Middle Market Growth - September/October 2018

SEP/OCT 2018

// THE OFFICIAL PUBLICATION OF ACG

Making Waves Fishpeople’s quest to change the seafood industry

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FROM THE EDITOR

Food Cos. Hunger for Fresh Ideas, New Tech

I

KATHRYN MULLIGAN Editor in Chief, Middle Market Growth

t seems food and beverage companies today could do worse than follow the old adage: “Put your money where your mouth is.” In this issue of Middle Market Growth, we explore trends in the industry, including how businesses are spending to differentiate themselves and keep up with changing consumer tastes.

These days, grocery checkout lines are stocked with displays of Rxbar, Krave and other brands that seem to have come out of nowhere. And they did, in a sense. Often developed in home kitchens—the food industry’s answer to the garage of tech startup narratives—these innovative concepts have caught the attention of food giants, which have struggled to develop fresh offerings in-house. As tastes have shifted toward clean, healthy foods, corporate acquirers and investors alike are pursuing small and midsize companies with appealing concepts.

Beyond nutrition, consumers are increasingly interested in how their food was produced. Organic, natural and non-GMO signifiers on labels are now common, but one segment where transparency has been slow to catch on is seafood. Not only is origin information scarce, studies have shown the type of fish itself is often misidentified. Tilapia masquerading as red snapper, anyone?

As in many industries, technology is changing the status quo.

Fishpeople, profiled in our cover story, is on the forefront of offering tracking tools to help keep customers informed about the seafood on their plates. Its meal kits feature QR codes that link to information about the fish a consumer is about to eat, the boat it arrived on, and even a picture of the captain.

Tracking technologies have far-reaching supply chain implications, from enabling ethical purchasing decisions to containing disease outbreaks. They also can drive supply chain efficiencies for midsize distribution companies, in food as well as other industries. This issue’s trend story looks at how businesses are carving out niches and offering personalized customer service to compete in the age of Amazon. Distributors are held to the fast-paced delivery expectations set by the e-commerce giant, and investors have an important role to play in helping them adopt new systems and technology.

This issue is my first as MMG’s editor in chief. I hope to meet many of you as I attend ACG events this fall, and I welcome your feedback and ideas as we continue to tell the story of the thriving middle market. //

MIDDLE MARKET GROWTH // SEP/OCT 2018

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EXECUTIVE SUMMARY

Back-to-School Season for ACG

B

ANGELA MacPHEE Chairman, ACG Global Board of Directors, and CEO, RGL Forensics

2

middlemarketgrowth.org

ack-to-school season is in full swing, surfacing memories of new backpacks, fresh notebooks and the nervous anticipation of the first day of class. The beginning of each academic year signals a fresh start in a lot of ways—the chance to meet new friends, learn new things, and face new challenges. Although those days are behind us, ACG delivers many of the same benefits we found in school.

Knowledge is one such area. From the panel sessions at ACG events, to webinars and this magazine, there are numerous ways to continue learning about our industry. Among those learning opportunities is ACG’s Middle-Market Advocacy Summit, which will take place in Washington, D.C., on Sept. 12–13. Jay Clayton, chairman of the Securities and Exchange Commission, will speak during the event along with other influential policymakers, offering attendees insight into the legislative and regulatory issues facing the middle market. During the summit, ACG members will also meet with legislators on Capitol Hill to share their experiences building businesses and creating jobs.

ACG members know that job-creation stories abound in the middle market, and our efforts to engage with policymakers ensure government officials are aware of those successes, too. Fishpeople, a maker of sustainably sourced seafood products and the subject of our cover story, is one powerful example. The company is generating jobs in rural communities with support from Advantage Capital, an investment firm with a mandate to create employment opportunities in underserved markets.

Connecting businesses with capital is a major focus for ACG, as is bringing together people within the industry. In the past, school served that function. It was where we met the friends we studied with and called on to compare notes. Now when I need advice on how to handle a challenge, I consult with the diverse network of contacts I’ve met through ACG over the years.

ACG has been invaluable for my career, and I look forward to playing a role in the organization’s continued success as chairman of the ACG Global Board of Directors. I took over the position from J.B. Dollison on Sept. 1 and I’m excited for the year ahead—to meet new friends, learn new things, and face new challenges as we continue ACG’s mission of driving middle-market growth. //

SEP/OCT 2018

DON’T MISS QUICK TAKES Brothy Multiples

17 A QUALIFIED OPINION The Growing Spirits Market 18

POLICY POINTS ACG’s Advocacy Summit 32

IN THIS ISSUE From the Editor 1 Cover and above photo by Bill Purcell

GROWTH STORY

Executive Summary 2

Making Waves

Executive Suite 8

Portland, Oregon-based Fishpeople is on track to double its annual revenue, generated by sales of its seafood-based soups, meal kits and wholesale offerings. But its founders have ambitions beyond profit growth—they want to transform the industry’s murky supply chains, improve working conditions, and show Americans that cooking fish is easier than it seems. 20

The Round 10 Vertical View 14 Midpoints by John Gabbert 15 In Focus—Plante Moran’s Sell-Side Due Diligence 34

TREND

Distribution in the Age of Amazon Midsize distribution companies are finding ways

Growth Economy 40 The Portfolio 41 ACG@Work 44

to stand out in today’s market, using high-touch customer service and defensible niches to

The Ladder 50

remain competitive, and private equity investors are taking note. 28

It’s the Small Things 52

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CBIZ is Expanding

Mark Coleman, Managing Director

Patrick Martin, Managing Director

CBIZ Welcomes Laurus Transaction Advisors – adding service line breadth to our Accounting, Tax and Insurance practices.

CBIZ Laurus Service Offerings: FINANCIAL DUE DILIGENCE | CFO ADVISORY SERVICES

CBIZ Laurus 4600 South Ulster St., Suite 900 | Denver, CO 80237 | 720.279.6332 www.cbiz.com/laurus © Copyright 2018. CBIZ, Inc. NYSE Listed: CBZ. All rights reserved.

MIDDLE MARKET GROWTH ONLINE

PRESIDENT & CEO

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the latest issue.

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MMG Editor Kathryn Mulligan about the ways in which artificial intelligence and voice activation are transforming the software industry. He shared how Act, Swiftpage’s customer relationship management offering, is incorporating these technologies, and he discussed the company’s rapid growth through acquisitions.

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®

EXECUTIVE SUITE

Executing Transactions in a Timely Fashion F What challenges do companies

ROB WELLNER Title: Director of Sales Company: Velocity Global Location: Denver, Colorado Expertise: Wellner draws on 12 years of experience in capital markets to help organizations expand internationally, including using Velocity Global’s International PEO service to overcome challenges associated with global M&A.

face during cross-border M&A? Companies often struggle to execute a global transaction in a timely fashion and integrate employees quickly. A company has to consider a number of factors, such as the culture of both companies, their geographic locations, and the legal structure of the target. If any factors differ significantly between the two companies, more action and time may be required to ensure a smooth transaction. It’s also necessary to understand the country-specific regulations where the acquired company will operate.

That know­ledge will help ensure the business is compliant while providing a seamless transactional process for both the company and its employees.

F What are common risks

associated with global M&A? Risks include—but are not limited to—regulations, tax and labor laws, political stability and the employee population. Without knowing these potential risks and addressing them in a timely way, a company risks losing the deal because of lack of experience and expertise in the global marketplace. Human capital integration is often underestimated and undervalued. Personal views and emotions can also come into play.

These can cause delays in closing, so addressing human capital considerations early is essential.

F What are some considerations

when transferring employees after a cross-border deal?

Entities need to be fully operational

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before onboarding employees. This includes establishing systems for payroll, legal contracts, immigration and visa paperwork, pension plans, health benefits and mandatory contributions to social programs, where applicable. Every country has varying employment laws that a company must abide by; understanding what is expected for employees impacted by a cross-border transaction is crucial. These considerations can be streamlined by using an alternative method such as an International Professional Employer Organization, or International PEO, which enables an employer to outsource employee management responsibilities. An International PEO can help facilitate global mergers, acquisitions, carveouts, divestitures and other complex international transactions by demonstrating a certainty to close.

Ultimately, it can lead to increased purchasing power: By facilitating a faster closing and reducing employment risks, an International PEO can help increase the value of a bid.

F How can companies streamline

cross-border transactions?

Many of the challenges and risks can be mitigated with proper knowledge and planning. A common mistake is waiting to address human capital concerns at the late stages of a transaction. By integrating this process or working with an International PEO like Velocity Global to integrate employees in a timely fashion, companies can avoid the common challenges faced during this sometimes confusing and complicated time. //

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MIDDLE MARKET GROWTH // SEP/OCT 2018

9

THE ROUND

How Food Giants Are Outsourcing Innovation M&A gives companies access to cutting-edge brands

L Jeffrey Robards Managing Director, Alantra

10

arge food companies have struggled to generate growth in recent years, a reality that has created space for entrepreneur-led brands that may eventually become M&A targets for large acquirers.

Over the last three years, median annual revenue growth for major publicly traded food companies was negative, according to data from S&P Capital IQ. This is partly the result of a corporate hierarchy vested in decades-old business models. These legacy structures have made it difficult for large companies to refocus marketing and innovation efforts to take advantage of changing consumer demand and the rise of social media. This challenge has been compounded by recent pressures on marketing and innovation budgets. Many companies have benchmarked their spending against 3G Capital’s aggressive cuts at Kraft Heinz as it seeks to improve margins following the 2015 merger.

The inability of food industry giants to adequately address consumer trends has left a gap in the market. That void has been filled largely

middlemarketgrowth.org

by entrepreneurial companies that in many cases attract financial support and operational guidance from venture capital and private equity.

These smaller, more nimble companies are closer to the consumer and therefore better able to understand market needs without the bias of historical ways of doing business. Furthermore, they appear to be better versed in newer marketing methods and social media to influence consumer demand.

The most successful of these companies often see huge growth, achieving milestones of $20 million, $50 million and $100 million in annual sales in just a few years. Venture capital and private equity players focused on the consumer market—with money to invest and the ability to add value through operational and marketing resources and retail connections—actively look to back these companies and help get them to the next level.

A natural and not unexpected outcome of these factors has been a marked increase in M&A activity in recent years as large food companies

look to gain access to the innovation efforts of these smaller players.

