Middle Market Growth - January/February 2018 by Association for Corporate Growth

JAN/FEB 2018

// THE OFFICIAL PUBLICATION OF ACG

Upping the Ante in E-Commerce Trademark Global Wins Big in the Endless Aisle

EXECUTIVE SUMMARY

ACG Starts 2018 with a New CEO

J.B. DOLLISON Chairman, ACG Global, and Managing Director, Crutchfield Capital Corporation

s we enter a new year, I’m pleased to report that ACG Global has named Patrick Morris as president and CEO, effective Dec. 4. Pat was selected following an extensive executive search that included more than 40 outstanding candidates. Pat brings to ACG a strong background in the financial services industry, having served most recently as CEO of the Association of Credit and Collection Professionals, known as ACA International, in Washington, D.C. In this capacity, he represented 230,000 financial services professionals working in collection agencies, law firms, asset-buying companies and affiliated businesses. The collection industry is highly regulated, not unlike our own middle-market M&A industry. A former officer in the U.S. Marine Corps, Pat has spent much of his career advocating on Capitol Hill on behalf of various associations. His fluency in public policy matters will be invaluable to ACG at a time when our industry is bracing for significant tax reform and a changing regulatory landscape. We welcome his strategic leadership on issues such as preserving the deductibility of interest on corporate debt and lessening the complex reporting requirements placed on private equity firms—all of which are critical to the flow of capital to growing companies. In selecting Pat as our next CEO, the ACG Global Board was also impressed by his proven ability to bring consensus and creativity to organizations. Accordingly, we look forward to working with Pat as he leads ACG’s initiatives to drive middle-market growth. In closing, I am optimistic about deal flow in the upcoming year, and I welcome your suggestions for how to improve our association. //

Pat Morris: Keeping ACG ‘at the Table’ Pat Morris joined ACG Global as president and CEO in December. A longtime association executive with varied experience in financial services, Morris has spent much of his career in Washington, D.C., advocating for change. He’s a firm believer in making an organization’s voice heard with the philosophy that “if you’re not at the table, you’re going to be on the menu.” Prior experience: ɋɋ ACA International ɋɋ National Association of Federal Credit Unions ɋɋ Information Technology Industry Council ɋɋ Produce Marketing Association ɋɋ U.S. Senate ɋɋ U.S. Department of Defense Education & training: ɋɋ MPA, University of Kentucky ɋɋ B.S., Christopher Newport University ɋɋ Presidential Management Fellow ɋɋ Captain, U.S. Marine Corps Fun Fact: He has played guitar on stage with Lynyrd Skynyrd and Journey.

MIDDLE MARKET GROWTH // JAN/FEB 2018

FROM THE EDITOR

Cashing in on the Online Selling Boom

DEBORAH L. COHEN Editor-in-Chief, Middle Market Growth

middlemarketgrowth.org

rick-and-mortar retailers have taken a drubbing in the past year, with record numbers of store closings as big names such as RadioShack, Hhgregg and Toys “R” Us headed to bankruptcy court. To succeed in the brave new world of retail, smart businesses are deploying data-driven approaches to distribution—selling both virtually and in physical stores—with customized experiences that cater to buyers’ individual purchasing preferences. Do you like that black ponte wraparound dress from a top U.S. retailer? If you agree to buy it online, the seller will use algorithms to offer more choices likely to pique your interest. Did you click to view a piece of furniture and then leave the retailer’s site? Don’t worry, you’ll receive a reminder email, sometimes with an enticement, within hours. Smart online selling is helping to drive a sharp uptick in e-commerce. The National Retail Federation forecast that online sales in 2017 would increase between 8 and 12 percent, or up to three times more than the industry as a whole, tracking as high as $443 billion. That’s great news for midsize companies like Trademark Global, a Lorain, Ohio-based warehouser, shipper and product developer supporting a host of sellers in the e-commerce space. Featured on this issue’s cover, Trademark now has the backing of private equity firm Bertram Capital. It is experiencing significant growth in its core product areas—or as the company’s CFO puts it, “basic stuff that people need,” such as bedding, pet supplies, and lawn and garden materials. “Basic stuff” is a sweet spot for many middle-market companies, which often help support better-known brands. Trademark Global’s fulfillment services are essential to giants like Amazon in a retail environment now characterized by near-instant gratification. This issue’s second feature story takes a closer look at how midsize retailers are using social media to bolster their brands in an effort to compete with larger rivals. Companies selling everything from artisanal candy to underwear have recognized the importance of telling a story that extends beyond the characteristics of their products, whether it’s a social mission or a stance on an important issue. Passionate customer responses—whether won through high levels of service and customization, engagement or some combination— will make or break retailers as they move ahead in a highly competitive marketplace. It’s an interesting time for investors and customers alike.

