springs, we’ll see it in Newaygo, we’ll see it all over the place.

PHOTO: KATY BATDORFF

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Participating in the health care roundtable were (l-r) MiBiz Senior Writer Mark Sanchez, Bob Hughes of Advantage Benefits Group, Scott Norman of Priority Health, Kelley Root of Blue Cross Blue Shield of Michigan, and Jim Kenyon of Hylant Group. PHOTO: JEFF HAGE

Health Care Roundtable As health care costs moderate, employers still wrestle with provisions of the Affordable Care Act By MARK SANCHEZ | MiBiz

they are in compliance with the mandate.

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That’s the big question in 2015. Are more of the uninsureds going to enroll? That’s the underpinning of the whole thing. The other thing to watch in 2015 is the Supreme Court and its ruling on the subsidies for those 30-odd states that have the federal (exchange). NORMAN:

ealth care costs are moderating and last year grew at the slowest pace in 53 years. That’s the good news for employers. What some will surely see as potential bad news are provisions in the federal Patient Protection and Affordable Care Act that require employers in 2016 — starting with 2015 data — to annually report to the federal government which employees have health coverage. It’s a requirement experts say could prove very burdensome. For perspective on what’s ahead for the ACA and health benefits in 2015, MiBiz sat down for a conversation with four professionals in the field:

■ Scott Norman, vice president of sales at Priority Health ■ Kelley Root, regional sales director for West Michigan at Blue Cross Blue Shield of Michigan ■ Bob Hughes, president of Advantage Benefits Group in Grand Rapids ■ Jim Kenyon, a client executive at Hylant Group in Grand Rapids Here are highlights of the conversation.

From each of your perspectives, what do you see happening with the Affordable Care Act in 2015? Congress will pass a bill to wipe out the Affordable Care Act, and then the president will promptly veto it. They will fulfill their campaign promise, ‘Look what we did,’ and then the president will finally realize that he’s going to be out of office in two years and he’ll say, ‘Oh, maybe I ought to show some level of cooperation and agree with some of the modest changes in the act.’ KENYON:

I don’t see it going away. There’s too much going down the tracks, and obviously you have a certain president there that put it in. But I do see some re-energized pushes to change the definition of a full-time employee (now at 30 hours per week). You’ll see a hard push for that one from the 30 hours. I don’t think you’ll get 40, but aim high. I think you’ll see the medical device tax get taken care of also. HUGHES:

NORMAN: You’re going to see a lot of different

challenges, but it’s not going away. The political change is going to continue to put pressure on the law. In terms of what the market is going to look Visit www.mibiz.com

like, I think you’re going to see it smooth out a little bit. … The open enrollment this year (at healthcare.gov) for the individual policies has been a little smoother and some of the kinks are worked out. From a competition standpoint, there’s more competition in the individual market in 2015 — more people came in and there’s more plans — and you’re also going to see the pricing smooth out over the next couple of years. From a consumer standpoint in the individual market, you’re going to see pricing fluctuations start to go (away). It took about three years for the Medicare market to smooth out when Medicare Advantage came. You’ll see a similar thing here. ROOT: Last year during the enrollment period, there was 500,000 individuals (in Michigan) that could enroll in the individual market, and there were 273,000 that did enroll. What will be interesting with that this year is to see if more of that has picked up, if we make more of a dent into that 273,000. And for those that did enroll (in 2013), how’s the re-enrollment? With the employer mandate (to offer health coverage), you have employers out there that have to figure things out and are probably a little more cautious and nervous to make sure that ‘are we fulfilling our obligations to avoid penalties” and to make sure

HUGHES: Speaking of the subsidies, I don’t think this gets nearly enough credit, but 87 percent of the people that bought on the exchange got a subsidy. So you can say, ‘If they build it, they will come.’ Yeah, if you build it and you give them money, they will come.

We know Congress is going to take a run at the law in 2015. What change should occur and what would you like to see happen? KENYON: It has to be less onerous on employers. This is one of the reasons why we haven’t seen the final draft of those compliance forms. A lot of employers are complaining to the feds about the complexity of the document, and the length of the document, and the size of the document.

(Editor’s note: Under the ACA, employers in 2016 must begin reporting to the federal government which employees take the health benefits they offer, which do not, and the costs of the plan using data from the preceding calendar year.) HUGHES: One of the more obvious things is the adverse selection that’s going to continue and get worse, just like what happened in Massachusetts, because you got rid of pre-existing conditions. But at the same time, the penalty for not having insurance is so low compared to the actual cost of the premium that it’s set up to game the system. To think that people won’t game the system, that is ridiculous because they will. So if you are going to get rid of pre-existing conditions, the penalties have to be more realistic. NORMAN: If I could change one thing, it would have to do with the group market and the required rating mandates, the per-member rating and the required and very strict rating requirements. We can’t apply things in the past that we would apply to adjust for risk characteristics, which is kind of

insurance 101. So the per-member rating is one thing that we could change, and I think most employers would welcome not having to go in that small-group market to the per-member rating. (Editor’s note: The method for rating small employer groups changed in 2014. Employees enrolled in small-group health plans are now rated based on each person in the group. A rate for each individual is then set based on their age and where the employer is located. Rates from the lowest to the highest cannot exceed a three-to-one ratio, which restricts rates for people up to 65 years old from being more than three times that of someone younger than 20 years old. In some instances, the so-called resulting rate compression has led to large rate increases for companies with a younger workforce.) HUGHES: The effect of the impact on per-member ratings is really difficult on the employer and the employee. From a contribution strategy to sharing the cost, it just has a lot of ramifications and creates a lot of problems. ROOT: The uncertainty. While we think — and that’s another question coming to play — that the 50-to-99 (employee) market is going to be considered small group (in 2016), is it really? All of a sudden are we going to change course? From a carrier perspective, you have systems, you’re making changes, and you’re investing to make those changes and to prepare, and then the course changes, and that makes it hard on everybody. There is still a sense of uncertainty about that. NORMAN: There definitely is about that 50-to-100. I wouldn’t be surprised if they pushed that back.

(Editor’s note: Right now under the ACA, the small-group market is defined as employers with 50 and fewer employees. That definition changes to 100 or fewer in 2016.)

As you’ve gone through open enrollment year with your clients, what type of reactions are you getting? HUGHES: I would say they are angrier just because of the compliance stuff and the additional taxes and fees.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Health Care Roundtable CONTINUED FROM PAGE 47 concerns still are for small employers. Even Are you seeing any employers decid- bigger though it would be easier to just wash their hands ing to drop health beneﬁts, pay the of it, you still have issues with attracting talent. penalty and send employees to the health exchange to buy coverage? How do you see private health HUGHES: I’m seeing companies that are getexchanges working out? ting the hammer job because of the memberlevel rating. They are getting to that point now where it’s almost like, ‘I’m getting close to walking away.’ They get in that no-win situation. It’s getting close to that conversation, I think.

NORMAN: We’ve had about — and I think our numbers are fairly consistent — less than 10 percent of the small groups that have dropped coverage in our book (of business) this year in 2014. In 2015, that may change. The number’s probably about 6 or 7 percent. It’s hard to know because we don’t always know where they go sometimes, so it’s a little bit of a fuzzy number. … The smallest groups are the ones that are dropping first, and it’s an easier decision for them because they can do a real quick comparison on the individual (policies) and subsidies and who gets subsidies. So we’ve seen some drop, but not a wholesale movement out of the group market yet.

For 2014, it was small. For 2015, I would say the number will increase. The jury’s out and we’ll have to see where they land because a lot of them may have converted to individual (coverage) and most carriers do have an individual strategy where if you have a company that wants to drop coverage, the carrier’s goal then is to help partner with the agent and help people choose an individual plan that would be comparable to what they had so people aren’t high and dry. I think the ROOT:

It’s a limited movement to the private exchanges. There’s still a little bit of ‘everybody’s talking about it, nobody’s doing it.’ NORMAN:

But still the rates are the rates. You can’t run from the rates. ROOT:

HUGHES: The people that are talking about private exchanges are the people that have them and are out there pushing them. In our business, you have to be real careful because there are agents and benefits consulting firms that have their own products. They are supposed to be out there advising clients as to what their best option is, and if one of them is your own product that generates extra money for you, how can you advise them on which exchange is better? Your exchange or the other one? A lot of times employers are already doing what a private exchange does. They offer two or three different plans and they spend the same amount on each plan.

The jury is still a little bit out on it. Our approach has been a little bit different than the Blues with their approach on Glidepath. We didn’t elect to build our own. Our approach is to partner with an existing exchange platform (iSelect Custom Benefits Store) and I don’t see us changing from that anytime soon. But we don’t see a tremendous amount of enrollment going there yet. We do think there will be a fair amount down the road, but it’s still really hard to predict. NORMAN:

Q&A: BILL MANNS MERCY HEALTH SAINT MARY’S Grand Rapids Just because more people are getting health coverage through the Affordable Care Act doesn’t necessarily mean they have easier access to the care they need. Care providers need to ensure they have the right capacity so people can get to see a doctor when they need it, said Bill Manns, the president of Mercy Health Saint Mary’s in Grand Rapids. The move to high-deductible health plans also has some people still struggling to access health care because they can’t afford to pay the deductible. Manns spoke with MiBiz about why those issues need attention in 2015.

What are the biggest issues both for your organization and for health care in general in 2015? For me, it’s all about access and really helping to ensure the patients and the people of West Michigan have access to affordable, high-quality health care. I’ve seen other organizations struggle with getting people in on a timely basis. At Saint Mary’s, we’re all about access and making sure we can meet the needs and demands of the market. That said, as we as an industry must start to focus on keeping people healthy and really providing them access to primary care, and doing the right things and managing the health of the overall population. I see that as being something really important. What that means is access and ensuring that people can get in when they need and want to get in to see providers. It means reminding people of ways to keep themselves healthy. It means answering questions in a timely manner so in many cases they don’t have to come in to see a provider. Things can be dealt with over the phone. What does that mean for new buildings and construction? I really see the industry focusing on not bricks and mortar but on some of the high-end technical pieces of equipment. They’ll continue to be important, but as you look at the overall health of the community, the industry is shifting gears and really focusing on keeping people healthy. What do you think the economy is going to do in 2015 and how will that affect your business? I see the economy rebounding and getting a lot healthier. That’s really good for our business because as it gets healthier, more people get jobs. As more people get jobs, they have health benefits that they can use. Some of the challenges that exist around that will be the deductibles increasing. While people will have jobs and new employment, just trying to meet the higher deductible plans is going to be a challenge for them.

HUGHES: The numbers have to make sense. If an employer is doing the right stuff, and offering a proper plan with proper leading-edge stuff, an exchange doesn’t save you any money. ROOT: You have to buy in to the philosophy of the platform (and the defined-contribution benefit model). You don’t get cheaper rates on the private exchange. If your rates are not sustainable the next year, (employers) are still going to shop that. We viewed it, for us, as a defensive move to maintain membership, but also to try to provide some other options, knowing that it would be entering the marketplace. NORMAN: Cost is still the big issue, and that’s kind of the big miss on health care reform in general. If you look at the cost of a premium, on average, 85 percent of that premium cost is medical claims. So the focus really has to be there in order to sustain long term. One of the focuses that we have is on how do you attack and manage chronic conditions. How do you engage people in their health and how do you provide things like transparency (of costs)? That’s really where the key is going forward, and for employers, that’s where they really have to focus as well.

What are some of the big trends you’re seeing in this year’s open enrollment? ROOT: We’re seeing more quoting in self-funding in middle markets from a tax advantage standpoint, which opens up a whole different menu and being flexible with different things that you can add on to the plan to manage your own dollars. I would say this year, though, for groups that are 50-plus employees, our volume of what we call wholesale changes where they are actually going to make benefit changes has decreased substantially. (Employers) are not making as many benefit changes.

What’s one prediction for 2015? We’ll start to see a lot more technological solutions around health and many of those technological solutions will be somewhat commonplace. We’ll see a lot more communication between patients and providers via email, text messages, etc., and I think we’ll start to see a tempering of emergency rooms visits. Name two changes you’d make the Affordable Care Act. One: I would really change the incentive for providers to actually deliver a lot more primary care service. Right now, the incentives are not aligned. Two: You really need to address the issue of deductibles. Now people have coverage, but they really don’t have access. I think those two quick changes would really help to improve access. And I think there’s a lot of confusion between coverage and access. That would be the issue I would try to address. It’s like buying a car and not being able to afford gas for that car. It’s wonderful that you have this vehicle, but you actually can’t use it, so it defeats the purpose. What’s the biggest trend in health care right now going into 2015? We’re starting to see a lot more partnerships. Consolidation is going to continue for the foreseeable future. I don’t see that trend stopping. There are also a number of players that are getting into the primary care space, and at least flirting with that. What the biggest challenge in the year ahead? With so many competing factors and with so much going on, (it’s) really the prioritization and working on the relationships (between providers) and ensuring that you’re doing the right thing from the patient’s perspective. That’s always a challenge: To remind everyone that we need to put the patient first, and in doing that, the business issues fall into place. The Centers for Medicare and Medicaid Services reported this month that health care spending in 2013 grew at its slowest rate in 53 years. What’s going on that’s slowing that spending growth? A couple things. One, as we actually start to bend that cost curve, there’s a significant amount of waste in health care. Many providers are starting on — and we at Saint Mary’s are continuing — a lean journey utilizing things like the Toyota Production System to drive out waste in the process. That’s huge. Where maybe historically there’s been an overutilization of certain procedures, we also now realize that that’s not going to do much to improve the health of that patient. A reduction in utilization is definitely occurring while more people are actually getting access to a service that before they just didn’t have access to. You’ve got those two things going on and actual cost is going down. Interview conducted and condensed by Mark Sanchez.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

NORMAN: We definitely are seeing a self-funding spike as well. In the large group, 60 percent of the business that came in this January and last January were self-funded, so we’re seeing a lot more employers move to self-funded. KENYON: A lot of my rate renewal increases have been fairly modest, but the process hasn’t really changed. They’re still moving the pieces around, increasing deductibles, copays, and (making) slight adjustments to payroll deductions.