They wait to see which companies gain traction and success before they pursue an acquisition; in this way they effectively outsource successful innovation. This M&A activity, often occurring in competitive auction situations, has been happening at very high valuation metrics. Salesbased multiples range from 2.5 times to as much as 7 times, which implies multiples of pro forma EBITDA often well in excess of 20 times. These extreme valuations are justified by large acquirers’ ability to utilize broad distribution and marketing capabilities to quickly ramp up sales and profitability. A representative sample of recent transactions, including PepsiCo’s purchase of Bare Foods and Mondelez’s acquisition of Tate’s Bake Shop, display an average transaction value of $285 million and an average multiple to sales of 4.2 times (based on estimates from public and private sources).

There are signs, however, that some of the trends behind this M&A activity may be shifting. For example, food giants such as ConAgra have achieved some traction from rejuvenated marketing and innovation efforts, and 3G’s cost-cutting efforts at Kraft Heinz recently have hit a wall amid stagnant last-12-months revenue growth. Regardless, it is likely that select entrepreneurial and private capital-backed growth companies will continue to find success capitalizing on consumer demand trends, leading to more growth-oriented M&A. Jeffrey Robards leads the consumer foods sector focus in North America for Alantra, a global investment banking and asset management firm.

Video Series Puts Industry Trends in Focus

D

eep industry knowledge is critical for middle-market private equity firms as they face high purchase price multiples and stiff competition for deals in today’s market. To help shed light on industry dynamics, a new video series features expert commentary on five investment areas.

Each video takes a deep dive into a different middle-market industry segment: specialty engineering services; health care; luxury consumer brands; entrepreneur-backed specialty services, such as traditional and emergency veterinary care, and waste management businesses; and enthusiast consumer markets, which include businesses that appeal to passionate hobbyists, such as Harley-Davidson devotees.

Produced by Middle Market Growth in partnership with audit, tax and consulting firm Plante Moran, each video in the five-part series features interviews with a private equity investor and a member

of Plante Moran’s industry leadership team.

The series highlights a geographically diverse sampling of funds, including Chicago-based Winona Capital Management and Prospect Partners, Detroit’s Huron Capital Partners, Frazier Healthcare Partners in Seattle, and New York Citybased Monomoy Capital Partners.

Alongside the experts from the private equity funds, each video features a member of Plante Moran’s team who works closely with the PE firm and its portfolio companies.

Interviews with Plante Moran’s experts offer further insight into the trends impacting each of the highlighted industries. The videos will be released this fall.

—Kathryn Mulligan

VIDEO The series will be available at middlemarketgrowth.org.

MIDDLE MARKET GROWTH // SEP/OCT 2018

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THE ROUND

EuroGrowth Spotlights Trends Shaping Global M&A

A

CG held its EuroGrowth conference in June in Amsterdam, where more than 200 dealmakers from across the globe came together to network and hear from expert speakers.

The program included panel discussions that addressed the political and economic land-

scape shaping cross-border M&A, and the innovations that will impact global dealmaking.

MMG asked the moderators of three of the panels for insight into what they discussed.

Blockchain & Tokenized Ecosystems”

violation of securities laws. Blockchain investment opportunities for middle-market private equity firms are not as abundant. However, blockchain technology can be applied to many different industries, such as asset tracking, records management, data protection and privacy, product titling, authenticity verification and more. Prudent private equity investors should become familiar with potential blockchain use cases given they may be applied to some of their portfolio companies to enhance value.

What issues did your panel address?

Were there any comments from panelists that

The panelists broadly covered blockchain technology. They set the stage by defining blockchain technologies, cryptocurrencies, coins, tokens, etc. The discussion examined regulatory questions, such as how investors, intermediaries and issuers can navigate the ever-evolving regulatory environment and, from a global perspective, what the key jurisdictional differences are. From an investment standpoint, panelists weighed in on the issues and best opportunities for investors in blockchain.

surprised you?

WM. BRAUN JONES III Managing Director, Stonehaven Capital Moderator, “The Exponential Rise and Impact of

What were the key takeaways?

Most initial coin offerings, known as ICOs, or token generation events, called TGEs, are focused on small, early-stage companies that, by their nature, are very risky investments. The United States and other developed countries are beginning to crack down on ICOs that may be in

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Some businesses involved with ICOs or TGEs are seeking jurisdictions with relaxed regulatory environments so that they may take advantage of some of the benefits of blockchain technology, such as easy and efficient secondary trading of private securities—a practice not permissible under U.S. securities laws, for example. However, as some countries establish more constraining regulations, these businesses simply move to less restrictive jurisdictions.

Massive computing and electric power are required to mine cryptocurrencies successfully. To reduce costs, some entrepreneurs are partnering with manufacturing facilities that generate their own power for operations. These facilities often have excess power that they can provide to crypto miners for a successful and profitable partnership.

DOUGLAS A. TRAFELET

JEREMY HARRISON

Managing Director, PitchBook Data Ltd.

Regional Group Head, SVP and Senior Business Development Officer, Business Capital, Bank of America Merrill Lynch

Moderator, “Cross-Border M&A Update: Trends and Forecasts”

Moderator, “Global LevFin and the Middle Market” What issues did your panel address?

Among the topics discussed during our panel was the massive rise in M&A deal flow, both in terms of completed transactions and especially in deal value. From 2015–17, PitchBook tracked an average of 11,000 deals worth 1,395 billion euros. This represented an 11 percent increase in deals done and a notable 43 percent increase in deal value from the previous three years. Roughly 40 percent of deals were in the business-to-business sector, and 20 percent each in financial services and IT.

What issues did your panel address?

What were the key takeaways?

What were the key takeaways?

One of the broad topics we covered was the impact on M&A investing of political and legal changes. On the positive side, panelist Bruce Fenton of Pepper Hamilton noted that following the recent decision by a U.S. federal judge that will allow the AT&T and Time Warner merger to proceed, there should be some “trickle down” into the middle market of an increased number of vertical integrations.

Conversely, panelist Torben Luth of JZ International noted that the continued uncertainty around Brexit may weigh heavily on the United Kingdom and European markets, something PitchBook Data is also showing. Through five months of this year, completed deals and deal value in Europe is at a mere 65 percent of levels in 2017, according to PitchBook.

There is a lot of capital on the sidelines right now and there’s strong investor demand for buyout loans as private equity firms look to deploy over a trillion dollars in dry powder.

At the same time, market risks may be rising.

The panelists pointed to global protectionist actions and political volatility as among the broad global challenges that should be taken into account over the next one to two years when structuring deals. They also weighed in on Brexit and said that the United Kingdom’s departure from the European Union will impact due diligence, particularly as it relates to issues such as workers and employment, trade and intellectual property. //

Our panel examined the deals being done in the European middle market from the point of view of both buyers and sellers, including the financial structures being used for deals, their key features and alternatives. We addressed some of the issues to consider when putting together a financing plan. The panelists talked about some of the challenges facing Europe and the global economy and shared their outlook for M&A activity over the next 12 months.

MIDDLE MARKET GROWTH // SEP/OCT 2018

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VERTICAL VIEW

Interest Spikes in Alcohol Investing Private equity deal flow in the alcohol industry peaked in 2016 in terms of both value and deal count—45 deals closed, totaling $4.63 billion. That’s up from nine deals and $1.04 billion in value a decade earlier.

Leading private equity players in the ­alcohol industry include Leslie

M&A involving alcohol busi-

Rudd Investment

nesses spiked in 2015, when the

Company, Bacchus

number of deals closed nearly

Capital Management

doubled to 111 from 58 the prior

and Brockway

year. It dipped in subsequent

Moran & Partners.

years, falling to 86 deals in 2017.

The middle market has seen its share of alcohol company deals.

In 2017, there were 46 deals as $3.5 billion was deployed into producers, sellers and distributors of wine, beer and spirits.

Beer companies and distributors In recent years, acquirers have shelled out for

are attracting corporate interest.

spirits brands. In January 2017, Stoli Group USA

In August 2017, Sapporo bought

bought Kentucky Owl Bourbon for an undis-

Anchor Brewing Company

closed amount. In February 2018, Proximo Spirits

for $85 million. And in May,

acquired Pendleton Whiskey for $205 million.

Bonbright Distributors acquired

And in April, Bacardi bought Patrón Spirits

Glenwood Beer Distributors for

for $3.57 billion.

an undisclosed amount.

—Data provided by PitchBook

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MIDPOINTS by John Gabbert

Investors Acquire a Taste for Spirits

F

our and a half years ago, Suntory bought Jim Beam for about $16.4 billion. The deal made the Japan-based acquirer the third-­ largest distiller, prompting some industry watchers to wonder how many more large consolidation plays were possible.

In 2014, the year of the Beam-Suntory merger, 58 M&A transactions were recorded, worth a combined $23.6 billion. The merger sparked a frenzy of transactions the following year—deal counts nearly doubled to 111 from 58—and while volume has dipped slightly, the past few years are still well above historical norms. PE activity rose, too. Investors struck 21 deals in 2014 before ramping up in 2015 to 40 investments, which rose to 45 a year later.

Rather than slowing, alcohol-­ related acquisitions have become more common, including at the high end. This year got off to a notable start, when Bacardi bought control of Patrón Spirits at a $5.1 billion valuation. Patrón joins a high-end roster of logos under the Bacardi brand, ­including Bombay Sapphire, Grey Goose and Dewar’s.

Mass-market distillers have good reason to consolidate in today’s market. Alcohol consumption globally is strong, spurred in part by millennials. Younger people are drinking less, studies suggest, but when they do, they tend to spend more money per drink. Research shows liquor consumption is on the rise more generally. Over a 12-month period, the share of adults who drink liquor rose to 73 percent from 65 percent.

When those trends converge in fragmented markets, of which liquor is one, it’s no surprise to see largescale consolidation efforts over an extended period of time. Distribution challenges are also mixed in—U.S. regulators have created roadblocks for direct-to-consumer marketing, which makes it harder for smaller brands to gain market share. At the same time, a growing preference among drinkers for craft distillers is putting pressure on large outfits to stay ahead of the curve. Spirit conglomerates can JOHN GABBERT respond by offering more options, Founder and CEO, and we’ve seen several brands emerge PitchBook ­selling new flavors and ­product lines.

Perhaps the easier option for large brands is the M&A route. Bacardi quietly acquired its first bourbon brand in 2015 when it bought Angel’s Envy, a ­Kentucky-based distiller. At the time, Bacardi’s CEO noted “the obvi- “GONE ARE THE DAYS OF ous gap” in its portfolio, BEING A ‘JACK OR JIM’ which lacked a bourbon or DRINKER. CONSUMERS rye whiskey.