S TAT U S Q U O I S T I E D D O W N .

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Welcome to Status Go. gt.com/statusgo

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JAN/FEB 2018

DON’T MISS QUICK TAKES IRI’s Andrew Appel on Customer Analytics 19

A QUALIFIED OPINION Two RSM Experts Weigh in on Retail

20 POLICY POINTS

ACG Public Policy Summit Emphasizes Bipartisanship 36

Cover and above photo by Billy Delfs

GROWTH STORY

IN THIS ISSUE Executive

Upping the Ante in E-Commerce

Summary 1 From the Editor 2 Executive Suite 8

The ability to scale is central to the success of Trademark Global, which sources, warehouses and ships products for Amazon and other big names in e-commerce. The company is staking its future on the continued growth of online sales.

The Round 10 Midpoints by John Gabbert 17 Vertical View 18

TREND

The Digital Dilemma: Are Online Ads Living up to the Hype? Advertisers love to reach niche audiences, but ad placements on social media, podcasts and other online platforms have yet to deliver on their promise. 30

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Growth Economy 38 The Portfolio 41 ACG@Work 50 The Ladder 54 It’s the Small Things 56

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Deborah L. Cohen dcohen@acg.org

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MMG WEEKLY The latest middlemarket news, ACG events and timely industry

Retail futurist Melissa Gonzalez talks about creating transformative experiences for customers with physical pop-up stores that integrate online-only brands with in-person shopping. Rather than lamenting the decline of brick-andmortar stores, Gonzalez points to new opportunities for retailers, consumers and real estate owners alike.

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EXECUTIVE SUITE Sponsored Content

Retail Trends: What’s ‘in’ for 2018 F What are the cutting-edge

F Retailers face numerous

NANETTE HEIDE Title: Corporate Partner Company: Duane Morris LLP Location: New York Expertise: Heide is chairwoman of the firm’s fashion, retail and consumer products industry sector group. She specializes in advising companies in this industry in M&A and general business transactions.

middlemarketgrowth.org

challenges, including in the labor market. What employmentrelated legal issues should they be watching? New minimum-wage laws and a tight labor market have increased wages for the lowest paid workers, putting additional pressure on retailers that are already squeezed on profits. Further, many states and municipalities have enacted laws that affect local retailers, such as the “Ban the Box” law to prevent employers from inquiring about an applicant’s criminal record on a job application, and predictive scheduling laws designed to give employees more advance notice of their work schedules. Add in marijuana liberalization legislation, which will change drug-testing policies and how retailers approach hiring and firing employees who test positive. F As retailers get creative

with online advertising and promotion, what pitfalls should they be aware of? With the prevalence of influencers, bloggers and social media, brand owners need to ensure they are in compliance with Federal Trade Commission rules and guidance. This includes paid reviews that are posed as endorsements of a product. Retailers need to include FTC compliance in their creative review process for their marketing materials.

technological trends retailers should be watching? Technology, innovation, cloud-based platforms and blockchain. A blockchain is a public digital ledger or a log that is the byproduct of transactions completed and verified through a decentralized computer network. A seminal benefit of blockchain is security. Any company can use blockchain as a means of securely and inexpensively exchanging money. This could be the next big thing in the digital revolution and retailers need to make sure they are prepared to participate. F What is the outlook for brick-

and-mortar retailers in today’s digital age? Brick-and-mortar stores are still important assets in the retail industry. Retail journeys may start online, but many end in the store; consumers still prefer to look at a physical product when shopping. Creating experiences is key to attract customers to a physical location. For struggling malls, there is hope that having better food, entertainment and fitness options might bring consumers back to brick-andmortar stores. Last summer Urban Outfitters bought Pizzeria Vetri and integrated it into stores, encouraging shoppers to spend more time at its locations. Further, millennials are chasing a personal shopping experience and favor local brick-and-mortar stores with a sense of community. And guess what—they’ll spend more for this experience. //