What’s happening with premium increases for 2015 policy renewals? ROOT: Some of the costs have definitely started to level out. I would say within the small-group market, we were between, on average, 2 and 7 percent, and then in the individual market I think we’re around 9 percent. NORMAN: The average rate increase is about 6 percent, which is pretty favorable. I always hesitate when I say 6 percent is great. Most HR folks will probably challenge you on that. I’ve been told a couple of times, ‘6 percent may sound good to you, but it’s not that great to us.’ (But) definitely, our rating has flattened out a little bit. Large group is similar, although each group’s unique claims experience comes into play. Overall, the individual market, on average for us, actually probably went down close to about 5 percent. That’s a little bit of a product of how we priced (it) in 2014. If you’re talking premiums, premiums can be misleading in terms of trends. You still have to look at the underlying cost trend. HUGHES: Most of our stuff is self-funded and costs have actually stabilized. The lower increases, I think that’s a product of a lot of people (making) big changes in the past and the impact of consumerism. The vast majority of our plans now are high-deductible. KENYON: We’ve had decreases all the way up to a 60-percent increase. Try to deliver that message. It’s just the collision of the perfect storm coming together.

What’s one prediction for 2015? KENYON: There’s going to be more employers — more than we care to admit — that are going to be surprised about this government compliance reporting requirement. I think they’re overlooking it. I’ve had discussions with companies who are saying, ‘Oh, my payroll service is going to take care of that for me.’ Maybe, maybe not. Probably not. So now they are going to wind up coming to the realization in October that they have to report all of this stuff at the end of the year and they don’t have the data. They have to go back and recapture from January 1st who was on the plan, who was not on the plan. It’s going to be terrible. ROOT: It will be interesting to see if there will be any movement on the 50-to-99 piece and if it’s going to continue to move for small business. NORMAN: Based off of the political landscape, the biggest thing you’ll see is continual challenges to the law. The medical device tax, the minimum hours — those are the two things that will probably change. I’ve referred to the ACA like the weather in Michigan. Give it a couple days and it will change. So that will continue through 2015, which will make it paralyzing at times for consultants and agents, for carriers and for consumers, because what we’re doing now is for 2016. So as things change in the middle of 2015, it puts all of us in a position that we have to go back and undo things or redo things or change or pivot, and that can be a challenge for the entire system of health care. HUGHES: You’re going to see an acceleration of more people in consumer-driven plans. I’ve had companies that offered them in conjunction with a traditional plan. Now you’re seeing companies move to offering just those plans, and that will be the plan of choice by domination. You’re going to see the continued evolution of transparency stuff as it just gets better, and I definitely think you’ll see something happen with the full-time employee (provision of the ACA) and the medical device tax, and you’ll see consolidation continue with doctors’ offices being purchased by hospitals and things of that nature.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Participants in the real estate development and construction roundtable included (from top left, gesturing) Mark Miller (Nederveld), Pete Michell (Rockford Construction), Arnie Mikon (TowerPinkster), Norm Brady (ABC West Michigan), Mike Houseman (Wolverine Building Group), Kirt Ojala (CD Barnes), Brian Campbell (First National Bank of Michigan), Joe Boomgaard (MiBiz), Nick Manes (MiBiz), John Kuiper (Colliers International) and Todd Oosting (CD Barnes). PHOTO: JEFF HAGE

Real Estate, Development & Construction Roundtable Talent remains top concern as development industry heats up By NICK MANES | MiBiz nmanes@mibiz.com he success of the West Michigan construction and real estate development industries in 2015 will hinge on companies’ ability to develop, attract and retain talent. That talent issue is twofold. The firms obviously need a skilled workforce to work on the actual construction projects. But their clients also need to be able to source the necessary talent in the region to staff their companies and to accommodate their expansions in this market — driving the need for more developments. MiBiz spoke with area executives on these topics, as well as the outlook for financing and the impact a tight industrial market is having for local companies. Participants included: ■ Norm Brady, president & CEO of the Associated Builders and Contractors Inc. West Michigan Chapter ■ Brian Campbell, vice president of First National Bank of Michigan in Grand Rapids ■ Mike Houseman, president of North America for Wolverine Building Group ■ John Kuiper, principal at Colliers International West Michigan ■ Pete Michell, chief innovation officer of Rockford Construction Co. ■ Arnie Mikon, president and CEO of TowerPinkster ■ Mark Miller, architect, planner and engineer for Nederveld Inc. ■ Todd Oosting, executive vice president of CD Barnes Construction Here are some highlights of the conversation.

Generally speaking, what’s the outlook for 2015? MILLER: I don’t really practice architecture, but I straddle these lines between urban design and

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planning. … From my perspective, my company is as busy as we have been in a decade. Our survey department is robust. We can’t keep up with the orders. Our engineering department, I can’t believe how many late nights they work — like

60- or 70-hour weeks. So those are all good things. Where I come in, thinking about the future … is young talent. As a state we have not been able to attract some of that young talent. We have issues with some of that talent attraction and retention which is at the state level, but also shows up in the Grand Rapids area. MIKON: We have a diverse (architecture) practice and I think everything is pretty strong in that diverse practice — education, commercial, government. The thing that isn’t as strong is health care. … We are going to have our second-best year in the last 10 (in 2014). Next year is probably going to be a little bit better and that is coming primarily in the education area. Two things that are certainly related: a lot of deferrals of maintenance projects but also projects from publicly funded universities. But we also have a lot of projects right now where people want a little rendering so they can go out and fundraise. (We are) probably getting more of those than we did in the last 10 years. At least people are getting more optimistic, but they still have to go out and raise the money.

From a banker’s perspective, what are you seeing heading into 2015 that could impact development projects? CAMPBELL: I think the one thing that we’re concerned about is interest rates. You never know when those are going to go up. There is a lot of money chasing deals out there, but they want a return on their money. So there’s that value game. (The question is) what’s going to happen to cap rates when

interest rates go up? Are we going to have incentives to go along with financing to bridge the gap between costs that continue to increase and the equity that an investor wants to put into a project? But rates are low for the foreseeable future.

How have talent concerns affected the construction industry? BRADY: The number one issue we hear regularly and consistently from our members is we need help finding workers. They are being very selective in what they build because they have limited resources when it comes to talent. This has pushed off a significant initiative to develop that talent. HOUSEMAN: Although we have a great partner with ABC in bringing new people into the industry, we feel there is too much pressure there and to take on too much work would be unrealistic. We are staffing up, but we want to bring quality people in. So we are looking to bring value to our customers and strengthen our repeat customer base. Some of what we are seeing here in Michigan with (upcoming infrastructure projects), I think that will have an impact on our industry. OOSTING: I think the challenge we have is talent. It’s something I’m concerned about. I’m a young partner at CD Barnes. … That’s a real concern for us because the younger generation is not very interested in construction. … We need to get that mindset out of the way. That’s an area of big concern and that goes through all the trades. The general contractors mostly survived. A lot of the

See RE/D & CONSTRUCTION on page 52

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Real Estate, Development & Construction Roundtable CONTINUED FROM PAGE 51

subs and suppliers didn’t. The ones that are still around got small. They don’t need the volume they did to get happy and fat again. The mediocre ones are now busy and the crappy ones are gone.

How do you get younger people interested in pursuing a career in the industry? BRADY: The attraction of the youth is something I think you’ll hear more about. We (created an event called) CareerQuest 2015. We have the entire DeVos Hall, and this is a four-industry event — construction, manufacturing, health care and I.T. Each industry will have a quadrant and it will be held on April 28, (2015). We are working with Kent ISD and we will have upward of 6,000 middle and high school students coming through. It’s not about any one of our companies.

What’s the message the event hopes to convey to those youths? BRADY: The construction (industry) is basically

going to be ‘here are the tools of the trade,’ a hands-on task like laying block or finishing drywall, technology and probably most important, people. People in the field like electricians or project estimators will talk about where they started and here’s where you can go.

Having a desirable region is also important to attracting and retaining talent. Grand Rapids has gotten a lot of accolades for its progress in recent years, but what still needs to be done? MILLER: The millennials don’t go find a job and move there. They find a place they want to be and then they find a job — or make their own job. They have a great deal more flexibility in how they want to live. Talking about spaces (like Rockford Construction’s new headquarters) — they are fantastic spaces and that is helping to attract these folks, but we also have to start building a city that attracts these folks. The river and kayaking are part of it, but it’s everything: It’s

Q&A: BEN WICKSTROM ERHARDT CONSTRUCTION CO. Grand Rapids

As the president of Ada-based Erhardt Construction Co., Ben Wickstrom wants to attract people not only to his firm, but also to the larger construction industry. Wickstrom was one the founding members of the Construction Workforce Development Alliance (CWDA), a group consisting of three local trade associations. He spoke with MiBiz about how the group aims to create a pipeline of workers.

Who’s involved in the new alliance? The Construction Workforce Development Alliance is a collaboration between the three primary construction associations in West Michigan: Associated Builders and Contractors, American Subcontractors A s s o c i a t i o n o f Mi c h i g a n a n d t h e Homebuilders Association of Greater Grand Rapids. What are some of the initiatives you hope to see the CWDA tackle? We formed this partnership to address the common, shared focus of attracting new people to the construction industry and developing and maintaining a training system to train people currently in the industry and the new people coming in. We formed a partnership with Grand Rapids Community College. They are a supporting member of the CWDA. Michigan Works! is a also a supporting member of the CWDA. Describe the approach the CWDA will take in addressing the talent shortage. We have decided to take an employer-driven approach to addressing the skilled workforce problem. The demand on skilled labor in West Michigan is very well publicized. It’s not a new issue, but I think it’s just starting to get the attention it deserves, especially within the construction industry. What are some of the key aspects of the training programs? We have a program which we call the ‘core construction’ program. We have a training program specific to carpentry, one for concrete and one for steel. One of the goals of the CWDA is to tell the story of construction. It is a really good career. There is upward mobility within the construction industry.

How has the workforce shortage affected contractors in West Michigan? The CWDA conducted a survey this summer in partnership with Talent 2025. We commissioned the Upjohn Institute to do a workforce development survey of all of the members of each construction association here in West Michigan. One of the statistics from that survey that affirms that we have an issue is that 68 percent of respondents said that they have had to delay work because of a shortage of skilled labor. Is Erhardt part of the 68 percent who’ve felt the impact of that shortage? Yeah, we’ve had to decline and/or delay work. We won’t take on work if we’re not fully staffed up to take it on. We are also definitely taking a long-term view. We anticipate growth in our industry, and the industry needs to continue to add jobs. In order to do that, we need to get more people in the pipeline. At the end of the day, that is what we are trying to do. We are in high schools and letting them know about the good opportunities that are out there in the skilled trades. What’s the outlook for your company in 2015? Overall, I think our economy is heading in the right direction. I like the positive things that are happening. As far as our industry goes, we are anticipating continued growth in the construction sector. 2013 and 2014 were good years for us and we anticipate to maintain our current growth trend into 2015, so we are encouraged by that. We have seen doubledigit growth over the last few years. We look forward to maintaining that but still focusing on our customers and their experience.

Interview conducted and condensed by Nick Manes.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

building authentic, credible places that they can go and experience. That’s the residential, that’s the retail, that’s everything. They want places like this downtown that have a certain level of authenticity that you can’t just fabricate.

How would you assess residential development in downtown Grand Rapids? MILLER: There’s a lot of small projects like the kind 616 Development is doing that are great city building. But we don’t get the 250 apartments. We get 40 (at a time). And then we start to fill in the blanks. That’s a good thing in terms of slower, more manageable growth than building these huge projects that may be detrimental. … Many of the developers downtown have wait lists that can’t be satisfied. We’ve rehabbed a lot of buildings and we don’t have a lot left. So now we have to free up a lot of these vacant sites and I think there are plenty.

Along with residential, quality space seems to be a crucial concern in the ofﬁce market, particularly as a way of attracting talent. How have you seen that play out? KUIPER: We just moved our office to Bridgewater Place in the summer. Interns are bringing their girlfriends and buddies to tour the office. I never imagined it would have that impact. It’s helping us land new talent and we have a whole wave of younger people that are coming into our environment strictly because of what we built out. We kind of thought that could happen, but until you build it and people see it, you don’t grasp the impact. MICHELL: We have the exact same thing (at Rockford Construction’s new headquarters). We studied so many different office buildings and tried to create a different sort of technology environment just to attract younger generations. You walk through the space and there are people playing Xbox at lunchtime. But we’re not quite Google with private chefs yet.

There are still some big blocks of industrial real estate like Site36 in Wyoming — the former GM Stamping Plant — available in West Michigan. As we continue to experience a tight market for quality industrial real estate, what’s the outlook for sites like that? KUIPER: On Site36, they are really focused on trying to find manufacturers that really provide a long-term benefit to the community, which means higher than minimum wage jobs and more high-tech in nature. I can summarize this very easily: If they were less concerned with what was built there and what it brings as far as job creation, that site would be on its way to fulldevelopment. It’s a fantastic location. To be more selective, and I don’t blame them for being so, it’s going to take more time to find the right group.

that maybe the downtown market has hit the point where those gaps don’t exist like they once did. HOUSEMAN: We are seeing the market-rate multifamily (housing projects) coming on board. It’s finally working, especially downtown and it’s peaking out. The micro-apartment thing is even going to add more capacity and the ability to make those numbers work. We have been waiting for that for a long time. The low-income housing has been there but not the market-rate housing. We are just seeing that come back, so that is going to be strong for Grand Rapids. CAMPBELL: I think the state and municipalities have done a great job at streamlining the process and making incentives easier to use from the developers’ standpoint and the banking standpoint. There always seems to be (ways that) you can get ‘free money’ via incentives where the bank gets paid once the building gets built. That is a phenomenal, streamlined process compared to how it used to be. Unfortunately, appraisers live in the rearview mirror.

What effect could crowdfunding have on real estate in 2015? Is it a viable idea for ﬁnancing that anyone at this table may use? HOUSEMAN: We haven’t been a part of it yet, but we’ve had several clients saying they’re going to use crowdfunding but I haven’t seen any action yet. … The big thing is that there is a lot of money out there that people are now willing to invest. MILLER: To me, it seems kind of difficult because it’s going to slow everything down for the development process, and time is money. Trying to figure out a scale that it works at will be interesting to watch. KUIPER: We get nervous of regulation. Crowdfunding to me says ‘securities.’ So that just kind of throws up red flags. Maybe some of it is easier than that, but the knee-jerk reaction says watch what you get yourself into. And I’m not speaking against it, because I definitely think there’s a place for it.