ARE LIKELY TO CONTINUE “Portfolio” has become TRYING NEW BRANDS AS the go-to term for large distillers, which are priorTHEY GET OLDER.” itizing a breadth of offerings as consumers show a ­preference for branching out. Gone are the days of being a “Jack or Jim” drinker. Consumers are likely to continue trying new brands as they get older. That puts the spotlight back on Content Sponsored by the private market, which still houses several brands (Jose Cuervo and Bushmills among them) that could become acquisition targets in the years ahead. Cheers (potentially) to this acquisition spree continuing. //

MIDDLE MARKET GROWTH // SEP/OCT 2018

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MIDDLE-MARKET

ADVOCACY SUMMIT SEPTEMBER 12 – 13, 2018 W I L L A R D I N T E R C O N T I N E N TA L H O T E L WASHINGTON, D.C. F E AT U R I N G A F I R E S I D E C H AT W I T H U.S. SECURITIES AND EXCHANGE C O M M I S S I O N C H A I R M A N J AY C L AY T O N

Members of Congress are admittedly surprised when I tell them there are 300 private capitalbacked companies in their congressional district.

At the end of the day it is about jobs and the economy. They are always grateful to hear how private capital drives growth.

Marty Okner | President & COO, dpHUE

J O I N T H E C O N V E R S AT I O N .

R E G I S T E R T O D AY AT ACG.ORG/ADVOCACYSUMMIT

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© 2018 Association for Corporate Growth. All Rights Reserved.

QUICK TAKES

Kainos Deal Takes Stock of Food Trends

A

shift is underway in the ­layout of grocery retailers, as the center aisles—home to canned and shelf-stable products— shrink to make room for expanded fresh and prepared offerings in the produce sections, delis and refrigerated areas on stores’ perimeters.

That shift, and the consumer preferences driving it, are trends that Kainos Capital has been watching closely and that led it to invest in Kettle Cuisine in July 2015. The company, headquartered in Lynn, Massachusetts, makes artisanal soups cooked in large kettles. Its offerings are available on hot bars and in the refrigerated and frozen sections of major U.S. grocery retailers as well as in national restaurant chains. Sellers primarily offer Kettle’s products under their own brands.

With simple labels—its chicken noodle soup has 12 ingredients, including celery and chicken—­Kettle’s soups are designed to meet the demands of consumers who want nutritious food but are cooking less at home.

“Customers are increasingly looking for all-natural, clean-label products, high-quality ingredients and convenient solutions, so if you think about what the consumer wants, this business clearly intersects with all of those trends,” says Sarah Bradley, a founding partner at Kainos, a private equity firm focused on the food and consumer sector.

When it invested in Kettle, Kainos saw an opportunity to increase capacity and add automation at the company’s existing plant on the East Coast.

To position itself to serve large U.S.

E Lobster bisque is among Kettle’s refrigerated soup options (Photo courtesy of Kettle Cuisine)

retailers with a national footprint, the company completed two add-on ­acquisitions, including adding a California facility, within the first year of the investment.

Soup remains Kettle’s core offering, but it has introduced new products to appeal to consumers throughout the day, according to Bradley. Additions include macaroni and cheese, chili, oatmeal, pasta and sauces.

Under Kainos’ ownership, Kettle has doubled its staff, growing to 485 employees today from 242 three years ago. Some of the employees were added through its acquisitions, but much of the growth came from ­business expansion.

“Through adding extra shifts, additional capacity and just building out our team and our sales force, we’ve created a lot of jobs,” Bradley says. //

BEHIND KETTLE’S APPEAL Expanding store perimeters: Grocers are adding space in stores’ refrigerated and prepared food sections.

Clean label: Consumers want food with simple, fresh ingredients.

Convenience: Shoppers are dining out, ordering in and picking up prepared meals instead of cooking at home.

—Kathryn Mulligan

MIDDLE MARKET GROWTH // SEP/OCT 2018

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A QUALIFIED OPINION

David M. Ozgo Senior Vice President and Chief Economist, Distilled Spirits Council David M. Ozgo analyzes market trends for the Distilled Spirits Council and produces an annual industry review. He also is responsible for tax and regulatory impact analysis, having analyzed more than 200 state-level tax proposals. Ozgo corresponded with MMG to offer insight into the growth and M&A trends in the distilled spirits industry.

A SHIFT IN ­CONSUMER PREFERENCES TOWARD PREMIUM PRODUCTS IS DRIVING REVENUE GROWTH IN THE DISTILLED SPIRITS INDUSTRY.

Q A

How fast is the distilled spirits market growing?

In 2017, U.S. spirits supplier revenues grew at a 4 percent rate, while case volumes were up 2.6 percent. The faster revenue growth was driven by a shift in preferences toward premium products. While the end-of-year holiday season is always critical to revenue, we are seeing similar trends so far in 2018.

Spirits sales are growing faster than beer sales, allowing spirits companies to take market share from beer for the eighth straight year.

Q A

MORE ONLINE Find more interviews at middlemarketgrowth.org.

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What segments are driving that growth?

The big growth drivers have been American whiskey (bourbon, Tennessee and rye), tequila and Irish whiskey. More important than growth by segment has been growth by price point. In 2017, almost 90 percent of all growth came in the highend and super premium price points, no matter the type of spirit. While there are some added costs associated with operating at these price points, gross profits are often triple those seen for products priced at the midlevel and lower ends of the market.

Q

How has tax legislation impacted the spirits industry?

A

Distillers are reporting that the tax savings won through the Craft Beverage Modernization and Tax Reform Act passed in 2017 are enabling small and midsize distillers to hire new staff, purchase new equipment, set aside more product for aging, and develop new marketing programs. The bill, which implemented the first cut in the federal excise tax for distillers since the Civil War, reduced the tax rate on the first 100,000 gallons to $2.70 per gallon from $13.50, a whopping 80 percent.

Because of fiscal constraints, the law expires at the end of 2019, but the Distilled Spirits Council is working to make it permanent. During our annual policy conference in Washington, D.C., we arranged for many small distillers to make the case to their representatives that the cut should be made permanent—or at least extended.

Q A

What challenges do small and midsize distillers face today?

The growth in market share that spirits have enjoyed since the early 2000s, along with the ongoing modernization of state laws—such as those related to Sunday spirits sales, grocery store sales, and retail sampling—have created room for smaller, niche players in the form of craft distillers. The market has gone

from a few dozen distilleries 10 years ago to more than 2,000 today, and it’s getting very crowded. There is only so much room on the back bar or on store shelves. Perhaps the biggest advantage that small distilleries once had was the “local” mantle. But there are a number of states that now have over 50 operating distilleries, and some with more than 100.

Small distillers should also be aware of the business cycle. In every recession dating back to the 1970s, there was a dramatic reduction in sales of super premium products. Almost every small distiller sells at this price point, and an economic downturn will prompt a dramatic negative impact on their sales. Small distillers need to

plan now, including building reserves or lining up contingency financing.

Q A

How has M&A activity in 2018 compared with past years?

In the 1990s and early 2000s, M&A activity was driven by large distillers looking to solidify their portfolios and develop greater economies of scale and operational efficiency. Not surprisingly, the wholesale tier transformed from state and regional players into national companies.

I see M&A activity today almost as an extension of product development.

When you include line extensions, new expressions of existing products and completely new brands, there are

hundreds of products coming onto the market in any given year.

Not all new products are successful, but small distilleries are tremendous laboratories of experimentation.

Small companies tend to take chances that large companies will not. From the perspective of a large distiller, it makes sense to enhance its portfolio by buying a brand with products that have already been developed, introduced to the market, and that have enjoyed some measure of success.

We saw a number of acquisitions in 2016 and 2017. The era of acquisitions is not over, but it would not surprise me if we see a number of companies pausing to digest what they have already acquired. //

Investing in People. Supporting Communities. Transforming Local Economies.

Harrisonburg, VA

Portland, OR

Watsonville, CA

Eolia, MO

Pittsfield, NH

Moses Lake, WA

For more information, visit: www.advantagecap.com

Timothy Hassler thassler@advantagecap.com

Keith Freeman kfreeman@advantagecap.com

Tyler Mayoras tmayoras@advantagecap.com

Advantage Capital is an investment adviser registered under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training. The information above is not intended to be an advertisement concerning investment advisory services or an offer to buy or sell securities of any type. Only accredited investors within the meaning of Regulation D under the Securities Act of 1933 (Reg. D) will be permitted to review offering materials or subscribe for interests in private funds referenced in documents prepared by Advantage Capital. In order to qualify as accredited investors, individuals and institutions must provide certain information and satisfy the criteria of Rule 506(c) under Reg. D. Advantage Capital has not admitted any new investors to Advantage Capital Agribusiness Partners since the fund closed in 2014 and has no intent to open the fund to new investors during the life of the fund. Advantage Capital is an equal opportunity provider.

The investments and portfolio companies referenced above represent only a sample of companies that have received investment capital from Advantage Capital-related entities. For a complete list of such companies, please see our website at advantagecap.com. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities highlighted herein or contained in any other information provided by Advantage Capital. Past performance is no guarantee of future results.

MIDDLE MARKET GROWTH // SEP/OCT 2018

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Making Waves Fishpeople’s quest to change the seafood industry

Photos by Bill Purcell

BY S.A. SWANSON

A

sk Duncan Berry about the seafood industry, and you can expect him to get philosophical. Covering about 70 percent of the Earth, the ocean strikes him as another planet. “We get in our special suits, and get in our special craft, and blast off for it, and then we bring protein back from it,” he says. “These souls that go out there on the ocean are cowboys and cowgirls.”

Berry’s mission—and that of the company he co-founded, Fishpeople—is to change an industry that in many ways remains the Wild West, with murky supply chains and few worker protections.

The company launched in 2012, offering its seafood-​ based soups in 30 stores. Today, more than 6,000 stores sell its product lines, which have expanded to include frozen seafood meals, pre-cooked salmon and salmon jerky.

The company expects to double its revenue this year, but Berry and others among Fishpeople’s leadership insist that the ultimate goal extends beyond financial metrics. “The whole reason that we set about to do what we did was we wanted a different relationship with the sea, and we wanted a different relationship with the communities that depend on the sea,” Berry says.