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THE ROUND

Disruption Is the Eurozone’s Gain With History as a Guide, Changes in Europe Spell Opportunity

L Stephen Marks Managing Director and Principal, Emmersion

ooking at the circumstances facing Europe—including tough issues such as immigration, terrorism, radical populism and the fracturing of the union—one would think the region is entering an extended period of recession and volatility, not coming out of one. And yet the continent is experiencing growth. Despite Brexit, private equity flow into the United Kingdom is strong, hedge funds are returning to the region, and the Spanish economy, which has seen nearly a decade of double-digit unemployment, has rebounded to pre-recession figures. To find a similar period of widespread political, economic and societal disruption in Europe, one has to look back to the late 18th century. That era witnessed the end of Britain’s hold on its American colonies, political disorder brought about by the French Revolution, a regional population boom, and the start of the Industrial Revolution. At the turn of that century, when Napoleon was conquering Europe, British companies began using new technologies like the steam

middlemarketgrowth.org

engine to manufacture and transport goods for both domestic and international markets. In Germany, iron production grew sixfold from 1825–50 to fuel demand from growing European cities; French coal production doubled during the same period. Other European markets caught on too, and the spread of industrial capitalism eventually spread across the continent during the 19th century. To support corporate growth amid these radical changes, capital was needed. Instruments such as loans and joint-stock ventures were used to finance machinery, transportation and improvements to infrastructure. Emerging markets and trading partners, including the United States, were demanding European goods, and commercial enterprises and cross-border investors collaborated to develop these new markets. Europe today is in the midst of another disruptive period. Changes in European politics may be dizzying, but private industry has been quietly steadying the ship, and the ingenuity of European companies has become an asset for global growth.

German middle-market manufacturers are exporting not only their products but also their manufacturing apprenticeship programs. Meanwhile, with tail winds from a weakened pound and strong cross-border private equity support, British companies and manufacturers are producing goods for domestic and European markets, and their pricing is now competitive with global manufacturers. In emerging markets like Latin America, European investment accounts for more than half of all foreign direct investment in the region. European companies are building telecommunications networks, infrastructure, renewable energy platforms, roads and hotels, and they’re distributing consumer products to a rising middle-class population. Companies from Western and Eastern Europe recognize the vast potential of this region to a much greater degree than North American companies and investors do. History has shown that European companies and investors thrive during periods of instability by using their ingenuity, innovation and a broadening viewpoint on the connectivity of global markets. If the past is any guide, U.S. middle-market companies and investors would be wise to follow the lead of their European counterparts. If they can look beyond the daily news cycle and develop relationships, opportunities and partnerships across the pond, U.S. businesses and investors stand to benefit from this once-in-a-century opportunity.

LISTEN

MMG Podcast Series Debuts, Highlights Industry Influencers In September, MMG officially kicked off its Middle Market Growth Conversations podcast series, featuring discussions with middle-market influencers ranging from entrepreneurs to investors, bankers and other industry experts. The series is designed to showcase voices featured in the magazine and at ACG events, as well as to cover timely topics, trends and research impacting middle-market dealmaking. Guests on the podcast have included Mike Stephens, the co-founder and CEO of craft beer maker Founders Brewing; Melissa Gonzalez, a retail consultant who helps clients design pop-up stores; Neal Levine, head of government affairs for Colorado-based marijuana grower and distributor LivWell Enlightened Health (profiled in MMG’s fall 2017 issue); and Mary Josephs, an investment banker specializing in ESOPs. Hosted by MMG editors, the interviews run every two weeks on middlemarketgrowth.org. They are also available to stream and download on the Apple iTunes store.

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.

Stephen Marks is managing director and principal of Emmersion, an international business development and investment advisory firm that operates in the U.S., U.K. and Latin America.