We’ve seen a good number of outside investors looking at the West Michigan market over the past year or two. Should we expect that to continue? KUIPER: We are getting more phone calls now from people looking to place money here into investments than we ever have. There is a little bit of a gap issue. Your local investors tend to want to invest in something up to, let’s say, $5 or $6 million. But there’s a gap between $5 and $15 to almost $20 million where it is hard to get outside money here at that level. … Overall there’s still interest, but we still have this middle threshold, which speaks more to us on the nature of West Michigan. I think there is a lot of opportunity if we could land more in that $5-$15 million range. There is a void there in the market. In our office, we are trying to figure out how we create a marketplace for this.

Do you expect to see a company from outside the region or outside the state How do things like an improved tax climate, Detroit exiting bankruptcy pick up a property like that one? and Right to Work help change KUIPER: We are not a market that people flock investors’ perceptions of Michigan? to from outside. … We have done a good job of attracting people to Grand Rapids. But when you really look at it, the people that are here probably make up 85 to 90 percent of the growth. So you have to remember the people that are here. The Dicastal (project) up in Greenville (at the former Uni-Solar property), those don’t come along that often. I mean that is one every 10 years. So it depends on your end game. If you start to modify what you’re willing to accept, the development of it will happen quicker.

What are you seeing as far as the need for incentives to bridge the ﬁnancing gap? There has been talk

MIKON: I think the change in Detroit was so big (for) the perception of the entire state. Now there is a little change in the perception but it was a big change in the reality. Detroit still has big problems, but at least it’s headed up, instead of straight down (like it was) for years. KUIPER: We fought this for a long time with manufacturers that were coming to the state. I could list you five projects that were lost because of either the union mentality or unknown tax structure. There was a period where we were changing our tax structure and there was an uncertainty about what it was going to be. People just gave up because they don’t like uncertainty.

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Q&A: JOHN WHEELER DIRECTOR OF BUSINESS DEVELOPMENT ORION CONSTRUCTION, GRAND RAPIDS With five of its own developments and roughly a dozen construction management jobs scheduled to be completed in 2015, Orion Construction feels confident about the new year, said executive John Wheeler. The firm’s most visible project is the mixed-use Arena Place development in downtown Grand Rapids, but the Grand Rapids-based contractor has several other mixed-use developments and hotel projects in the planning stages, Wheeler said. Wheeler spoke with MiBiz about the firm’s outlook as Orion projects revenue to reach $110 million next year. How does that revenue figure compare with recent years? It’s up because of a couple of large projects such as Arena Place. Gateway at Belknap is an $18 million project. So the size of our projects is bigger and the volume is substantially increased. Business is good, and you can find good people to man the jobs. Inflation doesn’t seem to be creeping in too bad to the construction industry. We are still holding good prices. I’m as optimistic as I’ve ever been in the 38 years I’ve been doing this. With Orion having both construction management work as well as its own developments, how does the revenue break down between the two divisions? About 40 percent is Orion Real Estate Solutions and about 60 percent is construction management for the general public. Many of Orion Real Estate Solutions’ current projects are focused on urban areas or immediate downtown centers. What is driving the growth in those areas? I think the demand has been there since the early-2000s. … The recession hurt a lot. That was five years of inactivity. I’m talking about no new units of residential downtown, no new office space. So I’d say that supply and demand are pretty well balanced right about now. There’s a lot of projects that are on the books that people are talking about starting — apartment buildings and a few other things. What should people be looking at in terms of new urban apartment construction? There’s a housing study for downtown Grand Rapids, (and) it says that there’s a need for between 700 and 800 units per year for the next five years. Well, that’s 3,500 (units) over the next five years. We are still selling our community short on its ability to have more urban dwellers. We’re just not providing enough product at good prices. And I don’t mean cheap: There should be some real highend, there should be some market-rate. Do you have any concerns about overbuilding in downtown Grand Rapids? A lot of people get nervous that there’s too

much talk about too many projects. I still say that with only 1,300 units in downtown Grand Rapids — in a (metropolitan area) of a million people — 1,300 units isn’t anything. We should be a 5,000-person living environment downtown. My opinion: I think there’s room for 3,700 more units over the next five years, and I think the (housing) study is absolutely correct. What will Orion’s contribution to urban apartment stock look like in the next year? We will have 135 units completed next year and 87 more under construction at the Gateway at Belknap. The Gateway project doesn’t really come online until July of 2016, but it will be well underway in June of 2015.

As a general contractor, how does Orion work with the smaller pool of subcontractors that remain in business after the recession? First off, you rely on relationships you have. The cost of entry to start as a new general contractor today would be pretty brutal because you don’t have these long-term relationships with subs and suppliers for decades and decades. So a lot of (it is that) you rely on your relationships and you hope that the subs will pick your job over another if there is only so much manpower. We really haven’t had a problem getting the sub-contractors to bid on the work with us.

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Do you think some of your subcontracting partners will be hiring in 2015? Yes, I do. Does Orion plan to hire in 2015? We will add about another 10 people to our management staff. We are bringing on an additional estimator. We are bringing on a job-cost accountant. We’ll be bringing on some superintendents, a few more carpenters. We just finished our business model for 2015 and we will add about another 10 fulltime positions to Orion Construction. That will bring Orion to about 55 employees.

Interview conducted and condensed by Nick Manes.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

RETAIL

Q&A: Dennis Eidson and David Staples SpartanNash Co., Byron Center With its headquarters in Byron Center and with more than 90 stores spread throughout Michigan, SpartanNash Co. (Nasdaq: SPTN) has long been a major employer and a key retail anchor in communities across the state. But after its $1.3 billion mega-merger with Nash Finch Co. last year, the company spread its business well beyond Michigan’s borders. It now has operations in more than 40 states. Of its 16,000 associates, just half are employed in Michigan. President and CEO Dennis Eidson and Executive Vice President and CFO David Staples spoke with MiBiz about whether consumers’ behaviors have changed in the post-recession economic environment and how the company plans to deploy its capital in the new year.

Where do you see the economy going in 2015 and how does that affect SpartanNash? Eidson: We’re feeling … the economic environment clearly getting better. With the merger that we completed about a year ago, our company now has a much larger footprint. We’re an $8 billion company doing business in north of 40 states, so the landscape now is different. The Michigan part of our business has performed fairly well in the last quarter, but it’s still not all the way back. … But on balance, things look better and we feel good about the reduction in energy prices and the fact that consumers have more disposable income. Typically, food is one of those places where they can expand or contract that spending. Are consumers acting as if the recession is finally over? Eidson: There is clearly this bifurcation of the consumer that we see. At the upper end in that demographic, they for the most part shrugged off the recession and are acting similarly to before the downturn. But that low-end consumer – from the middle and down – I would say still feels very stretched.

Do their buying habits reflect any changes in the last two to three years? Eidson: Partially what we’re seeing is unusual inflation trends. If you look at food inflation over the continuum, it runs around historically 2.7 to 2.8 percent. We’re in that range, but the way we’re getting there is anything but normal. We have proteins — primarily meat, red meat — where we’re getting inflation of double digits – 12, 13, 14 percent. And then we have center store (protein items), which is mostly flat and, in some cases, deflationary. It’s causing a change in the way the consumer is choosing to feed her family. She’s looking for proteins that are more affordable. … There is clearly a change in the consumer from pre-recession to post. What is SpartanNash’s investment strategy for new stores moving into the new year? Staples: We’re going to go where the growth is to some degree. We’re going to have a new store that opens early in the new year in North Dakota … and we’ll have a focus in the west in the Omaha market. Eidson: Historically, we’ve been spending capital on an average of $40 million a year, and it’s pretty much all been deployed in Michigan for close to a decade that we’ve been at that run rate. We put a lot of money back into the business in the state of Michigan. We’re now at a run rate of about $80 million, but it’s being spread to a much wider geography. Fortunately, as part of that strategy, we felt like we had the portfolio here in Michigan in pretty good shape so we can deploy some of that capex in some of the other parts of the footprint. As you’ve merged the two companies and grown your footprint considerably, how do you ensure that SpartanNash maintains its culture? Eidson: That has been the single biggest concern that the senior management team of both companies had as we merged them together. … We recognized that the culture piece was the biggest impediment to success. We worked hard in advance before we closed the merger and subsequently to make sure we had a plan in place to bring the two cultures together. We brought teams of people together to actually work on the culture and say, even though we don’t have a blank sheet of paper, ‘What do we want the culture to be?’ … It’s this ‘better together’ kind of mantra. What were the results of that process? Eidson: We wanted to be a best-in-class, a worldclass company … that feels local, where relationships matter. … We want to make fundamentally sound business decisions for the right reasons, and we’ll continue to do that. That’s how we’ve been able to grow the company from a less than $2 billion company to an $8 billion company. Some people may call it old fashioned, but we believe that the relationships clearly do matter. What can the state do to help ease the talent bottleneck so many companies are experiencing these days? Eidson: The state and the region still suffers from some negative Michigan bias. When we do go out to recruit and you say you’re in Michigan, there’s this immediate, negative Detroit ‘halo’ effect. And even though the city is doing much better having come through the bankruptcy, the headline is the bankruptcy. We get painted with that big broad brush, even though (we all know) this place is a gem. It’s not always easy to convince people that it’s a gem. We still need some work on our image. And I think we all own that. There’s a notion out there that West Michigan seems to be the home to more acquirers now as the sophistication of the companies in the region has grown. Your company did one of those major deals in the last year or so. Would you agree that there’s a new trend emerging? Eidson: I think you have to agree with that. … We believe that (with our deal), it’s foundational. It’s going to transform our company, but it was foundational relative to how we see the landscape in our space over time. We believe this is a consolidating industry and that this transaction makes us a very likely consolidator of this space across the country. See SPARTANNASH on page 58

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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NONPROFITS

Q&A: Diana Sieger Grand Rapids Community Foundation The Grand Rapids Community Foundation currently has $329 million in assets and 643 active funds. The foundation manages and builds these funds to provide grants to nonprofits within the community. For the past 27 years, Diana Sieger has held the position as the foundation’s president. She spoke with MiBiz about her outlook for West Michigan’s nonprofit sector. What do you see happening in 2015 in the nonprofit sector? I would say that the sector looks more promising than it ever has in previous years. I believe we’re going to see a real return to some excellent results in fundraising. I think that we’re going to see organizations collaborating much more effectively. … I’m feeling a lot of positive things for the sector. There is eventually going to be a shift where millennials and Generation Xers are going to be the primary givers. What are the interest areas for these groups? I’m seeing a lot of people, whether they be millennials or boomers, still very interested in helping those that are still having some difficult times moving forward. I also see a lot of real interest coming through with the whole diversity and inclusion issue. I would say people in my generation, the boomers, are interested in that, but I’m seeing more active discussion in Gen X, Gen Y and millennials. In terms of giving, do you see any changes in how people give or how much they will give? For years, there’s been the prediction and observation that the millennial generation and those that are younger than the boomers really want to see what is going to result from their giving. For some of the areas, you can do that. It can be pretty tangible. In other areas, it’s going to be much more subtle. When we’re working

with many donors that are a variety of ages, the younger donors are the ones that are really saying, ‘If I provide this amount of money, what’s actually going to happen?’ What should local nonprofits be paying attention to on the national level? I would say the tax reform proposal of 2014 is something all nonprofits should be taking a look at. There’s been the threat for the past couple years of losing the charitable tax deduction at the federal level, which would be a break from the 100 years that we’ve had it. That would really be devastating. And that’s not just a dramatic thing. I truly believe that. What do you expect for the investments the Grand Rapids Community Foundation has made in 2014? We were able to distribute more than $10 million this past fiscal year, which runs July 1 to June 30. In this next fiscal year, I really see that increasing. … I can say I have grand ambitions for our asset level. We’re currently at $330 million. I have the lofty dream for the next three to four years of being at a half billion dollars. That’s lofty, but it’s doable. The whole reason for my desire to get to that mark is not personal, but about the impact it can make in the community. Interview conducted and condensed by Lindsay Patton-Carson.

TECHNOLOGY

Q&A: Carl Erickson Atomic Object LLC There’s little doubt that advances in technology will continue to drive the economy forward. As technology’s role in the market develops, software in particular will be the key to driving product differentiation, global competitiveness and market share, said Carl Erickson, president of Grand Rapids-based Atomic Object. As his software design and development consultancy plans to close this year with sales of $8.5 million, Erickson spoke with MiBiz on his outlook for the technology and software industry in 2015. What does the industry have going for it in 2015? It depends on what side you’re on. We have the longest backlog we’ve ever had, which is great in some sense. But if you’re a company that’s looking to do a project and counting on a new product to drive revenue, then it’s really troubling when you call around and find out you can’t get it going for six months. Is that going to lead more software development firms to pop up and inject more competition into the region? Curiously, I really don’t think so. The scene for design and development consultancies is pretty stable, especially in West Michigan. The ones that are there are stable or growing, but I don’t see a lot of new entrants. But it’s hard to know. This business is almost a cottage industry. There’s a lot of tiny one- or two-person firms and those aren’t very visible typically. What’s a trend that’s going to drive the industry as you look ahead? The trend that I see strengthening in 2015 is the importance of user experience and design to differentiate yourself. When we started in 2001, the prime issue was quality and how to build without bugs. Now, that’s a solved problem and the opportunity shifts to figuring out how to build a compelling application that solves problems and is easy-to-use. That just raises the bar and Visit www.mibiz.com

brings user design into the mix as a critical skill. That might be in even more of a shortage than software engineers. What markets are driving this positive momentum and growth for your company and the industry as a whole? Demand is strong across all industries. There are some industries that have historically under invested in technology like health care and some (that) are just slow to change. But even the ones that are slow to change or startups in those spaces are starting to realize that software can be a key disruptor and competitive advantage. We think of cutting-edge software as mobile apps but by no means is it just that anymore. We’re also starting to see more international work, particularly this year from Japan in the wearable device space. Going forward, will there be less of a delineation between physical products and the more nebulous software-based products? Widgets — things we wouldn’t think of as technology products — are picking up smarts, computing power and networking. Suddenly, I’m not sure if you can call it a physical product anymore. The boundaries are definitely blurring, and I think that trend is accelerating.