H From left, Fishpeople co-founder Kipp Baratoff, CEO Ken Plasse and co-founder Duncan Berry at the company’s landing

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FISHPEOPLE Business: Branded seafood products, including soups, meal kits and wholesale offerings Founders: Duncan Berry and Michael “Kipp” Baratoff Mission: Transform the seafood industry through sustainable practices and fair treatment of workers Investor: Advantage Capital

“THE WHOLE REASON THAT WE SET ABOUT TO DO WHAT WE DID WAS WE WANTED A DIFFERENT RELATIONSHIP WITH THE SEA, AND WE WANTED A DIFFERENT RELATIONSHIP WITH THE COMMUNITIES THAT DEPEND ON THE SEA.” DUNCAN BERRY Co-Founder, Fishpeople

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SEE FOOD DIFFERENTLY Berry, 63, joined the seafood frontline when he was just 13 years old. On his family’s fishing vessel, he trolled for salmon in the Graveyard of the Pacific—an area at the mouth of the Columbia River that has wrecked hundreds of ships. At 16, he became a ship captain. After two years (and losing two boats at sea), he moved to the Caribbean, then returned to the states and launched a career away from the water. He founded two companies in the apparel industry, sold them in 2006 and moved back to the Oregon coast.

Soon after relocating, he was asked for input on a potential marine reserve in the state, which got him thinking about ocean life within supply chains. Berry discovered the United States imports about 91 percent of its seafood. He learned that a “significant portion” of that seafood is caught in U.S. waters, shipped overseas for processing, and then returned to the United States, according to the National Oceanic and Atmospheric Administration. That struck Berry as inefficient and potentially harmful to the environment and U.S. jobs.

In 2010, at a sustainability-focused roundtable with Oregon’s governor, Berry met Michael “Kipp” Baratoff, who co-founded a private equity firm focused on sustainable real asset investing with over $2 billion of assets under management.

Two years later, Berry and Baratoff, 41, banded together to launch Fishpeople.

“Duncan is the wild force of creative nature and Kipp is like a supercomputer,” says Ken Plasse, who joined Fishpeople as CEO in 2015.

“You couldn’t find two more opposite people with the same heart to help our oceans, improve our local communities and make a difference to consumers.”

HOOKING INVESTORS Berry and Baratoff had lofty goals for Fishpeople and they needed capital to achieve them. The company wanted to forge strong relationships with fishing captains, but building landings that their boats could use exclusively would cost millions of dollars. There were other sizeable expenses, too, such as building a processing plant and supporting product innovation.

To finance those investments, the company raised $6 million in Series A funding in 2015 and sought additional capital two years later. That’s when Tyler Mayoras, a principal with investment firm Advantage Capital’s food and agriculture fund, first heard about Fishpeople. The company met his fund’s basic criteria, including its mandate to support rural job creation. Licensed through a U.S. Department of Agriculture program, the $150 million fund must invest at least 90 percent of its capital in rural areas. But Mayoras wasn’t hooked immediately. “We see a lot of food companies, and we’re trying to find things with uniqueness,” he says. “And on the surface, seafood didn’t seem interesting to me … I mean, fish sticks have been fish sticks forever.”

What ultimately convinced Mayoras was a detail included on all Fishpeople packaging: a traceability code. Mayoras plugged the code into the “Trace Your Fish” section of the company’s site “and up pops the picture of the boat and the captain that caught the fish,” he says. “It really kind of blew my mind.”

The information linked to the traceability code—including where the fish was caught, comments from the captain and the name of the boat—is intended to gain consumers’ trust.

The seafood industry lost a fair bit of that in

2016, when a study from international nonprofit Oceana found that of 25,000 seafood samples tested worldwide, 1 in 5 were mislabeled as a different type of fish.

“If you just say traceability, people are like, eh, whatever. But when you actually see the picture of the boat and the captain, wow, that’s very different,” Mayoras says. “I thought, in this era of clean ingredients and understanding where your food comes from, that would be just a huge competitive advantage.”

Using traceability to differentiate itself in a crowded market is a “smart move” for Fishpeople, according to Ignacio Kleiman, managing partner and founding member of Antarctica Advisors, an investment bank focused on the seafood industry. “There’s a handful of large players, but there are many, many midsize players. It’s a pretty competitive industry,” he says.

There are other companies with the traceability technology, but it’s not always heavily used or made available directly to the consumer, he adds.

And while U.S. consumers’ interest in tracking food sources hasn’t yet caught up to Europeans’, Kleiman expects that to change. “Sooner or later, it’s going to be more important—what

E Fishpeople launched in 2012, selling its seafood-based soups

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“YOU COULDN’T FIND TWO MORE OPPOSITE PEOPLE WITH THE SAME HEART TO HELP OUR OCEANS, IMPROVE OUR LOCAL COMMUNITIES AND MAKE A DIFFERENCE TO CONSUMERS.” KEN PLASSE CEO, Fishpeople

E The computer and the creative: Fishpeople co-founders Baratoff (left) and Berry

we’re eating or where it is coming from.”

In 2017, Advantage led a $12 million round of Series B funding for Fishpeople. To persuade other potential investors, Mayoras sent out a traceability code and urged them to plug it into Fishpeople’s site. He credits the code with helping entice investors to meet the company’s team, which ultimately bore fruit. “They all ended up doing the deal,” he says.

SAFE LANDING To make food traceability meaningful, Fishpeople needs reliable, high-quality sources for its product. That requires the cowboys and cowgirls of the ocean.

Advantage’s investment helped pay for the three landings in small communities where Fishpeople’s independent fishermen dock: Ilwaco, Washington (population 929); Garibaldi, Oregon

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(population 801); and St. Mary’s, Alaska (population 550), its northern-most landing. The landings are used exclusively by boats that provide seafood for the company.

Captains want to get back on the water immediately, so Fishpeople treats boat docking like an Indy 500 pit stop—the landings’ general managers stay in contact with the captain before the boat heads in to ensure minimal time on the dock. While at the landing, boat crews have access to hot meals, groceries and plenty of washers and dryers to do laundry.

John Tinker Jr., a longtime fisherman who works along the Yukon River in Alaska, says he appreciates the company’s approach. “I’ve been fishing since I can remember—I would say I probably started when I was 10,” says the 42-year-old, who operates from two open skiffs, Winter and Skuzzi, both 24 feet long and 7 feet wide. Tinker began selling to Fishpeople in 2017 and the company, which has bought more than 8,000 pounds of coho and keta salmon from him, has become his preferred buyer. He only sells elsewhere when Fishpeople reaches its purchasing capacity.

Fishpeople’s landing is close to Tinker’s home—without it, he probably would need to take a two-hour boat ride down the river to sell his haul. That proximity is a draw for him, as is the company’s receptiveness to feedback.

“I gave Kipp some pointers on ways to improve operations, and he’s been working on them—that’s another thing you don’t see from

most buyers,” Tinker says. “He respects us and our way of life. If you give respect to people, you’re going to get their respect back.”

That philosophy extends to Fishpeople’s employees, too. Before Plasse joined the company, he toured its processing plant in Toledo, Oregon, a city with about 3,500 residents. The plant’s nine employees, along with the full-time employees who manage the landings, receive health insurance and are paid above the local minimum wage, benefits that Berry says aren’t typical in the industry.

NETFLIX AND KRILL Unlike chicken or pork, U.S. seafood consumption hasn’t increased much over the years. Cost is one factor—fish is a more difficult protein to source—but so is product innovation. “Compared to other sectors of the food industry, the seafood industry is a little behind,” says Antarctica Advisors’ Kleiman.

While researching consumer preferences prior to founding Fishpeople, Berry was surprised to learn that seafood intimidates many home cooks who fear they’ll screw it up. “It was sort of a blind spot for me. I can cook salmon 25 different ways,” says Berry, who helped develop recipes for all of Fishpeople’s products. According to one study he came across, 70 percent of U.S. seafood consumption happens in restaurants. That made him wonder, “How can we make that easier for them, so they stay home, watch Netflix, not pay a waiter, and have an amazing meal?”

Fishpeople has tried to address the intimidation factor with easy-to-prepare products.

The company’s frozen seafood kit, introduced in 2014, includes two filets, ingredients to add before baking (like Meyer lemon and fresh herb panko), a foil pan and tin foil, and a topping (such as parmesan cheese) to add before serving.

The kit also comes with instructions that promise a meal in 20 minutes.

The meal kits have played a key role in driving Fishpeople’s revenue, which tripled from 2015 to 2017. Part of the revenue growth came as the company’s soups expanded from specialty stores to large chains such as Kroger and online

retailers such as Amazon Fresh and Thrive Market, but much of it derived from club stores like Sam’s Club, which picked up the frozen seafood kit in 2016.

By year-end, Fishpeople plans to introduce two more products: salmon jerky in four flavors (including ancho chile and lime) and pre-cooked salmon chunks for the refrigerated grocery section, for use in salads or pasta.

For a retailer like Whole Foods, which has stocked Fishpeople’s soups since 2012, the company’s supply chain was a powerful draw.

“They work directly with fishermen. They are on the docks, and so that right there gives them a huge opportunity to have an amazing quality product,” says Wesley Rose, global executive

E Ken Plasse joined Fishpeople as CEO in 2015

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“THEY WORK DIRECTLY WITH FISHERMEN. THEY ARE ON THE DOCKS, AND SO THAT RIGHT THERE GIVES THEM A HUGE OPPORTUNITY TO HAVE AN AMAZING QUALITY PRODUCT.” WESLEY ROSE Global Executive Coordinator of Seafood, Whole Foods Market

E Fishpeople’s landings are used exclusively by boats that provide seafood for the company

26

coordinator of seafood for Whole Foods Market. He adds that the traceability of Fishpeople’s products aligns with the grocery retailer’s ethos.

“Obviously when sourcing, we are looking for a product that is quality first and foremost. And we want it to be transparent, we want it to be sustainable.”

Before Whole Foods began carrying the meal kits, it requested several changes, including a box with smaller dimensions to better fit the limited real estate on its store shelves. CEO Plasse says that kind of buyer feedback strengthens the company’s innovation efforts. And unlike in its early days, Fishpeople now has buyers who want to provide feedback even before a product goes to market.

“That’s partly because now we’re a brand that is recognized for doing innovation and we’ve got enough distribution,” Plasse says. “Before it

middlemarketgrowth.org

was just, ‘OK, you’ve got 10 minutes to pitch by phone. Don’t even fly out here. Send me the samples and I’ll taste it and let you know.’”

About 65 percent of Fishpeople’s revenue today comes from wholesale offerings, including fish sold at Whole Foods’ seafood counter. But Mayoras expects the majority of sales to shift in the coming years to consumer packaged goods, which have better margins. That’s likely to improve the bottom line, but financial metrics are just one benchmark of the company’s success. The overarching goal is improved treatment of fish and the people who pull them out of the water and process them.