MIDDLE MARKET GROWTH // JAN/FEB 2018

THE ROUND

If You Sell Online, You Better Keep It Real E-Commerce Panel Stresses Need for Authentic Brands

D MORE ONLINE A version of this story originally ran on middle marketgrowth.org. Visit the site for more news and industry content.

eveloping a socially responsible brand with clear positions on issues such as better food choices for low-income families and LGBTQ rights can bolster consumer engagement for online retailers in an increasingly crowded market, an e-commerce panel stressed at the ACG LA Business Conference in September. “People have a lot of voting power with their dollars,” said Gunnar Lovelace, founder and CEO of Thrive Market, an online seller of organic foods and healthy lifestyle products at wholesale prices. The company’s mission includes providing free subscriptions to its membership club for the underprivileged. The program is part of the e-tailer’s modus operandi, inspired by Lovelace’s own experience growing up with a single mother who struggled to make ends meet. The company has lobbied the U.S. Department of Agriculture to allow food stamp recipients to purchase products from

middlemarketgrowth.org

online sellers; today they are restricted to brickand-mortar stores. “We’ve built an incredible competency around storytelling,” said Lovelace, speaking during the panel, which addressed how digital brands are disrupting the retail marketplace. Thrive Market offers transparency around its supply chain, and its direct-selling model allows it to pass savings on to consumers. Underwear with Care A commitment to social responsibility can help to make or break emerging online brands at a time when giants like Amazon, Target and Walmart are buying competitors to control more of the online market and brick-and-mortar retailers are going under in record numbers. “What the brand represents about the product is huge,” said panelist Taylor Holiday, managing partner for the Common Thread Collective,

a marketing firm supporting online brand strategy. MeUndies, an online-only seller of “softer than soft” basics, such as panties and briefs, was also represented on the panel. The company is forthright about only sourcing goods from “factories that take exceptional care of their employees,” its website explains. Its core values include fair trade standards for the facilities it uses in Turkey and Sri Lanka, including frequent on-site audits. “The inclusivity angle we have is shown across our brand,” said Greg Fass, who heads the company’s marketing efforts. MeUndies gets out in front on social issues, such as support of LGBTQ rights. During Pride Month in 2017, it launched a “Celebrate Yourself” campaign that included the sale of undergarments with a special rainbow polka-dot pride print. MeUndies donated a portion of the sales to Los Angeles’ LGBT Center, the world’s largest organization for LGBT health and advocacy. The efforts help MeUndies engage with consumers in a “product category that has been very boring,” said Fass, adding that advertising on podcasts with “influencers that people trust” has also helped to differentiate its products. The impact of addressing important social issues appears to figure into strategic decisions at sellers like these, whose buyers tend to be aware of how their purchasing behavior affects the world they live in. “It’s really a valuable brand differentiator,” said Thrive Market’s Lovelace. “We see it as a major competitive advantage.” —Deborah L. Cohen

RESEARCH

Imbalance in Retail Employment and Earnings Growth Due for Correction Regional Power Wanes Employment in the middle-market A prevailing trend in the broader retail sector grew at a rate nearly retail sector—the dominance of three times that of revenue in the e-commerce giants like Amazon— third quarter of 2017—an “unsusmight finally be impacting midtainable” ratio, according to Thomas dle-market retailers in a meaningful Stewart, executive director of way, according to the NCMM’s surthe National Center for the Midvey, based on responses from 1,000 dle Market. CEOs, CFOs and other C-suite execEmployment grew 9.1 percent utives of middle-market companies. annually while retailers posted “Midsize retailers have been holdjust 3.2 percent revenue growth in ing on perhaps longer than some the same period, according to the of the larger national retailers,” NCMM’s “3Q 2017 Middle Market Stewart said, in part because midIndicator” survey. dle-market companies often have a Presenting his organization’s findings during an October webinar in partnerEITHER REVENUE GROWTH ship with ACG, Stewart suggested that the outNEEDS TO TICK UPWARD sized employment growth OR PAYROLL EXPANSION reflects retailers’ hiring MUST SLOW TO RETURN TO of IT staff, e-commerce experts and warehouse EQUILIBRIUM. employees as companies adapt to technolocal or regional focus, sell a distinct logical shifts in the middle-market set of products, and benefit from retail sector. loyal customers, helping to shield “It is a forecast of a real change them from the threat of online in the mix of the retail employment behemoths. base,” said Stewart, whose group regBut revenue growth is slowing, ularly publishes research about the signaling they too could be vulnermiddle-market economy. able. Midsize retailers’ 3.2 percent But the wide gap between employannual revenue growth in the third ment and revenue growth will likely quarter was down from 7.1 percent in be temporary. the prior quarter. And middle-market “Something has to give pretty retailers say they expect just 2.9 perquickly,” Stewart said, adding that cent growth over the next 12 months. either revenue growth needs to tick upward or payroll expansion must —Kathryn Mulligan slow to return to equilibrium.