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Interview conducted and condensed by John Wiegand. Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

SMALL BIZ

Q&A: Rob Fowler Small Business Association of Michigan Small business owners will have a better economy working in their favor in 2015, which generates what is actually a good problem to have: Namely, they all face increased competition for talent because more companies are hiring. That’s just one of the issues raised by Rob Fowler, the president and CEO of the Small Business Association of Michigan. He spoke with MiBiz about the prospects for small business owners in 2015. What’s the state of small businesses in Michigan, as you see it? The business environment is really good in Michigan today. Six years ago, I couldn’t even imagine saying that. The state has made more positive change than any state probably in the last 30 years in terms of its business climate. How do you see the economy shaping up in 2015? There are a couple of indicators we look at. About 10 years ago, one of the top concerns of our members was finding talent. That has returned as a top concern. That’s always a great indicator that not only are they hiring, but they are thinking about growth and they’re thinking about being competitive. There was a time in the 2008, ’09, 2010 period when they were in hunker-down mode and weren’t looking for talent. What’s the second indicator? We also ask about, looking forward six months, what they see in investment and profits, sales and employment. Investment is the interesting one from our perspective. It tends to be a much better leading indicator, and we’ve seen a pretty interesting increase in plans to make investments. What are you hearing from members these days that you were not hearing a year ago? We see an increased interest in things like talent. If you know you have to be competitive for talent, the interest in the area of the competitive benefits package, including health insurance, really increases. There’s simultaneously an effort to not offer health insurance and a renewed effort to offer it. It’s caught up in this talent issue. If you

have to compete for talent with companies that offer health insurance, then it’s going to be very difficult for you to not offer health insurance and compete. What’s on your members’ minds going into 2015? Generally speaking, it’s competing. They’re growth-minded. They’re thinking about competing, both on sort of the value proposition of their business services and they’re trying to figure out how to be competitive with their workforce. That’s a whole different set of issues than we were hearing five years ago. What are their challenges in the year ahead? The cost of health insurance is a killer, and we live in this energy world where the cost of electricity continues to sort of creep up, although now fuel is less expensive. All of those costs of doing business and managing those costs are one of the challenges. What’s your advice to legislators in the new year? Do no harm. … One thing they can do is not put new regulations (or) new requirements on business and resist the temptation, because it’s coming. What’s one thing the state Legislature can do in 2015 to make life a little easier for small business owners? One of them is health care cost containment. The other one is entrepreneurship.

SMALL BIZ

Nancy Boese Michigan Small Business Development Center (MISBDC) Grand Rapids

Developing an exit strategy and access to growth capital — not to mention talent — are all top of mind for small business owners in West Michigan, says Nancy Boese, the interim director of the Michigan Small Business Development Center. For the manufacturing and service sectors, that means companies must pay close attention to their supply chains. How is the economy shaping up for West Michigan’s small businesses in the new year? “The economy in 2015 will be affected in many ways. From a small business standpoint, the SBDC is seeing several factors occurring. The rebirth of manufacturing is creating new opportunities for our small manufacturers and service companies, and increased demand for facilities and equipment. The expansion of the industry in many sectors is having a positive effect on all industries. “The downside is all businesses are challenged to find the right employees, especially skilled labor. It is very competitive to find the right person for the job. The labor shortage could cause increased wages, which our small businesses would be challenged to support in their budgets.” Compiled by Nick Manes.

Interview conducted and condensed by Mark Sanchez.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

SPARTANNASH Continued from page 54

How soon do you look to hunt for deals and again take on the role of a consolidator? Staples: It’s a never-ending quest. The one thing you learn with deals is that you cannot time them. They come when they’re ready. Sometimes you can affect someone’s desire to sell, but you usually have to way overpay in those scenarios. What keeps you up at night? Eidson: When we were talking about the culture of the company: Making sure we’re delivering on that. We’re measuring the heck out of that, but we are a much bigger company than we were a year ago with 16,000 associates, 21 distribution centers, three distinct segments doing business in 40 states. It’s making sure that we are doing all of the right things to drive that culture home.

What should the greater business community know about SpartanNash and its role in the West Michigan economy? Staples: We’re a pretty significant player now. We have 8,000 employees in Michigan – and that’s more than just West Michigan. … We’re a significant player from an investment perspective. For 10 years at $40 million a year (invested into stores), we’ve put a lot of money into this state. … We didn’t back down in the recession, we doubled down in the recession to really build up our network. Eidson: We’re committed to Michigan. We obviously had opportunities to take this headquarters in different geographies, and we made the right choice.

Interview conducted and condensed by Joe Boomgaard.

BANKING

Q&A: David Ramaker Chemical Financial Corp. Chemical Financial Corp. Chairman, President and CEO David Ramaker expects that 2015 will bring even better economic conditions to Michigan, as well as more bank consolidation. The Midland-based Chemical Financial has been a player in the consolidation trend of the last year, buying Northwestern Bancorp Inc. in Traverse City this fall and then signing a deal to acquire Monarch Community Bank in Coldwater that will close in the first quarter of 2015. In a conversation with MiBiz, Ramaker said Chemical Financial intends to remain active in seeking deals in 2015. How do you see Michigan’s economy performing in 2015? The trend line that we’re on in the state of Michigan will continue. We are obviously seeing very good things from an economic perspective around the state. There are stronger areas than others, but from my perspective, the trend should continue. The economy should continue to improve, and it should continue to mean more jobs in the marketplace. That also then means more investment back into those companies to drive that, whether it’s working capital or more equipment or new facilities. I anticipate that will continue into the new year and well throughout. From our perspective, that just means more opportunity. What’s the present lending environment for business and what will it be like next year? I believe that business owners are going to be well received — and should be well received even right now — as it relates to coming in and trying to grow their business and obtain the types of financing that they need in order to do that. Are there additional requirements or those kinds of things that might be there? Maybe so. But in reality, from our perspective, nothing’s really changed. We’re going to continue to look at the balance sheets and the income statements and deal with our customers in an appropriate way and understand what they’re trying to do from a business plan standpoint. What do you think will happen with interest rates? For short-term interest rates, I don’t see the Federal Reserve making changes until the late fourth quarter. I believe that as you look at the Federal Reserve and how they make decisions, when they decide that it’s time to change a direction, it’s not something that they do minimally. They debate. They talk. They look at all of the various angles. It may be the thought process that interest rates should change some time, let’s just say, in late summer, but I think it will take them another couple of months before they decide to actually pull the trigger.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

What will that do to the cost of credit? There will be an increased cost. I don’t see a significant increase in interest rates. I see a moderate increase of rates. There will be increased costs, but if in fact this does occur, part of the reason is because the economy is doing very well, which means that the businesses that are out there are able to increase their revenues and increase their bottom lines. What will Michigan see next year as far as consolidation in the banking industry? You’re going to continue to see consolidation. There are currently seven transactions that are in some form or in some stage in one way or another of closing. That’s probably as much activity as we’ve seen in the state here in a long time, as least in one particular year. I don’t necessarily see that slowing down. What do you see driving that activity? The reasons for consolidation haven’t changed. High overhead costs in relationship to compliance and regulation. Lack of ability to grow revenues significantly. While we’ve been talking about the fact that the lending business is going to be solid in 2015, you also have to have the resources in order to do that. That’s part of the reasons why consolidation occurs. Will Chemical remain active in that field? Yes. What do you see happening now in the marketplace that you didn’t see a year ago? The consolidation environment. What transpired in just the last 18 months to just the last year in our state is far more than I thought would probably occur, at least following the trend line that had taken place in 2013 and 2012. While we’ve been talking about consolidation for a long time, actually seeing some of the merger activity and acquisition activity actually step up is probably the biggest thing. Interview conducted and condensed by Mark Sanchez.

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HUMAN RESOURCES

with

Q&A: David Smith

reprints

The Employers’ Association Some members of The Employers’ Association, a nonprofit training and human resources organization, believe West Michigan’s growing economy could be teetering on the edge, said David Smith, the organization’s president and CEO. Smith spoke with MiBiz about where wages and hiring are headed for 2015.

SEPTEMBER 3, 2013 VOL. 25 • NO. 23

SERVING WESTERN MICHIGAN BUSINESS SINCE 1988

Faith-based philanthropy ph drives local afﬁliate of National Christian Chr Foundation By JANE C. SIMONS | MiBiz jsimons@mibiz.com

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What are the top concerns on the minds of The Employers’ Association’s members heading into 2015? There are really two things: Number one is talent. Where do they identify talent, where do they grow talent and how do they retain talent? And the second thing is health care. The economy, while healthy, most members I talk to see it as very fragile right now. A lot could happen to really derail the economy. But right now, if nothing happens, it’s a very strong outlook. If something happens, it could be very stagnant. I’m getting extremes on the economy and not a whole lot in the middle. What are a couple of key indicators you’re looking at? Overall, it looks like wages are lower because there’s a lot of entry-level people coming into the workforce. That brings the average down. You have a lot of people retiring from the workforce because the economy is good and favoring that. That’s where the concern comes about what is happening to the talent pool. That also takes high-paid people out of the workforce, so the average rates will appear to be down.

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What will happen with wages this year? What we are seeing with wages is they are increasing 2.5 to 3 percent on average, but that doesn’t mean it’s an across-the-board increase. We are seeing high-level management moving 4 to 5 percent. General skilled and less skilled people are around 2 to 3 percent. So on average, we’re probably (going to see) increases of 3 to 3.5 percent. But we are seeing higher increases for harder-to-find and harder-to-retain people. That has been a trend we’ve seen for the last couple of years, and it continues. In a recent essay, you wrote about an increase in temporary workers. What impact is that having for area companies? Right now, companies are looking at more contracted employees. Some of it is because they can be more flexible and cut back on the workforce if necessary. Some of it is a cost-savings. If they can pay a contract employee, they don’t have to worry about some of the insurance rates. The biggest part is it puts people into an area that has potentially lower benefits than what traditionally has been seen. Temporary pay rates are probably

going to be a little bit lower because you have to cover the cost of overhead and pay a third layer for the worker. So rates are a bit less and hours may be a bit less secure and solid. They’re probably going to have less benefits. That’s a reality we are going to have to look at just because of the nature of legislated business and legislated workforces. Does that hurt the broader economy in the long run? I think it does in the long run. Not so much because people aren’t having work but because people don’t have the same stake and investment in the organization. There’s a cultural difference and an attitude difference. It probably compounds the diminishing loyalty of workers. Fifty years ago, somebody worked for the same company their whole life. Now it really isn’t that way. If nothing else, you’re dealing with the perception being compounded by the temporary workforce mentality.

By NATHAN PECK | MiBiz

“The ‘uber’ beer geeks took notice. They shouted about us, and that allowed us to move in a positive direction. The attention put us in the limelight and made us the darlings of the industry,” Stevens explained. “The beer geeks are the reason this beautiful ike Stevens, president of Founders Brewing Co., can little disaster we call the craft beer industry exists.” laugh now about some of the poor choices the Grand Yet, by the mid-1990s, the company was also butting up Rapids-based craft brewer made over the years. against a series of constraints: a small production space, a lease He even cops to perhaps the worst sin of all for on a space that was too small for the growing business, and an a craft brewery. organizational structure that had Engbers and Stevens handling “We’ve made some bad beer,” Stevens said with too much of the day-to-day operations. a laugh. It’s not the sentiment that one would expect to come from the brewer of one of the world’s top-rated stouts, but it was the company’s willingness to try new ideas and fail that marked the To address those concerns, the late businessman Peter Cook, a point at which Founders Brewing Co. transitioned from a smallscale, also-ran to an internationally renowned brewer of some mentor to Stevens, pressed the company to formalize its relaof the boldest beers on the market. tionship with its board. Cook pushed them to focus on the core of their business and leave other concerns to their growIn the mid-1990s, Founders Brewing was in trouble. In its ing staff. small production and taproom space on Monroe Avenue just “He wasn’t into discussing finances — he didn’t really underblocks from downtown Grand Rapids, co-founders Dave Engbers and Mike Stevens realized that going with what the stand what we were doing,” Stevens said. “We industry demanded at the time was not leading were undercapitalized, he told us. ‘Don’t worry them to success. Tossing out the accepted playabout the mess you’re creating, that’s what invesbook, the duo instead opted to make the beers they tors are for.’ When you have drive, when you were seeking: big, bold and unlike other offerings have a product that is selling, don’t look back — currently on the market. let others clean up your mess.” As part of that shift, Founders’ taproom became The effect was two-fold: Engbers and Stevens a testing ground where the company released its had to formalize their roles within the organizanew and experimental brews. Some flopped. A tion, and the company began to bring in experts few grabbed drinkers’ attentions. Today, a handful to handle areas where there were deficiencies. — MIKE STEVENS Whereas the two frequently touched all aspects of those beers are among Founders’ most popuFounders Brewing Co. of their business, they were forced to step back. lar brands: Dirty Bastard, Breakfast Stout (and its amped-up, barrel-aged brother, Kentucky Breakfast Their board had always included investors, but Stout) and Double Trouble. But back then, they were they now had a group with expertise that could only experiments written in chalk on the daily specials board. help guide them forward. “We tried making a lager when we shouldn’t have. We’ve done “It held me accountable to shareholders and the people who some things with spices that didn’t turn out well,” Stevens said. have a stake in the business,” Stevens said. “It made me better. “But if we didn’t do that, we wouldn’t have made KBS.” Dave and I had to be better.” In pockets across the U.S., on blogs and message boards, But the transition was at times difficult. Founders’ beers began attracting the attention of a growing num“Personally, I’ve had more roles here than anyone. When ber of craft beer aficionados. As the company’s beers started winwe started, there was just three of us. We all helped … brewing, ning awards, the American drinker began turning away from the pale, fizzy domestics in favor of bolder craft brews. See FOUNDERS BREWING on page 12

npeck@mibiz.com

Make messes

“It feels like we’ve been building the plane while ﬂying it.”

hilanthropic families throughout througho Western and Northern Michigan Michiga are putting their faith into actio action with their money. And they’re turning to a local affil affiliFoundatio ate of the National Christian Foundation (NCF) to help them. Locally, 350 families served by th the organization’s West Michigan office concon tributed $36 million to individual “Givin “Giving Funds” at NCF and recommended mo more than $31 million in grants in 2012 to charichar ties of their choice, said sa Jamie Kuiper, preside president of NCF’s West Michigan Michiga office headquartered in Grand Rapids. “That’s a lot of money,” Kuiper said. sai “Our office is the thir third largest NCF office in the country measure measured Kuiper by fund balance.” Kuiper declined to identify any of the 350 families. “We have some major donors, but I can’t tell you who they are,” he said. “The “They Mike Stevens, president of Founders Brewing Co. PHOTO: JEFF HAGE want to remain anonymous, and we pr provide a mechanism for anonymous giving giving.” NCF’s donor-advised Giving Funds off offer families an “easy-to-establish, low-cos low-cost, flexible” vehicle for charitable giving that’s tha an alternative to establishing a private founfou dation, according to the organization. 2014 OUTSTANDING GROWTH AWARD Donors’ efforts have helped to mak make the Atlanta-based National Christian Christia Foundation the 19th largest philanthropic philanthrop organization in the United States, accordaccor ing to a 2012 article in The Chronicle of Q Grand Rapids-based craft brewer founded in 1997 by y In late July, officials with the th Mike Stevens andPhilanthropy. Dave Engbers Q Originally locatedNCF in the Brass Works Building on North announced that they had reached a Monroe Avenue; moved to 235 Grandville Avenue in 2007 milestone whe Q Sold 111,000 barrels of beer in 2013in their giving history when Q Volume grew 63%they granted their four billionth dollar doll

FOUNDERS BREWING CO.