That means more sustainable practices for fishing and a better livelihood for seafood industry workers—and not just the ones at Fishpeople.

“If we can create a brand that helps people get the fish they deserve in a simple format and people vote for that brand, our industry will change because it’s a profit-based system,” Plasse says.

“That’s the change I really think and hope we can make.” // S.A. Swanson is a business writer based in the Chicago area who frequently covers technology.

ADVANTAGE FUND TARGETS JOB CREATION

E Cara Schiffman

ver since Advantage Capital was

says. The Ag Fund provided American

founded in 1992, impact investing

Botanicals’ new CEO with the capi-

has shaped its mission. During

tal needed to acquire the business,

the past 26 years, its investments

allowing it to retain all 31 employees,

have supported more than 48,500

she says, noting that the company now

jobs across 700 companies, according

has more than 70 staff members. “We

to the firm. The fund that invested in

also provided additional growth capital,

Fishpeople—Advantage Capital Agri-

enabling the company to offer new

business Partners LP, or the Ag Fund—

products, enter into new sales channels

continues that focus on job creation.

and pursue new growth initiatives.”

Formed in 2014, the $154.5 million

Tyler Mayoras

“We want to create jobs, so we’re

fund is licensed as a Rural Business

looking for growing companies,” says

Investment Company, part of a program

Tyler Mayoras, principal of the Ag Fund.

created by the U.S. Department of Agri-

Advantage generally won’t invest in

culture to stimulate food and agriculture

companies with less than $2 million in

job growth in rural areas. (It also allows

annual revenue—most of its businesses

Farm Credit Banks to invest in private

have $10 million to $100 million in

equity funds.) The program requires

earnings, he says. The firm’s approach

the fund to invest at least 90 percent of

to sourcing opportunities includes direct

capital in rural areas.

contact with companies at trade shows

There are 12 companies in Advan-

and industry events, referral sources

tage’s Ag Fund, which concentrates on

such as attorneys or accountants, and

business areas such as sustainable and

investment banks and intermediaries.

organic agriculture, indoor agriculture

That network has helped Advantage

and vertical farming, and “better-for-

identify middle-market companies that

you” branded food.

are tapped into industry trends and

They include Harrisonburg, Virginia-based Shenandoah Growers, one

poised for strong growth.

“There’s a food revolution going on

of the largest providers of certified

right now, and it’s driven by younger

organic herbs in the United States and

people—millennials and Generation

a supplier to retailers such as Walmart

Z,” Mayoras says. “They really want to

and Whole Foods. After Advantage

know what’s in their food, so they’re

invested in August 2015, Shenandoah

very focused on clean ingredients.”

Growers acquired another company

Big companies are catching on to that

with the help of financing from the Ag

transformation, but smaller companies

Fund, which added over 600 full-time

noticed early and have claimed market

jobs, says Cara Schiffman, Advantage’s

share, he adds.

vice president of regulatory affairs.

—S.A. Swanson

American Botanicals, based in Eolia, Missouri, is another example. “Without our investment, the company may have closed or been restructured after the sole owner decided to retire,” Schiffman

MIDDLE MARKET GROWTH // SEP/OCT 2018

27

DISTRIBUTION IN THE AGE OF AMAZON Midsize distributors are finding ways to stand out and remain competitive

BY BAILEY McCANN

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A

mazon has transformed the shopping experience and redefined expectations for delivery, but its reach extends beyond consumer markets. The e-commerce giant is disrupting the commercial sector, too, transforming product distribution and raising the stakes for smaller companies hoping to hold on to their business relationships.

It’s no small feat, but some middle-market distributors have found ways to thrive despite the threat Amazon poses.

To compete, they need high-touch customer service, a hard-to-disrupt niche and the ability to add value to their customers’ businesses. For companies that can do all three, private equity firms are eager to acquire them and help them expand their reach. But that also means remaining a step ahead of Amazon’s growing empire.

MIDDLE MARKET GROWTH // SEP/OCT 2018

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“We’ve done a lot more research on Amazon than we would have probably expected to as a middle-market firm,” says Corey Whisner, a partner at Chicago-based Rotunda Capital Partners who has been investing in distribution companies for more than 15 years. “There’s a lot we feel like we need to understand about Amazon’s value proposition for business customers.”

There’s no question the e-commerce giant has cornered the consumer market. Seventy-two percent of U.S. households with annual income above $50,000 use Amazon Prime and 44 percent of online shoppers say they check Amazon before making a purchase, according to a Marist consumer trends poll released in June.

For commercial buyers, Amazon offers industrial parts and the ability to buy in bulk. Customers benefit from its speedy and reliable delivery, made possible by one of the most efficient logistics platforms in the world. Prime users get most items delivered in two days or pay a nominal fee for next-day delivery. But there’s a downside to that hyper-efficiency.

“The No. 1 thing that keeps people away from Amazon is that they can’t pick up the phone and talk to someone for personal support,” says Whisner, who adds that customer service is one of the key value drivers for distribution companies. If customers can call a distributor to discuss their specific service requirements with a person, or if they see that product support is available, they are more likely to choose that distributor over A ­ mazon even if it costs more, he adds.

J.B. Dollison, managing director at Houston-based investment bank Crutchfield Capital, says companies that have built a strong inside sales force can capitalize on the demand for personalized support. By establishing relationships with buyers over time, members of the sales team make personal connections that aren’t

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possible for Amazon.

“If a salesperson knows their customer’s business needs, they can make suggestions about parts or services. Buyers respond if they feel like a distributor is adding value,” Dollison says. “If a customer is spending on specialty parts and there’s a problem, they want to speak to someone knowledgeable for a resolution. They don’t want to play trial and error by returning parts and trying to pick products blindly.”

COMPETITIVE ADVANTAGE Beyond offering superior customer service, ­operating within a specialty niche can make a distribution company stand out and help insulate it from competition. “We’re looking for companies that aren’t technology-dependent and also have a clearly defined market,” says David Gershman, partner at Coral Gables, Florida-based private equity firm Trivest Partners.

“Everyone has access to online ordering. We’re looking for a company that isn’t likely to get disintermediated by tech or easy delivery.”

One of Trivest’s portfolio companies, North Star Seafood, is a specialty seafood distributor focused on the South Florida market. In addition to improvements to on-time delivery during Trivest’s ownership, the company made changes intended to increase the value proposition for both suppliers and customers. It invested in updating its refrigerated facilities, acquired several competitors, and worked to improve relationships with fishermen and chefs at local hotels and restaurants.

Another example of a specialized distributor with a competitive edge is Phoenix Aromas and Essential Oils, a portfolio company of Wellesley, Massachusetts-based Gemini Investors. The company supplies flavor and fragrance components—a business that requires a deep understanding of agriculture and chemistry.

Phoenix Aromas has relationships with suppliers all over the world, allowing the company to offer its customers consistent sourcing and supply, says Gemini Investors President James Goodman. The ingredients it sells are critical for products across a range of consumer industries

that often have fragmented business networks.

Investing time to establish relationships with customers in a variety of sectors has been paramount to Phoenix Aromas’ success. Goodman says the fragmented market, along with the company’s specialized products, has created a long runway for organic customer growth.

Despite strong interest from buyers and investors, distribution companies are also somewhat insulated from the global M&A boom that has consolidated many sectors and put new limits on the prospects for price-multiple expansion.

Many of the companies served by middle-market distributors operate in fragmented industries or specialty markets where there aren’t many competitors to buy, making major consolidation unlikely in the next five to 10 years.

Indeed, GPs say these companies present an attractive investment opportunity because the specialization required to corner a market can also keep out competitors. Specialty parts distributors are one example. In addition to making or sourcing parts, these companies also have a high level of knowledge and relationships in their given industries, making it difficult for an outsider to disrupt the business or start picking off customers.

THE AMAZON EFFECT Even if a niche focus has insulated a company from being disrupted by Amazon’s broad product offerings, the e-commerce giant is likely impacting its business model in other ways.

“What we’ve seen over the past five to 10 years is that distributors are putting more resources behind improving their technology, improving speed of delivery, because customers are used to two-day shipping now,” Goodman says.

Shoppers’ expectations have created new ways for private equity firms to add value. Trivest’s Gershman and Rotunda’s Whisner both say that when they begin working with their portfolio companies’ management teams, areas like digital strategy, transportation speed and guaranteed delivery are all high on the list for improvement.

Using technology to ensure on-time delivery is important, of course, but there’s much more

“WHAT WE’VE SEEN OVER THE PAST FIVE TO 10 YEARS IS THAT DISTRIBUTORS ARE PUTTING MORE RESOURCES BEHIND IMPROVING THEIR TECHNOLOGY, IMPROVING SPEED OF DELIVERY, BECAUSE CUSTOMERS ARE USED TO TWO-DAY SHIPPING NOW.” JAMES GOODMAN President, Gemini Investors

private equity firms can do to help distributors get to the next level, Gershman says. “We’re working with companies on giving salespeople mobile apps that they can use in the field to make orders, for example. We’re looking at their digital strategy. These are all part of the sales relationship.”

Whisner adds that the Amazon effect has also contributed to the myth that distribution companies are low-margin businesses. That’s often the case for companies in sectors that rely on volume and focus on consumer goods, but it isn’t true for more specialized distributors, he says. “We just don’t see that in our companies.

They’re providing a critical service and businesses are willing to pay.”

It’s important during the diligence process to understand how margins are made, particularly when investing in a distribution company, says Goodman, whose team also considers a company’s prospects for adding new customers. Most of Gemini’s portfolio companies have profit margins in the high teens, a level he believes is sustainable. “We think those margins are defensible. We’ve passed on other higher-margin distribution companies because we just don’t see the profit being defensible over the long-term.

It’s a question of value-add.” // Bailey McCann is a business writer and author in New York.

MIDDLE MARKET GROWTH // SEP/OCT 2018

31

POLICY POINTS

H Gretchen Perkins, partner, Huron Capital Partners

A Personal Approach to Shaping Policy

By Kathryn Mulligan

DON’T MISS ACG Middle-Market Advocacy Summit Sept. 12–13, 2018 Washington, D.C. Visit acg.org/advocacysummit for registration information.

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T

he financial rules written in the decade since the financial crisis have served as a wake-up call for middle-market deal-makers, spurring them to build relationships with decision-makers and to look to their industry peers for guidance.

To enable those connections, ACG will host its Middle-Market Advocacy Summit on Sept. 12-13 in Washington, D.C., which will feature a lineup of influential speakers, including Securities and Exchange Commission Chairman Jay Clayton.

Gretchen Perkins, a partner at private equity firm Huron Capital Partners, credits the event with helping to foster dialogue between policymakers and the business community.

She recalls the transparency of Rep. David Schweikert, a Republican from Arizona and a member of the

House Ways and Means Committee, who spoke during the 2013 summit.

“He shared how his committee viewed our world, and how they viewed Wall Street and Main Street,” says Perkins, who serves as co-chair of ACG’s Public Policy committee. She notes that the congressman’s candor provided helpful insight into lawmakers’ thinking.

“The policy summit is an excellent way to continue the dialogue and help all of us—whether you’re a legislator or a member of our industry—understand each other in hopes of working better together,” she says.

Direct Connections In addition to hearing from speakers on legislative and regulatory topics, summit attendees have an opportunity to visit Capitol Hill to meet with members of Congress and their staff and help them understand the impact of midsize businesses and private capital investment in their districts.

Martin Okner, president of ­middle-market beauty company dpHUE and co-chair of the Public Policy committee, says the meetings are an opportunity to interact with policymakers and share data from GrowthEconomy.org, which tracks the sales and job growth of private capital-backed U.S. companies.

“You can say to a legislator, ‘You’ve got 300 private capital-backed companies in your congressional district alone, and here was the sales growth, here was the jobs growth compared with non-private capital-backed companies,’” he says. “We bring that data

E Martin Okner, president, dpHUE

to them and it’s very much appreciated because it’s not coming from a partisan view.”

In addition to sharing Growth Economy data, Okner suggests recounting personal experiences, such as one he had several years ago when, as a consultant, he helped restructure a company with the support of private capital. The investor recognized the struggling company’s potential and was committed to keeping it alive, even as traditional lenders were walking away. That private capital investment saved 50 jobs, according to Okner.

Perkins says to use the day on Capitol Hill to tell the story of the middle market. She agrees with Okner that firsthand accounts are the most powerful way to connect with and educate lawmakers. “Share what you do in your day so you can make the industry come to life and the officeholder can have a better understanding of our ecosystem,” she says.

Addressing regulation is another key component of the summit, where representatives from the SEC offer insight into their examination and enforcement priorities. The dialogue gives regulators a chance to hear from middle-market private equity firms like Huron Capital about private capital’s role in the financial system.

Meanwhile, talking on the sidelines with other PE firms about how they’re navigating new regulations is helpful to improve compliance practices, Perkins says.

For Okner, the face-to-face networking at the summit has helped spark new ideas to continue the rapid growth of dpHUE. “It’s one thing to sit down and listen to a webinar. It’s another thing to sit at dinner with somebody running a company like ours in a complementary industry and hear about how they’re creating value on behalf of not only equity holders, but really for the benefit of employees,” he says. //

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From left, Plante Moran’s Michele McHale, Robert Shefferly III and Eric Wozniak

Photos by Tom McKenzie

IN FOCUS PLANTE MORAN

The Means to an End Plante Moran’s sell-side diligence helps ensure a successful exit

I

n today’s M&A market, careful attention to a company’s exit strategy is more important than ever. That’s why private equity firms are increasingly conducting sell-side due diligence, a process that can increase the odds of a smooth, successful sale. Consultants with the right experience and expertise to guide sellers through the transaction process can help firms meet their investment goals.

Traditionally used in European and other international markets, sell-side diligence is growing in popularity in the United States. The team at audit, tax, consulting and wealth management firm Plante Moran has seen the growth firsthand as they’ve worked to help clients achieve maximum valuations and expedited closings. “Sell-side due diligence was substantially less prevalent in the U.S. middle market five to seven years ago,” says Eric Wozniak, partner of transaction advisory services at Plante Moran, which serves clients through its multiple U.S. and international office locations. However, as the surge in mergers and acquisitions continues, it’s increasingly important to ferret out issues that could delay or derail a transaction. “As deals become increasingly competitive, buyers, including private equity firms, are taking steps to try to close transactions as efficiently as possible,” Wozniak notes.

Investment banks encourage the approach.

“We are actively recommending sell-side due diligence to clients more frequently today than five

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years ago,” says Joe Wagner, director at PMCF, a middle-market investment bank that provides merger and acquisition services to family-owned and PE-backed companies. “We find it especially valuable in select situations, including clients with complex financial reporting, significant pro-forma adjustments to EBITDA, revised/ updated accounting pronouncements impacting the presentation of the historical figures, or carve-out situations, among others.”

Sellers find that this type of pre-qualification has many benefits. By uncovering potential risk areas before going to market, the process prepares the management team for the buyer’s due diligence process. If done far enough in advance of a transaction, sellers can potentially fix any problems or position an issue appropriately for a potential buyer, Wozniak says. What’s more, an independent, third-party presentation of the seller’s financial and tax results “accelerates the buyer’s due diligence because the seller already has a report with the data the buyer is going to ask for,” explains Robert Shefferly III, tax partner at Plante Moran.

There are two major areas where sell-side due diligence can uncover details that directly impact selling price: quality of earnings and taxes.

ELEMENTS OF EARNINGS QUALITY The sell-side due diligence process illuminates the factors that impact earnings, and thus it reveals how to enhance a company’s valuation.

MIDDLE MARKET GROWTH // SEP/OCT 2018

35

E Transaction Advisory Services Partner Eric Wozniak

F National Private Equity Practice Leader Michele McHale

36

“One of the biggest advantages is that it shows how different things positively or negatively affect EBITDA,” Wozniak says. “By the end of the process, you certainly have a better sense of the true value drivers of the business.”

Non-GAAP adjustments are common to reflect the go-forward run rate of the business.

For example, an increase or decrease in product or service pricing may impact the quality of earnings, notes Michele McHale, national leader of Plante Moran’s private equity practice. “In addition, a certain issue may be immaterial in an audit, but when you’re looking at a sale, the business is typically valued based on a multiple of EBITDA, therefore the materiality threshold is significantly lower,” she says, adding that understanding the full picture “puts the seller in a better position to maximize the value they are going to get for their company.” This is especially useful when selling carve-outs or divisions of larger companies that may not have separately reported financial statements.

Wozniak cites examples of what sell-side diligence can find. In manufacturing and distribution companies, a close look at inventory and cost of goods sold can lead to a change in earnings. “Poor inventory tracking and inconsistent costing methodologies can lead to adjustments to the income statement,” he explains. “And adjustments to the income statement, while potentially immaterial to an audit, may matter in a transaction, where every dollar of earnings may have multi-dollar impact to valuation.”

Plante Moran has demonstrated to clients how accurate accounting of inventory can lead directly to a change in earnings, for better or

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worse. “In one instance, profitability went up and the seller received a higher price for the business,” Wozniak recalls. “And we have had it go the other way, where the profitability was negatively impacted to the point that the seller decided to delay the sale process until the company was better positioned to meet the seller’s valuation expectations.”

Recognition of revenue is another area where due diligence can enlighten a seller. Companies selling software by subscription, for example, sometimes recognize revenue up front rather than over the life of the subscription. When revenue recognition is properly accounted for, earnings for the various historical periods being analyzed can change.

THE INTRICACY OF TAXES Examining taxes can uncover minor issues— or even major ones—that the seller can either remediate or quantify accurately to inform the

buyer, Shefferly says. Approaching a transaction with such information is always beneficial, even if the diligence uncovers problems. “The seller always has better information than the buyer, so passing accurate information to the buyer forestalls them from guesstimating the impact,” he says. “The buyer will always estimate on the high side because they are protecting themselves.”

Payment of state and local taxes, as well as proper elections, are often trouble spots, Shefferly adds. It’s not uncommon for a company to make mistakes in state and local taxes—including income, franchise, sales and other taxes— because the rules and overlapping jurisdictions can be confusing. The company may not have paid tax in a particular jurisdiction, or taxes were apportioned incorrectly among multiple jurisdictions. With that knowledge, the seller can either pay the taxes or, if they are relatively minor, quantify them to show the buyer that they are not material, he says. A company might

remediate by filing a voluntary disclosure, which notifies the state where the company failed to pay taxes. With voluntary disclosure, most states will agree to drop penalties if the company pays back taxes for a certain number of years. If the amount is so small that it would cost more in fees than in taxes owed, the seller might opt to simply disclose the liability to the buyer.

Another area of potential exposure is making proper elections for the structure of the company. Were elections filed on time and correctly?

E Tax Partner Robert Shefferly III

READYING FOR THE SALE To optimize a transaction outcome for clients, PMCF, the investment banking affiliate of Plante Moran, recommends what it calls a “sale readiness review.”

“While closely aligned with seller due diligence, sale-readiness planning is a more holistic assessment to ensure that overall shareholder objectives are met,” says Joe Wagner, director at PMCF. PMCF suggests paying close attention to these key attributes of sale readiness.

Current market dynamics ɋɋ Capital markets ɋɋ M&A markets ɋɋ Macro economy

Company readiness ɋɋ Financial performance: growth, margin and capital investment trends ɋɋ Positioning and differentiators of the company

Shareholder readiness ɋɋ Transaction objectives, such as legacy, value and management team opportunity

ɋɋ Supportability of projections ɋɋ Identification and mitigation of potential issues, which PMCF calls “value eroders.”

ɋɋ Timing to exit

Examples include customer concentration,

ɋɋ What is the shareholders’ “number”

product or technology obsolescence risk,

required to ultimately transact?

lack of forecast visibility, management gaps or departure risk of key people, and environmental issues at facilities.

MIDDLE MARKET GROWTH // SEP/OCT 2018

37

PLANTE MORAN AND SELL-SIDE DILIGENCE It matters which firm is selected to perform a seller’s due diligence. Plante Moran believes it has the experience, expertise and culture to help sellers achieve their goals. ɋɋ Experienced team: Plante Moran’s multidisciplinary team includes several former auditors, attorneys and investment bankers. “We have direct experience in transactions from the corporate finance side, so we understand the nuances involved,” Wozniak says. ɋɋ “One-firm” approach: Unlike other national firms that have geographic or service-based profit centers, Plante Moran has a “one-firm” approach. It handpicks an engagement team from across the firm, specifically tailored to the seller’s industry and required expertise. ɋɋ Personal touch: Plante Moran prides itself on its personal touch. “We really view ourselves as an extension of the client’s team, helping them to identify the issues and coaching them through the process,” McHale says. ɋɋ Proven track record: Serving over 400 private equity firms and more than 500 portfolio clients nationwide, Plante Moran has a record of superior service.