The NCF West Michigan affiliate has to the Association of Faith Churches and Ministers International, a Minnesota- an 18-member board which includes Jerry based international ministry that plans Jonker, chairman of the board and a partto use the money to support an orphan- ner in Grand Rapids-based Home Acres co-owner age ge in Thailand that provides housing and Supply Co.; Wendell Christoff, co owner schooling chooling for children rescued from the of Litehouse Inc., a salad dressing, sauce sex ex trade. and dip manufacturer with operations That grant was recommended by givin Lowell; and James Dally, a Kalamazoo rs in Midland through their Grounds for businessman. ers a Better World Giving fund. The group is Dally said the ability to have direct served erved by the NCF’s Eastern Michigan involvement in where his donations are office ffice located in Birmingham. going and the asset-based giving approach “We are a well-kept secret,” Kuiper said. are appealing to him and his family. A big part of it is our business model. Our However, his faith in God is what really “A ocal operating budget is about $360,000. led him to the organization. He said he was local SERVING WESTERN MICHIGAN BUSINESS SINCE 1988 friends who We don’t spend much on marketing.” referred to NCF by successful The local affiliate had total revenue of were also involved in faith-based giving. more than $499,000 and expenses of about “Biblically, it’s very clear that ‘he that 384,000 in 2011, according to the most refreshes others will be replenished,’” $384,000 ecent IRS Form 990 available. Dally said. “I’ve applied those biblical recent Donors to NCF are attracted to the principles to what I do.” mission andBy ministry of the organizaWhat Dally does is manage several NICK MANES | MiBiz ion foundednmanes@mibiz.com in 1982. The three Christian West Michigan-based businesses. He is the tion inancial experts who laid the groundwork founder and owner of Biddergy.com, an financial A West Michigan medical device development or the NCF were to “simonline consignment and business liquidafor looking for a way and manufacturing company is consolidating to lify the process tion auction plify of giving, multiplyitsthe Kalamazoo and expanding operations, while website; Adventure Learning still planning to leave a footprint in Grand Rapids. esults and glorify Centers, which operates child care centers results the Lord.” Oshtemo Township-based Keystone “We went on to in Solutions Portage, Caledonia and Kentwood; and introduce one of the first Group invested about $500,000 into a new Christian-focused Mavcon a construction and developdonor-advised 24,000-square-foot facilityfunds, with a clean room Inc., in company. All three businesses are what we nowKalamazoo call the Giving said where itFund,” will move all ofment its product development and manufacturing arry Burkett, a best-selling author andoperations. based at offices in the Kalamazoo/Portage Larry With theofnew building up and running, ntrepreneur, who area. entrepreneur, is one NCF’s founders. Keystone plans to consolidate all of its manuWe also developed special resources and expertise as well as “We facturinga to the siteexpertise and moveinout of aThe facility sset-based giving, character and integrity of the individasset-based tax smart the near thewhich GeraldisR.the Ford International Airport in Rapids. way to donateGrand non-cash assets such as real uals involved with NCF is what Dally said Having two separate manufacturing facilities state and business interests.” keeps him involved. estate made it difficult to show customers Keystone’s full The localset of affiliate was originally Founder Burkett said over the past three capabilities, said Robert Nesky, Keystone’s ounded in 2000 asofthe Michigan decades, NCF has become the nation’s founded director salesWest and product development. “Our intention was always to have largest the business Christian Foundation, but joined forces provider of donor-advised funds IN givers. roof, but it has taken to actuwith the NCFunderneath because ofone the resources and a while focused primarilyMADE on Christian ally put that together,” said Nesky, noting that the xpertise it provided. “Any charity MICHIGAN that doesn’t violate our expertise consolidation plan had been in the works for some “The reason statement is eligible to seekGroups fundfor“It’s thea affiliation with NCF Keystone Solutions time. good thing we waited because our busi- of faith provides product was that the tools they are able to offerWe ing afrom said. “Ourdevelopdonors givness has actually expanded. now have largerus,” Kuiper ment services and contract the two older facilities rs are muchfacility are people who share our worldview as it ers morethan sophisticated,” Kuipercombined.” manufacturing at a new The Grand Rapids location stemmed from a aid. “We were one of the first two or three relates to material possessions and what said. 24,000-square-foot , ISO previous acquisition. ffiliates. Now there 28.” operates in a variety God of has called us13485-certified to do.” affiliates. facility with Whileare Keystone sec-

FEBRUARY 17, 2014 VOL. 26 • NO. 9

Keystone relies on product development business to drive contracts

Q Off-premise sales were up 46% a clean room in Kalamazoo. tors ranging from automotive and aerospace to Q On-premise distribution rose 58% renewable energy, majority Michigan. of its business The about firm, MiBiz, whichvisit was founded Q The Association for Corporate Growth West Michigan willsubscriptions are free to qualiﬁed COPYRIGHT 2013 © MIBIZ. Print ﬁed individuals who are employed in Westthe and Southwest For further information www.mibiz.com. present its 2014 Outstanding Growth Award to Founders comes from serving West Michigan’s burgeoning in 1997 and had revenues of Brewing Co. on March 18. The event runs from 5:30-8 p.m. medical device industry. around $5 million last year, at the Amway Grand Plaza in Grand Rapids. Visit acgwmich. The company, which employs around 10 engiconsolidated its manufacturing under org for more information.

200,000 180,000 160,000 140,000

FBC BARRELS PRODUCED

120,000

190,000

2014 proj.

112,000

100,000 80,000

70,886

60,000 40,000 20,000

40,937 17,330 6,127 11,898

24,501

0 2007 2008 2009 2010 2011 2012 2013 2014* SOURCE: FOUNDERS BREWING CO.

neers, had around $5 million in sales last year, but has grown about 30 percent over the past five years, Nesky said. While the business is currently about evenly split between product development and contract manufacturing, executives want to put more emphasis on the manufacturing side as part of the consolidation. Operating in an ISO 13485-certified facility, Keystone plans to grow the product development side of its business, which should translate into additional opportunities in contract manufacturing, Nesky said. “(Product development), more and more, feeds into our contract manufacturing, specifically when it comes to medical devices,” Nesky said. “By expanding our facility and having us underneath one roof, we’re not jockeying around to two different facilities. It really helps show (our customers) what our infrastructure is, and it paints a much better picture for them that as they develop their products, Keystone could also be the contract manufacturer of some of those products. It has had an immediate impact on our business and our pipeline.” Many of Keystone’s clients value that they can work with a single company to develop a product, manage the manufacturing and production

one roof with the new facility, but still plans to maintain a presence in the Grand Rapids area, where it is a member of MiDevice, a consortium of medical device manufacturers. Keystone offers clients a full range of product design, contract manufacturing and logistics services. It mainly serves the medical device, automotive, aerospace and renewable energy sectors.

process, and then distribute it, according to previous MiBiz reports. “There are several companies on the west and east coasts that compete with them because that’s where the big medical technology companies are based,” Hank Brown, former CEO of Tangent Medical Technologies in Ann Arbor, said in a previous MiBiz report on the company. “Keystone is a unique brand in the Michigan market.” Tangent worked with Keystone to develop a new kind of catheter called NovaCath. Keystone executives make it clear that the firm is not an OEM, but is instead focused on both design and manufacturing. The products they make do not contain the Keystone brand, but rather the names of its clients, who also entrust the company to handle the logistics of distributing the products directly to hospitals and other medical facilities. While the company is moving the vast majority of its business to the Kalamazoo area where the

company was founded in 1997, Keystone still sees significant value in the Grand Rapids market. For that reason, the company plans to open an office primarily focused on sales at a to-be-determined downtown location in the first or second quarter of this year, Nesky said. The reasoning behind keeping a presence in Grand Rapids, Nesky said, is primarily due to Keystone having a number of customers in the area. The company is also involved in organizations such as MiDevice, a consortium of two dozen medical device-sector firms led by The Right Place Inc. “Keystone is a great company with terrific leadership and we congratulate them on the planned downtown office,” said Eric Icard, a business development manager at The Right Place who leads the MiDevice consortium. Both Nesky and Keystone founder and President Jim Medsker “have been strong advocates for medical device manufacturing in West Michigan and are extremely active in MiDevice.”

If your company has been featured in MiBiz, the exposure you received reached more than 40,000 business executives in Western Michigan. Now you can share the news about your company by ordering MiBiz reprints.

For more info, call MiBiz today: 616-608-6170

Interview conducted and condensed by Nick Manes.

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

Visit www.mibiz.com

M&A Outlook Active M&A market to continue in 2015 as more capital gets deployed QUALITY REMAINS AN ISSUE AS DEALS GET PICKED OVER; MULTIPLES EXPECTED TO INCREASE By MARK SANCHEZ | MiBiz msanchez@mibiz.com he seller’s market that prevailed throughout 2014 should remain in 2015, providing business owners with a good opportunity to find the right buyer and to get a good price for their companies. Mergers and acquisitions professionals say buyers will continue to outstrip sellers next year, maintaining the strong market of the past year and making right now a good time to sell. Ben Zainea, an M&A attorney for Mika, Meyers, Beckett & Jones PLC in Grand Rapids, even sees deal activity accelerating into 2015 before it slows down from the present hot pace. “The attractive part about this is if you really want to pursue selling as an option, I’m not sure you’re going to see a time that’s as attractive as right now for a while,” he said. “There are so many more players in the market now. Before it was just you had so much of this capital sitting on the sidelines in the form of venture capital and some of these private equity funds. Banks weren’t doing anything, and you didn’t have other players in the industry doing anything.” The views of Zainea and others are reflected in the results from an annual survey of M&A professionals by Chicago-based law firm Dykema. Among the senior executives and advisers responding to the survey, more than 59 percent said they expected the M&A market to strengthen over the next 12 months, and 32.4 percent expect no significant change. Just 8.5 percent expect the M&A market to weaken in the next year, according to survey results.

In another indicator of the strong market, the website bizbuysell.com — which lists small businesses for sale across the U.S. — in October reported a 17.9 percent increase in transactions during the third quarter compared to the prior year, the best three-month period since the site launched in 2007. The median sales price for small businesses in the third quarter also increased 5 percent, bizbuysell.com reported. The San Francisco-based website predicted that the high transaction volume, which was on pace for a record year in 2014, would continue in 2015. Driving the expected activity for 2015 is the availability of capital, which was cited by 43.3 percent of respondents as the most important driver, followed by general U.S. economic conditions (24.6 percent) and favorable interest rates (14.9 percent), according to survey results from Dykema. “It’s been many years since life in the mergersand-acquisitions world was this busy and this good,” states a report by Dykema. “Respondents are bullish on the industry, their prospects and the U.S. economy.” By a more than two-to-one margin, respondents believe that strategic buyers will increase their presence in the M&A market nationally in 2015. Strategic buyers were cited by 52.9 percent of respondents as increasing activity next year, followed by financial buyers (24.6 percent) and foreign buyers (22.4 percent). More than a quarter of respondents ranked health care as the sector that will have the highest level of M&A activity in the next 12 months, followed by technology (17.65 percent), energy (13.37 percent), and industrial/manufacturing companies (12.83 percent).

DEALS MIRROR GDP

Kevin Hirdes, managing partner at Grand Rapids M&A firm NuVescor Group LLC, correlates the heightened deal activity to the nation’s gross domestic product. At the start of 2014, GDP was down in the first quarter and slow in the second. At the same time, M&A activity was “a little sluggish” for the first half of the year as well, he said. As GDP picked up in the third quarter, so did M&A. In the fourth quarter, as GDP got even Zainea Miller Hirdes Roth better, “we’re seeing a very strong uptick The results are the best since 2006, the secin activity and deal closings,” Hirdes said. ond year the Chicago-based Dykema conducted In 2015, Hirdes expects “a better year for M&A the survey. activity than 2014,” he said. In some instances, As long as the economy remains healthy in the hot market is driving owners to sell now even 2015 — and economic outlooks say it will — though they may not want to exit their business Matt Miller of Blue Water Partners LLC in Grand for another year or so. Rapids expects M&A to remain strong. “As the economy has improved, sellers have “Until there is significant deterioration in now replenished the coffers of their companies the economic indicators, we would expect it to and the balance sheets are pretty strong, (and) improve slightly or ready steady,” said Miller, the future business is pretty good in the pipeline. It managing director at Blue Water Partners. is a perfect time for the seller to sell that business Miller cites data from S&P Capital IQ that before the next onset of poor economic condishows middle-market transactions in North tions hit,” Hirdes said. “They’ve seen a few good America involving companies with $10 million years and they realize good times don’t last forto $250 million in annual sales grew 6 percent ever, so 2015 is going to be a very good year for between the third quarters of 2013 and 2014. M&A.” Transaction values were up 33 percent, reflectFor sellers, multiples are a “significant degree ing higher valuations of companies, Miller said. higher” than they were four or five years ago, typHe predicts a 4 percent to 6 percent increase ically 25 percent to 30 percent, Hirdes said. He’s in transaction volume in 2015. At Blue Water also seeing sellers getting more cash at the close Partners, “our pipeline is full,” Miller said. of a deal. Visit www.mibiz.com

Please sign here WHAT’S AHEAD IN 2015 DEALMAKING How will the U.S. market for the next 12 months compare to the last 12 months?

Why do you expect there to be an increase in M&A activity involving privately owned businesses in the next 12 months?

Weaken: 8.51% No signiﬁcant change: 32.45%

Concerns about the aging business owners 19.06%

Strengthen: 59.04%

Concerns about the window closing

28.29%

Improving valuations

47.37%

Other

5.26% SOURCE: DYKEMA

Peter Roth, an M&A attorney and partner at Varnum LLP, reports EBITDA multiples have been “all over the map” during 2014. Multiples right now are running one to one and a half points higher than a year ago, Roth said. A recent deal involving a manufacturer got 8.5 times EBIDTA. He’s even seen some recent deals with double-digit multiples and more in the high single digits.

REASONS TO SELL The primary drivers for sellers today are age and the economy. Many business owners who are selling survived the 2008-2010 economy and now want to exit and retire. Sellers today “are a little bit older than they have (been) typically” as many waited out the economy, said Hirdes, who generally represents sellers. “Many of the sellers, the ones that survived the Great Recession, are now finding that life is passing them by. If they are going to enjoy the fruits of their labor of all of the previous years, then it’s time to move on,” he said. “From the Great Recession, most business owners decided to hang in there, and as performance improved, their business is worth more. They now have decided to sell the business before the next recession comes along.” In some cases, business owners are only in their late 40s to early 50s and are seeking to sell a majority or minority stake and stay with the company to help the new owner run it, said M&A attorney Jon Siebers of Smith Haughey Rice & Roegge PC. “I have seen that come on stronger and stronger this year, and I see that continuing next year,” he said. “They are looking at this as a time to pull a bunch of chips off of the table. They have the stamina and the desire to take the company to the next level, but they don’t want the financial risk of doing it.”

CAPITAL INFUSION Experts say the greater availability of credit to finance a deal also contributes to the hot market. Respondents to the 2014 Dykema survey ranked commercial banks as generally the most popular source of financing for deals involving debt. “Bankers are chasing M&A deals. There’s a lot of that going on,” Varnum’s Roth said. “I get a number of bankers that I hear call me and say, ‘Hey, let’s grab lunch. We want to get involved in your M&A deals.’” The return of banks to financing M&A deals has also pushed up competition for private

equity buyers, pushing up multiples and deal values, Roth said. “It definitely drives what people are willing to pay,” he said. The Dykema M&A survey for 2014 noted the availability of a quality acquisition target ranked as the biggest obstacle for 2015 for M&A, followed by valuations and buyer competition. “And acquiring those targets at the right price is also challenging in the current market,” the Dykema report stated. “With quality targets hard to come by, there’s more competition when companies find them.” Private equity firms with a deadline to deploy their capital and public companies pursuing an acquisition strategy are the most aggressive buyers right now, driving some prospective buyers to the sidelines until activity slows and multiples come down, Roth said. “The market’s been picked over a bit, so people are being that much more aggressive,” Roth said. “People who don’t have to deploy cash are rightly being a little skeptical and saying, ‘I’m not going to pay up right now in this hot market.’ It’s all cyclical.” At the same time, the hot market and increased competition for good deals has driven up the expectations of sellers. If they can’t get what they want from one prospective buyer, they can be quick to turn elsewhere. “I’m seeing sellers be pretty aggressive with me when I am on the buy-side and say, ‘We realize it’s a seller’s market. If your guy doesn’t want to pay, there’s three other guys lined up that might,’” Roth said.

A CLOSING WINDOW? The question now for many M&A professionals is how long the seller’s market lasts. Zainea sees a strong market lasting through the new year. For any business owner who has been considering a sale, now is the time to do it, he said. “You kind of have a window now that will close. Nobody knows exactly when it will close, but it will close eventually, and when it does, you just don’t know where you’ll be,” Zainea said. “Hopefully we’ll return to kind of a more normal time where there’s just not this huge glut of money that’s ready to be invested, but also not just a complete dry-up either.” Meanwhile, Roth expects a “robust” M&A market at least through the first half of 2015, before slowing down. “There’s some runway left,” he said, but “at the end of the day, good times just don’t go on forever.”

Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Banking Outlook Pace of Michigan bank M&A should remain elevated in 2015 By MARK SANCHEZ | MiBiz msanchez@mibiz.com ncreased activity in 2014 sets the stage for more bank M&A in 2015. That’s because a number of factors continue to drive consolidation in the industry following a period of comparative inactivity during and after the economic turmoil of five years ago, experts say. Michigan has seen a number of bank deals either completed or announced in 2014. M&A attorney Jeff Ott of Warner Norcross & Judd LLP in Grand Rapids expects similar activity in 2015. “I believe that the pace that we’ve seen over 2014 will be maintained and potentially could increase slightly,” said Ott, who specializes in bank M&A. “Clearly, the trend is that there is going to be further market consolidation.” Primary drivers for the activity are high regulatory compliance costs from the federal DoddFrank Act enacted in the wake of the 2008 financial crisis, an improved economy, improved bank performance, and rising valuations and stock prices that make it easier to structure a deal than it was four or five years ago — as well as compressed margins that limit earnings. The compliance costs associated with DoddFrank have often been cited as a key driver behind many recent deals. The burden is especially difficult for small banks, Ott said. By combining with another institution, small banks can optimize burdensome compliance costs. The general view within the industry is that $1 billion is the minimum size for a bank “to be an effective organization today,” and “there are a lot of banks out there that are well below a billion in assets,” Ott said. “Size is becoming an important factor in terms of simply the ability to profitably run an organization,” Ott said. “(Dodd-Frank) is making it very difficult to run a small organization just because of the number of people you have to hire in the compliance area.” As the operating environment for community banks toughens, many are now at least weighing their options of staying independent or seeking a partner, said John Kerschen, managing director of Charter Capital Partners LLC in Grand Rapids. Since forming a financial institutions practice three months ago to represent community banks and credit unions that are seeking a partner or that need investors, the firm has had 20 to 25 meetings with banks that are examining their future. “They’re analyzing what their opportunity is to continue as an independently owned and

operated bank,” Kerschen said. “A strong majority, if not the entire industry, is in that analysis period. Some are further along than others, but this is definitely a top-of-mind topic for most bank CEOs and board members.”

FREQUENT DEALMAKING Among the deals completed in 2014 was the $151.5 million so-called “merger of equals” between Grand Rapids-based Mercantile Bank Corp. and the former Firstbank Corp. in Alma that closed June 1 and created one of the largest banks based in Michigan. Another deal in West Michigan, Old National Bancorp Inc.’s $88.2 million acquisition of Founders Financial Corp. in Grand Rapids, the parent company of Founders Bank & Trust, is targeted to close by the end of the year. Chemical Financial Corp. considers M&A as a key growth strategy. The Midland-based Chemical acquired Northwestern Bancorp Inc. in Traverse City this fall for $120 million to expand its presence in the northwestern Lower Peninsula. Then, just three days after closing on the deal for Northwestern Bancorp, Chemical Financial announced the planned $26 million acquisition of Monarch Community Bancorp Inc. in Coldwater that’s expected to close in the first quarter of 2015. In a late October conference call to discuss quarterly results, Chemical Financial Chairman, President and CEO Dave Ramaker said he expects M&A in Michigan to continue as one deal leads to another. “I would say that the conversation is just continuing to increase. We continue to be made aware of the potential opportunities,” Ramaker told analysts. “I continue to have conversations specifically with other CEOs about what the landscape looks like. And the information that I am hearing is that a lot of boards are discussing strategic opportunities in what they believe is the best way to maximize shareholder value for their companies. And so that’s leading to further conversations.”

MARKET IMBALANCE Surveys suggests that there are far more buyers in the market than sellers right now. In a survey this summer conducted by Bank Director magazine, respondents nationally cited improved credit quality and the rising valuation of bank stocks as contributing to a favorable M&A environment for the industry.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

The survey of more than 200 bank directors and senior executives, sponsored by Crowe Horwath, found “no shortage of financial institutions seeking an acquisition in 2015,” although a much smaller number planned to sell. Among respondents, 47 percent said their bank planned to buy a “healthy bank” in 2015, while just 3 percent intend to sell their bank. “Absent a compelling deal, bank leaders express a preference for self-determination: When asked about barriers to selling the bank, more than two-thirds say that the board and/or management want the organization to remain independent,” states a report on the Bank Director survey. In the case of Founders Financial, directors were not seeking to sell until they saw the premium that Old National paid for United Bancorp in Ann Arbor. They then re-examined their independence strategy and, believing that Founders could get an attractive price, decided to seek a suitor. “A good price will certainly free up sellers,” said Rick Childs, director for Crowe Horwath’s financial advisory services group in Indianapolis, Ind. “It’s hard to ignore a really good price for your shareholders.” Despite the increase in M&A activity of late, Childs does not see a new wave of bank mergers nationally. In any given year nationally, a little more than 3 percent of bank charters will consolidate. The activity now occurring is more a reflection of the relative lack of deals during and immediately after the Great Recession, he said. “What we can say is that compared to five or six years ago, 2008 and particularly in 2009 when we had primarily FDIC transactions (involving troubled banks) and a few open-bank transactions going on, we’re at a better pace and in a better consolidation environment than we were. It’s new in that regard,” Childs said.

MORE CONSOLIDATION AHEAD Bank M&A activity has been on pace to exceed 4.5 percent of charters in 2014, Childs said. He believes that will settle back to an average of 3.3 percent to 3.5 percent in the new year and beyond. “It’s not going to be a large boom in transactions, but you can count on it being a consistent level of volume over the next four to five years, and particularly in 2015. We’ll see probably lower (activity nationally) in 2015, but still solid compared to three or four years ago when

MICHIGAN BANK MERGERS Bank M&A picked up in Michigan in 2014. Here are transactions of local interest that were completed and announced during the year: ■ Talmer Bancorp Inc. closed Jan. 1 on the acquisition of Michigan Commerce Bank, which was previously owned by Capitol Bancorp in Lansing and sold during bankruptcy proceedings. Michigan Commerce — which includes offices in Grand Rapids, Portage, Holland, Grand Haven and Muskegon — was renamed Talmer West Bank. ■ Mercantile Bank Corp.’s so-called “merger of equals” with the former Firstbank Corp. in Alma closed June 1. The deal was valued at $151.5 million. ■ Evansville, Ind.-based Old National Bancorp closed July 31 on the $157.8 million acquisition of United Bancorp in Ann Arbor, doubling its presence in Michigan. ■ Old National expects to close by year’s end on the $88.2 million acquisition of Founders Financial Corp. in Grand Rapids, the parent company of Founders Bank & Trust. ■ Midland-based Chemical Financial Corp. closed Oct. 31 on a $120 million deal for Northwestern Bancorp Inc. in Traverse City. ■ Chemical Financial announced the planned $26 million acquisition of Monarch Community Bancorp Inc. in Coldwater. The deal is expected to close in the first quarter of 2015. ■ Sturgis Bancorp Inc., the parent company of Sturgis Bank & Trust, announced Nov. 13 that it planned to acquire the 132-year-old West Michigan Savings Bank in Bangor in a $4 million cash deal that’s expected to close late in the first quarter of 2015.

the credit crisis was at its peak and still causing lots of issues.” In Michigan, where the number of state and federal bank charters since 1985 has gone from about 350 to a little more than 100, consolidation for 2014 could hit 10 percent this year, Kerschen said. From January to October this year, just the number of state-chartered banks in Michigan declined from 97 to 92, according to a monthly report from the Michigan Department of Insurance and Financial Services. Despite the present trend, Kerschen and others say small community banks will continue to have a role in the industry. “There’s a future for community banking,” Kerschen said. “It will certainly be for a smaller number than we’ve had in the past.”

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Interest rates should rise, but not enough to adversely impact economy, experts say

Economists’ Outlook

nterest rates in 2015 will likely begin moving up from their historic low levels, although they should still remain relatively low, economists say. As the U.S. economy begins to pick up and as inflation remains in check, the Federal Reserve plans to stop buying bonds in 2015 and will probably begin nudging up interest rates during the next year. Many economists see that occurring midway through 2015. Mitch Stapley, chief investment officer at ClearArc Capital Inc. in Grand Rapids, believes that it may come a little later. Low inflation allows the Federal Reserve “to be very patient in terms of raising rates,” he said. “In fact, we expect them to start raising rates probably a little later than what the general consensus on the Street is — third quarter, maybe fourth quarter of 2015,” Stapley said. “The middle part of the year, where the Street consensus seems to be, seems to be rushing it.” When interest rates do begin moving upward, Stapley doubts they’ll go far. Economic problems in Japan and Europe will spur action by central banks there that drive investors to foreign bonds in the U.S., keeping a lid on how much interest rates may climb, Stapley said. “While the Fed may begin to look at raising rates late next year — and the economy will be doing better, sure — that could put some modest upward pressure on our rates here, but I’ve got some big factors internationally that are going to help weigh down on rates,” Stapley said. “It’ll be good news for the consumer.” Stapley “would be very surprised” if interest rates on 10-year Treasury notes, now at 2.23 percent, were to move to 3 percent by the end of 2015, and “we’re not going back to 4 percent anytime soon,” he said. For instance, an increase in yields for short-term or intermediate municipal bonds to the level they were at seven or eight years ago is “just not in the cards, in our estimation, for 2015,” Stapley said. In its latest economic briefing, economists at Comerica Inc. expect 10-year treasury notes to move to 3.14 percent by the fourth quarter of 2015 and to 3.43 percent for 2016. Rates will move up as well for 30-year fixed mortgages, from an average of 3.6 percent now to 4.40 percent in the fourth quarter of 2015, Comerica projects. For consumers and commercial borrowers, the move in interest rates could affect the cost of credit, “but not a lot,” Stapley said. “The problem has been more of available credit than the cost of credit. The good news is that lenders will probably get a little more willing to lend next year,” he said. “Rates, even if they go up a little, are still going to be pretty low from a historical standard.” Paul Traub, an economist with the Detroit branch of the Federal Reserve Bank of Chicago, told members of the CFA Society of West Michigan during a November presentation that he expects short-term interest rates to remain low for the near term. With low inflation coming out of the recession, excess capacity, excess labor and low wage growth, “we feel from the perspective of the Fed that we can continue to be somewhat proactive with low shortterm rates, even though one might argue it’s time for us to move up,” Traub said. “We’re really not going to think about raising short-term rates any time soon. They’re going to stay low for a while.” One potential consequence from any change to interest rates is the reaction of consumers, Traub said. Consumers have come to expect that low interest rates are the “new normal,” and they could react negatively to any upward change, he said. “It’s the relative change that’s important in the minds of consumers,” he said, “and that could have some impact going forward.” — Mark Sanchez, MiBiz