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Does the seller have a record of the IRS acknowledgement of proper elections? A potential buyer will want proof of filing and acceptance letters.

Sell-side due diligence also prompts discussion about the structure of the entity that is for sale, which can affect how it goes to market. “The company may only sell stock and not allow the buyer to make any elections to treat the sale as an asset sale for tax purposes,” Shefferly notes.

Sell-side diligence can also surface advantages that the seller can promote to the buyer. The seller might outline possible tax planning ideas identified but not implemented and quantify their potential benefits, for example. “They might list in the report tax attributes the buyer will benefit from post-close such as net operating losses, along with any limitations a buyer may have on using these tax attributes,” he says.

IT’S NEVER TOO EARLY Firms should perform this type of diligence well ahead of taking a company to market so they have time to correct any issues that might lower their price. If a seller waits until the transaction, it can be too late. “It’s hard to change a flat tire when you’re already going 70 mph down the highway,” Wozniak says. “With early sell-side diligence, you can see the flat and fix it before you get on the highway.” //

TH A N K Y O U EUROGROWTH SPONSORS AND ALLIANCE PARTNERS

D I A M O N D

E V E N T

L O C A L

S P O N S O R

S P O N S O R

S P O N S O R

A L L I A N C E

P A R T N E R

ERM Nederland B.V.

PEI Media Group

KPMG Law

Wharton Private Equity + Venture Capital Alumni Association

Morrison & Foerster

© 2018 Association for Corporate Growth. All Rights Reserved.

GROWTH ECONOMY

OREGON // 1998–2017 Over the past two decades, private equity-backed businesses in Oregon grew jobs at four times the rate of the broader business community. They outperformed on sales, too, which increased at more than three times the rate of all businesses in the state. Business-to-business companies attracted the most investment—43.3 percent—over the last 10 years, followed by consumer-facing businesses, which accounted for 22 percent. The bulk of private capital-backed companies are located in and around Portland.

JOB GROWTH % BY SEGMENT

SALES

0%

ACG PORTLAND

4.2% 68.8% 26.9% 0%

SALES GROWTH % BY SEGMENT 0.3% 34.4%

39.4% 148.1%

SALES GROWTH IN ALL BUSINESSES

SALES GROWTH IN PE-BACKED BUSINESSES

TOTAL CAPITAL INVESTED IN OREGON IN 2015:

$576 MILLION

48.7% 16.6% 0%

Small: Less than $10M in sales MM Seg 1: $10-50M in sales MM Seg 2: $50-100M in sales MM Seg 3: $100M-1B in sales Large: More than $1B in sales

JOBS

GROWTH IN PE-BACKED BUSINESSES

GROWTH IN ALL BUSINESSES

JOBS CREATED

BY PE-BACKED BUSINESSES

97%

23.1%

7,460

MORE ONLINE See the impact of middlemarket private equity on your state at GrowthEconomy.org.

All stats are from PitchBook and the Business Dynamics Research Consortium at the University of Wisconsin-Extension.

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THE PORTFOLIO

Tech Investment Pays Off MIDMARKET TRENDS // Three Tips to Stand out in the Food and Beverage Industry

T Robert C. Allen Principal, Technology Solutions Practice, Grant Thornton LLP

he winds of technological change are buffeting the food and beverage sector.

But unlike discrete manufacturing, where artificial intelligence and robotic process automation are dominant trends, there is no single trend or technology that is driving the tech revolution for growers, food manufacturers, distributors, retailers and food service providers.

Yet we encounter the same question every day: “How can our business gain a competitive advantage through technology?”

We always start with the same simple answer.

First, make sure you know your current sources of competitive advantage. Start by identifying the differentiating aspects of your business today, then invest in technologies that enhance that advantage.

With that in mind, here are some differentiators and tips to harness them: Modernized operations. Compared with most industries, the food and beverage industry tends to be labor intensive. However, many manual processes are ripe for automation. Options include enterprise resource planning (ERP) systems, warehouse management systems, integrated manufacturing execution systems, mobile transactions and increased use of robotics.

When considering ERP systems, food and beverage makers should consider two key factors.

First, invest in systems optimized for process manufacturing rather than those tailored to discrete manufacturing. Second, consider the merits of dedicated vs. cloud-based ERP systems. Dedicated applications are installed locally on your company’s hardware and servers, or they can be hosted by a third party. They offer flexibility for customization, but they can be expensive to acquire, customize, install and maintain. Conversely, cloud-based ERPs, also referred to as software as a service, or SaaS, generally charge a monthly subscription fee and are accessed via

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web browser. Because they are often updated and enhanced frequently, they are typically implemented with little to no customization.

Supply chain transparency and efficiency.

Consumers today are attuned to their food, and many demand farm-to-table transparency. Two overlapping technologies make it possible for manufacturers to track their products from raw materials to grocers’ shelves or the restaurant table, while also providing tools to help optimize their supply chains for maximum efficiency.

These are the Internet of Things, which can be employed to track ingredient and product movements and ensure proper handling; and blockchain technologies, the infrastructure behind bitcoin and similar cryptocurrencies, which create a permanent and shared record of all transactions for a particular asset.

Agility. Consumer tastes and preferences can change in a heartbeat; manufacturers who are sensitive to new trends—and agile enough to jump on them—can gain a significant competitive advantage. The ability to monitor the voice of the consumer through both conventional and unconventional means (such as “social listening,” or monitoring what is being said about a brand on the internet), and then extract meaning and insight through advanced data analytics, can be invaluable in planning new product offerings or acquisitions.

Ultimately, spending on technology should be all about creating value. Start by understanding your company’s “secret sauce.” Then, with that insight in hand, invest in technology that makes the recipe even better. // Robert C. Allen is a principal in Grant Thornton’s Technology Solutions practice in Chicago. He also serves as the firm’s national Food & Beverage industry sector leader.

MIDDLE MARKET GROWTH // SEP/OCT 2018

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THE PORTFOLIO

The Appeal of Tuck-Ins over Bolt-Ons SOUND DECISIONS // A Platform Strategy That Yields Benefits, Less Risk for PE

F Donna Astramecki Business Performance Consultant, Insperity

42

acing a continuing shortage of acquisition targets that meet their EBITDA and valuation criteria, middle-market private equity firms are increasingly turning their portfolio companies into platforms to integrate new acquisitions. While this approach is not new, frothy valuations are leading sponsors to make bolt-on acquisitions more often and earlier in the portfolio company holding period.

But bolt-on acquisitions vary as to how readily they can be integrated into a platform company.

Sponsors considering getting their feet wet with bolt-on strategies should opt for a less risky type of acquisition known as a “tuck-in.”

Like any bolt-on, a tuck-in promises to make a platform company more competitive. It can add to the platform’s customer base, market share, product and service lines, geographic coverage, technology or intellectual property.

As with a bolt-on, a tuck-in can extend the reach of the buyer at a lower cost than trying to grow organically.

What distinguishes a tuck-in from other boltons? A tuck-in’s market and product focus is much narrower than the platform company that acquires it. A tuck-in fits relatively smoothly into the portfolio company’s existing business. It also requires fewer changes to the strategy, organization or infrastructure of the platform company.

It doesn’t require management to rethink its overall business model or value proposition.

Tuck-ins come with less risk than more ambitious mergers, such as defection of major customers or dilution of the corporate brand.

But they still can have an aggressive upside.

For example, by targeting a fragmented sector like outpatient health care clinics, a tuck-in can aggregate EBITDA and lead to a sale price higher than the sum of the company’s parts.

Tuck-in acquisitions often face less competition and better pricing than bolt-ons. When

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a PE firm buys a much smaller tuck-in that has minimal financial and administrative infrastructure, it typically pays a lower price than it would for a company with robust infrastructure and better prospects for growth on its own. Meanwhile, the EBITDA value of a tuck-in tends to get written up to the same value as the platform that absorbed it. In other words, tuck-ins can be highly accretive.

Each successful tuck-in can also contribute to a multiplier effect, raising expectations for the platform company’s growth on the part of prospective buyers (strategic acquirers or other PE firms) and paving the way for higher exit valuations.

Successful tuck-in acquisitions require the platform company to have strong technology, process infrastructure and systems. Having a team of outside service providers that is ready to execute and deploy scalable infrastructure makes adding tuck-ins to the platform company considerably easier.

Limiting acquisitions to tuck-ins can give sponsors and portfolio companies reasonable confidence they will avoid the risks of ambitious mergers designed to create a new company that creates value from the synergy between the acquiring and the acquired companies.

Private equity firms that want to capitalize on the trend of platform-building while minimizing their acquisition risk should start to identify potential tuck-ins. And they should develop the capability to integrate them efficiently. // Donna Astramecki is an Insperity business performance consultant with 21 years of experience that includes helping executives evaluate the impact of HR issues on their investment strategies, M&A, spinoffs and exits. Visit insperity.com/acg for more information.

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THE PORTFOLIO

Blockchain for the Energy Industry MIDMARKET TRENDS // Investor Interest Is on the Rise

M Daniel R. Sieck Associate, Corporate and Securities Practice Group, Pepper Hamilton LLP

any believe blockchain will be part of the next major technology revolution.

There continues to be interest in initial coin offerings, which began making headlines in 2017, but many technologists are focusing on blockchain applications that do not involve cryptocurrency at all. This trend is creating opportunities for startups and their financing sources—including a number of blockchain-­ focused venture capital funds—as well as individuals seeking to reinvest cryptocurrency gains.

While M&A deal flow remains relatively low in this sector, it is expected to increase, especially among corporate strategic acquirers seeking to obtain blockchain innovation and expertise rather than develop it in house.

Energy applications for blockchain technology are one active area of growth. Although adoption in the sector lags behind the financial services industry, it is estimated that globally there are more than 122 companies and 70-plus active projects focused on energy blockchain applications. That’s nearly twice the number in January 2017, according to Greentech Media.

Those figures do not include traditional utilities, distribution system operators or transmission system operators, which may also be working to implement blockchain projects.

Of those 122 organizations, the majority work in the transactive energy space, where they use blockchain technology to facilitate peerto-peer transactions and decentralized energy exchanges. Other companies provide project development, middleware and other services to connect blockchain platforms to applications.

Investor interest in energy-focused blockchain companies has increased dramatically. From mid-2017 to early 2018, blockchain companies related to the energy industry raised $322 million through traditional venture capital as well as ICOs. To date, the largest ICO was held by

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Envion, which raised more than $100 million in the first quarter of 2018 to fund the development of its modular data centers that plug directly into renewable energy power plants.