U.S., Michigan economies expected to improve for 2015 By MARK SANCHEZ | MiBiz msanchez@mibiz.com orecasters generally see improved economic performance for both the U.S. and Michigan in 2015, further driving down unemployment rates. After a number of years of sluggish or moderate growth in the post-Great Recession era, economist Mitch Stapley, chief investment officer at ClearArc Capital Inc. in Grand Rapids, believes the U.S. economy will finally reach GDP growth of 3.2 percent by this time next year, despite problems in China, Japan and Europe. Playing into the national economy’s favor is improved consumer spending. After “a pretty hectic last couple of years, consumers are finally in a better place,” Stapley said. At the same time, research indicates that wages are finally starting to pick up, especially for lower and middle income workers. At the same time, commodity prices are under control, inflation is in check, and U.S. auto sales should remain strong. “You kind of go down the checklist here and you don’t see a lot of things that are telling you that things are going red hot, but you definitely see signs that things are doing a lot better than they’ve been doing in the last three or four years, and the pace of improvement probably gets the growth rate back to plus-3 percent,” Stapley said. Stapley “That’s the first time we’ve had that in seven years. We’re turning a corner.” That improved outlook should keep the U.S. auto industry in good shape. Stapley forecasts North American auto production of 16.5 million to 16.6 million units in 2015, equaling 2014. Light vehicle sales are expected to grow from a projected 16.3 million units this year to 16.6 million in 2015 and 17.0 million units in 2016, according to Long economic forecasters at the University of Michigan. In its latest outlook issued this month, U of M’s Research Seminar in Quantitative Economics projects GDP growth of 3.1 percent in 2015, after estimated growth of 2.2 percent for all of this year. GDP growth should hit 3.3 percent in 2016. “We expect that 2015 will be the year when U.S. economic growth will finally accelerate meaningfully,” said University of Michigan economist Daniil Manaenkov. “This year, severe winter weather joined the list of headwinds that have prevented U.S. economic growth from picking up. Even still, both private and total payroll job gains during 2014 are on track for their best performance since 1999. And going forward, strong GDP growth supports steady employment gains.” At Comerica Inc., economists forecast inflation-adjusted real GDP growth of 2.9 percent for 2015. Meanwhile, at a recent presentation to the CFA Society of West Michigan in Grand Rapids, economist Paul Traub from the Detroit branch of the Federal Reserve Bank of Chicago pegged 2015 real GDP growth at 2.8 percent. While the U.S. economy is clearly doing better, the recovery to date has been “anemic” and the Federal Reserve still believes “there’s more work that needs to be done” to drive economic output higher. “Although we’re doing better, it remains to be seen if we are getting back to the overall potential of what this country can actually put out,” Traub said. Economic issues overseas remain a concern domestically, although the U.S. economy is “relatively insular,” with 14 percent of GDP dependent on exports, lower than elsewhere in the world, said Stapley of ClearArc Capital. If the rest of the world slows down, “it will be a hit on us, but it will not be as dramatic of a hit” as in other countries with a much higher export rate, he said. “It’s a good time to be in the U.S.,” Stapley said. “The real question is what’s going to happen in China, what’s going to happen in Japan, what’s going to happen in Europe. But we look to be strong enough that we can weather that storm, if indeed the storm does break out over there. Being relatively insular right now is a pretty good thing.” Traub even describes the U.S. economy as “kind of like a shining

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

beacon of the world today because we’re growing” as economic growth around the world slows. The higher economic growth should drive down unemployment nationally from 6.2 percent in 2014 to 5.5 percent for 2015, and to 5.2 percent in 2016, as the U.S. economy generates 5.3 million new jobs over the two-year period, according to U of M forecasters. Comerica projects that U.S. unemployment, after ending 2014 at 5.8 percent, will dip to 5.6 percent by the end of the first quarter of 2015 and fall to 5.0 percent by the end of the year. In Michigan, U of M forecasters predict the creation of 59,400 jobs in 2015 and another 73,200 in 2016. Both years will exceed the average of 57,000 jobs created annually in Michigan from 1971 to 2000, prior to the state’s decade-long economic decline. In the outlook, U of M economist George Fulton noted that more than 300,000 jobs were created in Michigan over the past five years and that the state unemployment rate is half of what it was in 2009. Vehicle sales are booming at their highest level in eight years and the Detroit bankruptcy is settled, he said. “What all of this suggests is that the Michigan economy has gone some distance from the dire straits it was in five years ago, at least overall, but there is still a fair way to go,” Fulton said. Michigan, for instance, remains among the states with the highest unemployment rates in the nation and ranks in the bottom third in per-capita personal income. The state also lags in population growth among the young and college-educated adults and numerous residents have yet to see the economic rebound, Fulton said. “In all, the Michigan economy has certainly come a long way in the past five years, and that progress should be celebrated,” he said. “The issues now are to sustain that momentum and also to have it be more inclusive of a far greater number of Michigan’s residents.” U of M projects Michigan’s annual unemployment rate to decline to 6.7 percent by the end of 2015 and to fall to 6.3 percent by the end of 2016. Across West Michigan, key areas of economist Brian Long’s monthly activity index remained in good shape, although they did ease from October. Indexes for new orders, production and employment declined. The short-term outlook for the next three to six months among industrial purchasing managers responding to Long’s monthly survey inched upward, and the long-term outlook for the next three to five years improved in November from October. “Individual comments from respondents also indicate no major concerns about the future,” Long wrote in his monthly report. The director of supply chain management research at Grand Valley State University’s Seidman College of Business, Long noted that Michigan’s monthly unemployment rate of 6.4 percent for October is well below the “ominous” 8.2 percent of a year ago and significantly down from the 14.9 percent rate in July 2009 at the peak of the recession. But it’s still well above the 3.1 percent rate Michigan recorded in October 2000, just as the state was beginning its decade-long economic decline. “In short, our unemployment picture continues to improve, but we still have a gap to close before we can consider West Michigan to be back to full employment,” Long wrote.

“In all, the Michigan economy has certainly come a long way in the past five years, and that progress should be celebrated,” he said. “The issues now are to sustain that momentum and also to have it be more inclusive of a far greater number of Michigan’s residents.” — GEORGE FULTON, U of M

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ECONOMY

Q&A: George Erickcek W.E. Upjohn Institute for Employment Research George Erickcek predicts continued strong employment growth in West Michigan for 2015, led by manufacturing and construction jobs, before an easing the following year. The senior regional analyst with the W.E. Upjohn Institute for Employment Research in Kalamazoo, Erickcek projects overall employment growth of 3.2 percent next year. He projects goods-producing jobs alone to grow by 4.8 percent across a four-county region of the Grand Rapids area that includes Kent, Ionia, Barry and Newaygo counties, driven by continued strong automotive and truck production that will keep suppliers busy. In 2014, the region’s economy grew by what Erickcek calls a “truly phenomenal” rate of 3.8 percent, led by a 5.8 percent gain in goods-producing jobs and 3.4 percent growth in service jobs. He spoke with MiBiz about the drivers for growth and the potential headwinds on the horizon for 2015.

What do you see in store for the overall West Michigan economy next year? Strong growth. For Grand Rapids, three things are driving it. First, autos and auto suppliers. Second, the return of construction, and that is both in residential and commercial. And then we continue to see Grand Rapids as an administrative center and office service center. The fact that Kellogg’s has decided to move some of its activities up to the Cascade Township area and the fact that we are seeing pretty good vacancy rate data for office structures suggests to me that Grand Rapids continues to reach that optimal size for office employment growth.

What are the hot hiring areas for 2015? First, occupations in the health care sector are still going to require additional workers in terms of specialists and RNs alike. Second, I.T. When we talk to employers, they keep on talking about the need to increase their I.T., and I.T. occupations are hard to follow because they are ubiquitous. Everyone has an I.T. person, if not two or three. There’s an I.T. industry, but it’s very small because a lot I.T. people are buried usually in the basement of companies and we don’t see that in the industry data.

Finally, skilled manufacturing, and that can be machinists to welders to engineers. I think that area is going to have a shortage, and a shortage because a lot of people are hesitant to go into these fields because of the track record of manufacturing.

Are there any other factors that you’re weighing? There are people very worried about student loan debt and whether student loan debt will cause a slowdown in vehicle purchases. But right now, according to people I trust, that’s not going to happen.

Will wage growth pick up? Yes. We already see it now that wage growth will pick up, and it will pick up only because of demand shortages. We do think there is going to be a shortage of workers for key occupations, and employers will find themselves competing against each other for these workers. We see it already in Battle Creek and others areas, but I think in Grand Rapids it’s going to be even more so.

In terms of public policy, what’s one thing that Lansing can do in 2015 to help employment growth? Lansing could promote community colleges’ opportunities to provide technical training. I want to be clear here: When I talk to the community college people, they are offering good classes in technical trades, but they are not getting students to fill them. So there are empty seats. What Lansing could do is spend more money promoting the career opportunities available in construction and machine trades because right now, community colleges are set to expand these programs, but they simply do not have the students wanting to take them.

What are the concerns out there? The macro picture. The one macro concern that I worry about is the fact that it looks like the U.S. is standing by itself. The Japanese market is flat, the European market is flat. It’s a question of whether one country, although it’s the biggest economy in the world, can go on its own. We are basing our forecast on a solid performance nationwide. That makes me a little bit nervous. How could the talent shortage affect your forecast? We increasingly hear that production could be held back by the lack of talent. When we talk to employers, we definitely hear that time and time again. It may be possible that our forecast may be too robust because too many of our construction firms and too many of our manufacturers may have to turn away orders because they simply cannot find the workers they need. That could cause our forecast to be overly optimistic.

What are your other predictions for 2015? Inflation is going to stay low for the coming year, and gas prices are going to stay below $2.75. What would surprise you in 2015? There is increasing talk that interest rates will start to climb. I will be very surprised if mortgage rates for 2015 go above 5 percent. With the Fed discontinuing the quantitative easing and with the economy still expected to grow, more and more people are starting to believe that the Fed is going to allow short-term rates to start climbing. I do not see that happening. I would be surprised to see a jump in long-term rates in terms of 10-year treasury bills and in terms of mortgages. Interview conducted and condensed by Mark Sanchez.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

ECONOMY

Q&A: Paul Isely Grand Valley State University Seidman College of Business Heightened construction and manufacturing activity amid falling commodity prices have Paul Isely optimistic about the overall economy’s performance next year. However, the chair of the economics department at Grand Valley State University’s Seidman College of Business says the ever-present talent shortage, international events and the long recovery have left him wondering when the next downturn will occur. He spoke with MiBiz about those opportunities and some headwinds the state and national economies face in 2015. Overall, what does the state of the economy look like for 2015? I think next year will be slightly better than this year. We’ll see slightly faster growth with unemployment coming down a little more, and unless that’s washed out by commodity deflation, it should start to show some pick up in inflation particularly in the second half of next year. We’re looking at another six months for some of the decreases in fuel and commodity prices that we’ve seen (recently) to work their way through the rest of the system. How will the reduction in fuel costs play out? We’ll probably have those six months of decent fuel prices and that’s going to really help the U.S. economy and Michigan. The fact that we have these lower prices means people have more cash because they’re not spending it on gasoline. Those things will increase demand-side inflation. What regulatory constraints could hamper growth? Surprisingly, health care continues to be an issue with small businesses that aren’t even affected by the mandate. They are the ones making the most changes. That’s a little scary because a lot of our job creation happens with those new and small businesses. They have a lot of uncertainties built around this and when you’re uncertain, you don’t invest, so you’re not expanding your business and hiring new people. What can companies do to attract the talent they need to meet production? From a talent needs and a total amount of workers perspective, we are starting to run out (of people). To date, companies have resisted raising wages that much, but they’re probably going to have to reevaluate this in the coming year. Your bottom-end manufacturing is pulling in $11 an hour. That was $4 an hour above minimum wage.

(For the) employers that we’ve heard complain about a talent gap, the next part of that conversation is compensation. How does West Michigan stack up? What people in West Michigan don’t understand is that for a comparable skilled job, we tend to pay less. We’re making what we think are good increases, but we aren’t keeping up. Other than talent, what are some headwinds the economy may face next year? Even though it doesn’t feel like it, this expansion is getting a little long in the tooth. It’s been slow and plodding, but you have to start wondering if we’re getting close to when we’re going to see another downturn. We’re not seeing it yet, but some of those really early markers are starting to smell a little bit. What are you seeing that’s giving you pause? In Michigan, I worry that we’ve played out our job and income growth based on automotive. A lot of our job growth over the last year has been leisure and entertainment, which doesn’t pay very well. I’m a little worried that we’re going to slow down a little more than what people expect here in Michigan. Do you think Michigan will see any tangible benefits from becoming a Right to Work state now that the policy is two years old? I’m not sure Right to Work is going to show something. It’s a secondary effect and secondary effects are hard to prove. People who believe it will be a big benefit will see a big benefit and those who don’t, won’t.