Further adoption of blockchain technology is subject to a number of challenges. The technology is still in its early stages and in the energy industry, functional commercial-scale applications are limited. Most of the activity has occurred at the startup level. Most larger, more mature companies are still in the process of identifying whether blockchain technology makes sense for their business models and, if so, where.

When blockchain technology is eventually adopted at the enterprise scale, there will inevitably be interoperability challenges, both between existing systems and the proposed blockchain solution, and between blockchain databases themselves. Various industry-based consortia have emerged to help develop standards to help facilitate enterprise adoption.

Finally, regulators tend to move slowly, and their stance on blockchain is still unknown. It’s unclear how they’ll view replacing paper-based records, or whether they’ll see certain actions— such as participating in a blockchain standards consortium or developing a permissioned blockchain—as running afoul of competition laws.

As the energy sector pushes to digitize further, it seems likely that blockchain technology adoption will continue. And as investor interest and startups fuel blockchain innovation, some of these startups will likely become acquisition targets, especially for large strategic acquirers. // Daniel R. Sieck is an associate in the Corporate and Securities Practice group of Pepper Hamilton LLP. He concentrates his practice in the areas of M&A, private equity, venture capital, securities, technology law (including distributed ledger technology) and general corporate matters.

MIDDLE MARKET GROWTH // SEP/OCT 2018

43

ACG@WORK

EUROGROWTH 2018 Opening Keynote F Prince Constantijn van Oranje-Nassau of the Netherlands spoke during the opening keynote presentation for ACG’s EuroGrowth conference in Amsterdam.

He discussed how to ensure a startup business becomes a scale-up.

H Boat Cruise EuroGrowth attendees enjoyed a boat cruise. Pictured from left are Angenita Pex, Houthoff; Scott Linch, DHG; Martin Schlaeppi, DHG; and Braun Jones, Stonehaven Capital.

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Women’s Breakfast F Attendees networked at a women’s breakfast, hosted prior to a gender diversity session that looked at the improved economic returns of companies with female board members.

H EuroGrowth Panel A panel of CEOs explored how to drive value in a portfolio company. Pictured from left are Pam Hendrickson, The Riverside Company, who moderated the panel; Alexandra van Hellenberg Hubar, Livewords; Antonio Crespo, Quint Wellington Redwood; and Luuc Elzinga, Tiqets.

MIDDLE MARKET GROWTH // SEP/OCT 2018

45

ACG@WORK

H TEXAS ACG CAPITAL CONNECTION The 15th Annual Texas ACG Capital Connection was held in Houston with more than 1,200 attendees. The event presents an opportunity for networking among M&A professionals, business owners and executives serving the middle market. Pictured (left to right) are Cassandra Mott, Thompson & Knight; Jesse Itzler, an entrepreneur and the conference’s keynote speaker; and Eric Appel, KeyBanc Capital Markets.

ACG CENTRAL TEXAS F ACG Central Texas held its Growth Awards at the Austin Country Club with over 200 attendees. The event recognizes fast-growing companies in the region. Brett Hurt, CEO and co-founder of data.world, was the keynote speaker.

H ACG DETROIT ACG Detroit hosted its third annual M&A All-Star Awards event, with record attendance of more than 300 people at the Townsend Hotel. Attendees gathered to recognize 2017 M&A accomplishments with an awards ceremony and networking. Plante Moran, whose team is pictured, was among the award winners.

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H ACG NATIONAL CAPITAL ACG National Capital hosted its Entrepreneur Toolkit Essentials event as part of a new collaboration with the University of Maryland Dingman Center for Entrepreneurship, part of the Robert H. Smith School of Business, to support entrepreneurship and provide expertise on corporate growth. Pictured (left to right) are Ted Rose, Rose Financial Services, and a Dingman Center board advisor; Aamir Saleem, Emagine IT; Brian Taff, Streetsense, and a Dingman Center board advisor; Elana Fine, Dingman Center executive director; and Doug Tatum, Newport Board Group.

ACG SAN DIEGO F ACG San Diego hosted Let the Wine & Deals Flow during ACG Global’s InterGrowth conference. The event brought together more than 250 attendees, ACG San Diego sponsors and other guests. Pictured (left to right) are John “JR” Rains and Judy Susser-Travis, ACG San Diego; Pat Morris, ACG Global; Carlos Martinez, ACG San Diego; Stephen B. Smith, ACG Toronto; and Mike Fenton, ACG Toronto.

MIDDLE MARKET GROWTH // SEP/OCT 2018

47

ACG@WORK

ACG RICHMOND F ACG Richmond held its Annual Meeting and Scholarship Breakfast, where the chapter distributed $45,000 in scholarship funds. Each year, a portion of the revenue from the chapter’s ACG Capital Connection is put into a scholarship program to support students in central Virginia who are studying, or plan to study, business. To date, more than $400,000 has been donated to the scholarship fund.

H ACG ST. LOUIS ACG St. Louis hosted its annual wine tasting, featuring fine wines from every major wine producing region of the world. The table sponsors offered attendees tastings of their unique bottles during the event, held at The St. Louis Club.

ACG BOSTON F ACG Boston held its annual Taste of New England Networking Night, giving deal professionals from across New England’s middle-market M&A community the chance to network and forge new trusted business connections with their peers and colleagues over delicious food and drinks.

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ACG KANSAS F ACG Kansas hosted its Entrepreneur Spotlight, which showcased five local entrepreneurs’ stories about how they started, what they do and the challenges they face. The event was held at the office of Unbound, a local nonprofit focused on combating poverty. Attendees connected with the featured entrepreneurs during a cocktail reception.

H ACG NEW YORK ACG New York hosted its 14th Annual Golf Outing, which provided attendees a challenging day on the greens and an opportunity to network with other local business professionals.

Pictured (left to right) are Andrew Kramer, Otterbourg; Joe Tonnos, Mistral Equity Partners; Michelle Murphy, BDO; and Dan Williams, Great American.

CONTACT Want to share photos from your recent chapter event? Email us at editor@acg.org.

MIDDLE MARKET GROWTH // SEP/OCT 2018

49

THE LADDER

LAUREN PETERSON has joined Whittier Trust’s Orange County office as vice president and client adviser. Peterson brings a wide range of experience and expertise in trust and estate planning. Her career has focused on family office services and multigenerational wealth transfers, investment management, real estate and philanthropy.

Guardian Capital Partners announced ADRIAN IRONSIDE has been promoted to partner. Ironside has had many responsibilities relating to investment activities, including deal sourcing, transaction-based due diligence, and negotiation and structuring. Ironside joined Guardian Capital Partners in 2008 as senior associate.

MICHAEL HEJTMANEK has joined Mainsheet OP as a partner to help grow the company’s innovative fractional operating partner model for midmarket private equity ­portfolio companies. Hejtmanek previously served as CEO and president of Hasselblad Inc., where he helped modernize the camera manufacturer’s products and market strategies for the 21st century.

JENNIFER GRETT has joined Livingstone Partners as director of sponsor coverage. Grett will be responsible for the facilitation of Livingstone’s national sponsor coverage and business development efforts.

She most recently was the corporate business development director at Katten Muchin Rosenman.

DAVID DUKE has joined Kian Capital as managing director of business development. With over 20 years of experience in private equity and investment banking, Duke will be responsible for sourcing new platform investment opportunities, developing and managing relationships with new and existing sources of deal flow, and directing strategic marketing efforts.

He most recently served as director of business development at Edgewater Capital Partners.

BankUnited announced the promotion of JUSTIN ALLBRIGHT to senior vice president for corporate banking. Allbright will be responsible for financing, treasury management solutions and deposit products to large corporate and middle-market companies in Florida’s west coast region.

SPALDING WHITE and a senior team of three other investment professionals have founded Route 2 Capital Partners. R2CP provides flexible mezzanine and equity financing to lower middle-market operating companies, primarily in the southern United States. The firm has offices in Charleston and Greenville, South Carolina. Most recently, White founded and served as managing partner for Salem Halifax Capital Partners.

MORE CAREER INFO Watch for more career information in The Ladder newsletter delivered to your inbox.

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VOICES OF THE MIDDLE MARKET In-depth interviews about the trends impacting midsize companies and M&A. Guests include CEOs, economists, private equity investors and other influencers who discuss what they’re seeing in the market.

LISTEN & SUBSCRIBE TODAY.

© 2018 Association for Corporate Growth. All Rights Reserved.

IT’S THE SMALL THINGS

FOOD AND BEVERAGE TRENDS // I’ll drink to that!

1

Global Consumption Is Nothing to Wine About

6

Point, Click and Eat Nearly half of U.S. consumers have purchased

The value of global wine consumption is set to hit

groceries online in the past three months. Of

a record $224.5 billion by 2021, spurred by growth

­millennials surveyed, 61% say they ordered con-

in the United States and China, two of the world’s

sumer packaged goods online during the period,

largest wine markets, according to a joint report by

compared with 55% of Gen Xers. —Forbes

Vinexpo and IWSR. —The Drinks Business

2

3

Farm-to-Table-to-Big Business

7

Meal Kits Deliver Delicious Sales Sales in the meal kit delivery industry reached $5

The “eat local” and farm-to-table philosophies have

billion in 2017, according to a report from Packaged

taken hold of the food industry. From 2007 to 2017,

Facts. Nearly all current meal kit subscribers said

the number of farmers markets in the United States

they still use the company from which they origi-

doubled to more than 9,000. —Forbes

nally began ordering. —Progressive Grocer

Where’s the Beef?

Nearly 40% of Americans are attempting to

8

Safety First … Somewhat Americans are less confident in their food’s safety.

incorporate more plant-based foods in their diets,

In 2017, 61% said they were at least somewhat

and 23% say they want to see more plant-based

confident in the safety of the food supply, down

proteins in stores, according to a Nielsen report.

from 66% in 2016, according to a survey from the

—National Restaurant News

International Food Information Council Foundation.

—RSM

4

The Best Part of Waking up The share of Americans who have consumed coffee in the past day has reached its highest level in the past six years—a whopping 64%—according to a report from the U.S. National Coffee Association.

—Roast Magazine’s Daily Coffee News

5

Got Non-Dairy Milk?

Non-dairy milk sales in the United States grew by 61% over a five-year period, reaching $2.11 billion in 2017, according to research from Mintel. They’re still dwarfed by the $16.12 billion dairy milk market, a segment whose sales have slipped 15% since 2012. —FoodBev Media

—Larry Guthrie

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