Interview conducted and condensed by John Wiegand.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

DEVELOPMENT

J. Patrick Lennon Honigman Miller Schwartz and Cohn LLP Kalamazoo

Honigman attorney Pat Lennon projects a period of solid growth for development in the region as transactions continue to heat up. However, he warns that developers must be mindful of how they go about financing deals. How does the outlook for the development market in 2015 compare to prior years? “We see 2015 beginning with the same activity and excitement in which 2014 is ending. New projects and transaction volumes are expected to continue at a very high rate. Development work such as zoning approvals for new projects, establishing new condominiums and putting together new land assemblages are on the rise and are expected to continue. “What keeps me up at night … is the possibility that history is repeating itself and a new bubble is forming. The development and transaction pace is accelerated, financing is not readily available but interest (rates) are very low and a large number of projects are getting financed. If not responsibly checked and underwritten, those conditions could result in another market correction and no one wants to go through one of those again.” Compiled by Nick Manes.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Economic Development Outlook Economic developers shift focus to international business attraction By JOHN WIEGAND | MiBiz jwiegand@mibiz.com conomic development agencies are going to have their hands full going into the new year. Despite ongoing challenges with talent and lackluster infrastructure, economic growth has largely stabilized in the region. But now development agencies are putting renewed focus on attracting international business to West Michigan through a more regionalized approach to economic development. Despite uncertainties in Europe and other international markets, West Michigan’s economic developers predict increased interest in regional investment in the coming year. While a substantial amount of outside business has typically come from Europe, foreign investment in the state is now coming from different parts of the continent, particularly Italy, said Birgit Klohs, president and CEO of The Right Place Inc. “In a weird twist, even though Italy is doing poorly, Michigan is seeing an influx of Italian companies,” she said. “(That) sounds counterintuitive when you think about the state of the Italian economy, but they’re making bets on the U.S. This is still the richest market.” Klohs points to the Italian auto supplier INglass Group SpA as a recent example of the increased international interest in West Michigan. In April, the Italy-based manufacturer announced plans to invest $17.6 million in a 105,000-square-foot facility in Byron Center and create 109 jobs over the next four years. The Right Place also helped attract the Chinese automotive supplier CiTic Dicastal Co. Ltd., which is investing $140 million to open a new facility in the former United Solar Ovonic LLC site in Greenville. The Right Place will also continue its work with the Netherlands to develop collaborations with that country’s advanced food processing and medical device industries, Klohs said. While international business attraction often makes headlines, the lion’s share of The Right Place’s work is done with existing companies in West Michigan, many of which are family-owned businesses, Klohs said. The Right Place has attracted and retained 2,183 jobs and spurred $315 million in new investment in 2014. While growth will likely continue at a steady rate, it’s unlikely that it will reach this year’s levels in 2015, Klohs said. On the state level, the Michigan Economic Development Corp. (MEDC) also plans to increase its focus on attracting international development to the state, said President Mike Finney. The MEDC forecasts total investment in its Michigan State Trade Export Program (MI-STEP) – an initiative that assists small and medium size companies with export activity – to double from $250 million in 2014 to $500 million over the next two years. The organization also plans to open new international trade offices in China, Italy and other markets in 2015 – adding to its current offices in Mexico, China, Brazil and Canada. “We have to make a greater effort on international business attraction for foreign direct investment,” Finney said. “It’s a big opportunity for our state and we as an organization need to focus more there to realize its full potential.” However, the sticking point to attracting international business stems from the state’s infrastructure, Klohs said. Not only does the state need to improve its highways and bridges, but also a shortage

of modern manufacturing facilities could hamper new business attraction going forward. “I’ll point to Dicastal in Greenville. If if wasn’t for those two buildings that were ready, we wouldn’t have that company right now,” Klohs said. “This a large constraining factor with us. Hopefully, construction will be back on track and we will get some potential spec buildings that we can show immediately.”

MOVING TOWARD REGIONALISM To remain competitive and boost effectiveness, economic development organizations have turned to a more regional approach, shifting focus from just their immediate communities to the region as a whole as they scout for more international business. “If you don’t represent yourself as a region to Europe or China, you are constraining yourself,” Klohs said. “Regionalism is here to stay, it’s the only way to compete. Our competition isn’t only in Indiana, but in India, China and Europe. If we don’t think, act and work regionally, we are really constraining ourselves.” The Right Place recently partnered with Montcalm County under a three-year contract and plans to strike a more robust contract with longtime partner Newaygo County, Klohs said. Beyond contractual work, The Right Place will continue to lend its support and research capabilities to other communities across the region. This trend has played out with the creation of the West Michigan Prosperity Alliance through the statewide Regional Prosperity Initiative. The initiative – which separates the state into 10 distinct regional economies – allows individual regions to determine the best strategy for growth. Kalamazoo-based Southwest Michigan First is also heading up a seven-county collaboration as part of the initiative. “No one has the resources to make a go of it on their own,” said Ron Kitchens, president and CEO of Southwest Michigan First. “Leaders today clearly understand that we’re better with collaboration. Larger communities are servicing the social needs of rural populations anyway. Why wouldn’t we work together to raise the tide?” Southwest Michigan First has secured 63 new company announcements with 2,274 direct new jobs and $280 million in new investment to date this year, according to the organization. Next year, the group wants to bring 3,000 new jobs to its region. Beyond more regional collaboration, Jennifer Owens, president of Lakeshore Advantage, sees economic development agencies shifting their focus to the widely reported talent shortage in the region. With a third of the workforce slated for retirement in the

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

next 10 years and the region’s population growing by roughly 5 percent a year, the onus will fall on economic developers to help close the gap, Owens said. “That’s really going to be the new shift in economic development,” she said. “It will be interesting to see our world shift away from the business attraction and more toward the talent attraction piece.” However, the talent problem is not one for economic developers alone, nor is it solely a West Michigan problem, sources said. Going forward, the nation will need to solve this issue for the economy to continue to grow. Michigan can be the state to set an example by recognizing the benefits of lifelong learning and enacting public policy that encourages technical and skilled training, Klohs said. “It’s a culture shift,” she said. “As a society, we need to respect all different kinds of professions. It takes as long to become a tooland-die maker as it does to get a four-year degree. I think the state can set the tone and invest in those kinds of things to give it the same kind of respect that a college degree gets.” For Kitchens, boosting high school graduation rates will be the key long-term solution to solving the talent issue. Currently, the state has a 25 percent average high school dropout rate and only one in five graduates are ready for college or the workforce without some type of remedial training, Kitchens said. “We’ve spent the last year doing research and we’ve put together a blue ribbon panel that includes college presidents, superintendents and business leaders,” Kitchens said. “We’re going to focus on crafting a strategy for the seven counties in Southwest Michigan that turns that tide because it’s just not acceptable.”

“Regionalism is here to stay, it’s the only way to compete. Our competition isn’t only in Indiana, but in India, China and Europe. If we don’t think, act and work regionally, we are really constraining ourselves. — BIRGIT KLOHS, THE RIGHT PLACE INC.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

Higher Education Outlook Colleges add infrastructure to meet needs of changing economy Grand Valley State University also has ambitious expansion plans heading into the new year. In December, the university announced a land swap deal with Spectrum Health along Michigan Street in Grand Rapids in which GVSU will acquire one s West Michigan’s economy continues to improve and of the health system’s parking lots where it plans to expand the evolve, that’s led to a host of infrastructure investments Cook-DeVos Center for Health Sciences. at colleges and universities across the region. That deal followed an $18 million land purchase in the Belknap As presidents from a variety of higher education neighborhood, just north of downtown, to further expand the uniinstitutions look ahead to 2015, they aim to doubleversity’s health and science capabilities. down on core competencies — namely developing a talented On its Allendale campus, the university is currently constructworkforce — while also seeking to innovate in a changing economy. ing a new $42 million, 151,000-square-foot science laboratory “I think developing new professionals ready to ensure our building, featuring nine classrooms and 15 teaching laboratories. state’s future is now and will continue to be our focus,” said John The project is expected to be completed in fall of 2015. Dunn, president of Western Michigan University. “(W)e’re fortuAttached to the science building is the 42,000-square-foot Laker nate in Michigan to have a supportive business community and an Marketplace, featuring a bookstore, copy center and food and retail autonomous set of public universities that each want to help diverspaces. The marketplace is expected to be completed in May. sify the state’s economy and promote economic development.” Grand Rapids-based Aquinas Institutions around the region College is also considering the are implementing a variety of new feasibility of a new science buildcurricula as a means of standing ing, among other facilities projout in the higher education marects, including a new chapel, said ket. In some cases, that’s leading President Juan Olivarez. to new building projects. He added the Catholic liberal At Kalamazoo Valley Commuarts college plans to expand on its nity College, the school has started sustainable business degrees to construction on its new $46 million roll out an “economicology” prohealth and wellness campus in colgram it created with a $2.5 million laboration with Bronson Health— JUAN OLIVAREZ, AQUINAS COLLEGE gift from the Wege Foundation. care. The project aims to promote “We need to be relevant in the healthy food and to identify ways times and we also want to encourto grow food in an urban environage our faculty and staff to look ment, said KVCC president Marioutside the box and look to the lyn Schlack. future to look at how we develop new programs and how we deliver “It goes beyond the farm-to-table concept because what is really particular courses and programs,” Olivarez said. being explored is food as medicine, and I think that’s been underesMeanwhile, Muskegon Community College plans to expand in timated,” Schlack said. “(We also want to show) that growing food downtown Muskegon after it closed on a deal to purchase the forin an urban setting can be a viable source of jobs and (can help) mer Muskegon Chronicle building, as MiBiz previously reported. eliminate the high cost of foods being brought in from outside.” MCC has set early 2016 as the goal for at least partial occupancy The campus, located in downtown Kalamazoo on 13.3 acres of of the site, President Dale Nesbary said. land donated by Bronson, is expected to be “fully operational” by The building boom at the region’s higher educational institutions January 2016, but Schlack expects some classes to begin by spring. is occurring at the same time more students are enrolling in online KVCC isn’t alone in expanding in Southwest Michigan as nearby courses. But the executives reached for this report said they expected WMU has two construction projects underway. A new 750-person bricks-and-mortar infrastructure to be required for the long term. residence hall known as Western Heights and the restoration of “Online education is not for everyone,” KVCC’s Schlack said. East Hall are both scheduled for completion in 2015. “Across the country, the online programs have a high failure rate. Additionally, after WMU’s Business Technology and Research (KVCC) is spending more time looking at a blended approach. … (BTR) Park reached capacity this year, the university began lookIt’s still difficult to teach without a classroom.” ing at investment options to build out needed infrastructure at an adjacent property, Dunn said.

By NICK MANES | MiBiz nmanes@mibiz.com

“We need to be relevant in the times and we also want to encourage our faculty and staff to look outside the box and look to the future to look at how we develop new programs and how we deliver particular courses and programs.”

Q&A: STEVEN ENDER GRAND RAPIDS COMMUNITY COLLEGE Grand Rapids

As companies across the country and in West Michigan pay close attention to talent issues, they’ve largely looked to community colleges as the go-to source for skilled workers. However, attracting students to technical training programs and sourcing funding for those programs continue to be issues for those schools. During his tenure, Grand Rapids Community College President Steven Ender has worked to grow the college’s programs and curriculum to meet the needs of employers in West Michigan. He spoke with MiBiz about the role community colleges will play in training workers in the coming year. Gov. Rick Snyder has said his next term will focus on talent. What does that mean for community colleges? I’ve heard the Governor speak now many times over the last two years on the need for a talented workforce in Michigan. In that conversation, he points constantly to what we call the technical education including machining, construction, welding, etc.

For community colleges, we hear those words as a real endorsement for one of our primary niches, which is workforce and talent development. We can see through our enrollment that the number of students is clearly growing. We really think we are in the sweet spot of that work and think that we will be able to respond to the Governor’s agenda of really focusing on talent development. What’s an example of a specific action your organization plans to take around workforce development in 2015? There is a $50 million fund out of the Michigan Economic Development Corporation available … to retool applied tech centers and develop new or expand technical programs. One of the areas we are seeking funds is in advanced manufacturing. Our plan is to put a second lab online. We clearly know we have a need for more labs in that discipline and (we’d like to) use some of that money to enhance that offering. What can community colleges do to attract more students into manufacturing programs? Part of our focus, especially when working with high school students, is to introduce this area of work as noble work. Clearly, there’s a misconception of what it’s like to go into a modern manufacturing facility today. Families have to begin to understand that there are incredible opportunities to become a machinist or become a welder and make $70,000 to $80,000 a year. Our problem is finishing their education before they are offered a job. There’s a demand and a need but still a public perception of the work that needs to be overcome.

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

COURTESY PHOTO

TOM HAAS GRAND VALLEY STATE UNIVERSITY Grand Rapids and Allendale In looking ahead to 2015, President Tom Haas points to Grand Valley State University’s annual $730 million economic impact on West Michigan and notes that 90 percent of its graduates are employed or enrolled in graduate school. Of those, 86 percent are working in West Michigan, which further illustrates GVSU’s role in the West Michigan economy. What role does higher education play in West Michigan’s economic performance? “I am confident higher education will help West Michigan’s economy to perform at new heights in 2015. Why am I so certain? Kent County currently enjoys the lowest unemployment rate in Michigan at 4 percent, compared to the statewide average of 6.4 percent. Why the difference? It is because our local economy, led by health care, advanced manufacturing and technology, is booming. Grand Valley State University produces thousands of graduates in these fields every year, and in so doing, produces big dividends for our region. If you wonder where the most prosperous Michigan cities are, note where public universities are located. Nearly every town in Michigan that hosts a public university campus has lower unemployment and a stronger local economy compared to towns without a college campus. We are partners for progress and proud to play an important role in our state’s economic future.”

Compiled by Mark Sanchez.

It’s no secret that state funding for higher education is always up in the air. What’s next year going to bring for your budget? Gov. Snyder hasn’t cut funding to community colleges so our appropriations, while somewhat flat, have not dropped. That’s not to say we don’t have some budget problems as we look forward into the next five years. We have a campus team that will bring recommendations at the end of this semester. We’re trying to capture $2 million to $3 million between revenue and budget enhancements. We know that if we don’t do that, we’ll be struggling with budget issues for the next five years, so we’re very proactive in our approach. What’s one of your strategies for securing that funding? I know one of the recommendations coming from the budget committee is to take a hard look at a differential tuition policy. We have a handful of programs that are high-demand and high cost, (for) both faculty and equipment. We might make tuition different for students in several programs than those studying in an arts program. What does enrollment look like going into 2015? I hope every day that it is flat. Now that our economy in West Michigan and Grand Rapids metro has rebounded fabulously, our enrollment has fallen to 15,700. I’m hoping we’re close to the floor because Grand Rapids is pretty close to full employment from a national definition. … As the economy recovers, enrollment in community colleges drop. That’s a national phenomenon. Interview conducted and condensed by John Wiegand.

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Special Year-End Edition: MiBiz Crystal Ball 2015 / DECEMBER 22, 2014

DECEMBER 22, 2014 / MiBiz Crystal Ball 2015: Special Year-End Edition

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