MIDDLE MARKET GROWTH // JAN/FEB 2018

THE ROUND

ACG Chapter Forms in Western New York Amid Regional Growth

concerted effort by the state of New York to develop its western region has spurred corporate growth and, ultimately, prompted the formation of the newest chapter of the Association for Corporate Growth, ACG Western New York. Finance and tax incentives, along with efforts like New York Gov. Andrew Cuomo’s “Buffalo Billion” initiative—a $1 billion investment in the namesake city’s development announced in 2012—have helped drive an influx of public and private investment. This economic expansion has created the need for an organization where the rapidly growing middle-market business community can come together, a role that ACG Western New York will serve with networking events and educational programming. “This region has been growing rapidly, and now it needs a place where local business leaders and M&A professionals can come together,” said Leslie Whittet, ACG Global’s vice president of chapter operations. “That’s what ACG does best, so we’re excited to see a new chapter emerge that will ultimately help the region’s middle-market economy continue to grow.” Buffalo and Rochester, the two largest cities in the region, are home to thousands of midsize companies across industries, including financial services, manufacturing and health care. Household names like Harris Corp., Constellation Brands and Xerox are headquartered there. // —Kathryn Mulligan

E ACG Western New York will draw from Rochester (top) and Buffalo

“WE’RE EXCITED TO SEE A NEW CHAPTER EMERGE THAT WILL ULTIMATELY HELP THE REGION’S MIDDLE-MARKET ECONOMY CONTINUE TO GROW.” LESLIE WHITTET Vice President of Chapter Operations, ACG Global

middlemarketgrowth.org

New Index Lends Greater Transparency to Private Companies

new index created by Lincoln International shows changes in the enterprise value of closely held midsize companies over time, offering greater transparency into the performance of private businesses and confirming their strong risk-adjusted returns. Some 350 middle-market companies within the Lincoln Middle Market Index grew at an average compound annual rate of 6 percent from March 31, 2014 to Sept. 30, 2017, according to the investment bank’s first quarterly Middle Market Index report. Meanwhile, companies in the broader S&P 500 and the small company-focused Russell 2000 indexes of public companies posted 8.9 percent and 7.1 percent growth respectively over the same period. The first report, released on Nov. 7, noted that the lower growth rate of companies within the Lincoln index could be attributed in part to how change is measured. The Lincoln MMI measures changes in enterprise value—which accounts for market capitalization and debt—compared

with publicly traded companies, which are tracked solely by market capitalization, or shares outstanding. Lincoln’s index tracks quarterly changes in enterprise value of companies with annual revenue of less than $100 million. Accounting for the greater volatility experienced by publicly traded companies, private companies included in the index “generate superior returns per unit of risk as compared to the S&P 500 and Russell 2000,” according to the report. The index was developed by Lincoln’s Valuations & Opinions Group with support from University of Chicago Booth School of Business Professors Steven Kaplan and Michael Minnis. Lincoln will be updating the index each quarter, according to the company’s press release. // —Kathryn Mulligan

Share your insights on

HOST A WEBINAR AND REACH 90,000 MIDDLE-MARKET PROFESSIONALS WORLDWIDE. ACG Middle-Market Insights webinars explore current issues with topical information. Expert content from your thought leaders will reach more than 90,000 middle-market professionals in ACG’s broad professional network.

Contact Maggie Endres at mendres@acg.org // 312-957-4257 or Kathleen Gallagher at kgallagher@acg.org // 312-957-4270

MIDDLE MARKET GROWTH // JAN/FEB 2018

MIDPOINTS by John Gabbert

Private Equity’s Amazon Problem

lenty of ink has been spilled about Amazon’s recent push into traditional retail. The retail model as we know it is being redefined by a host of factors, including technology and changing consumer needs in a hectic world. What this means for retailers—and the private equity investors behind them— remains to be seen. Leonard Green & Partners is probably asking the same question. News outlets reported in September that the firm was the top candidate to take luxury retailer Nordstrom private, but the would-be deal was tabled until after the holidays, a delay that likely signaled lenders’ increasing wariness of the sector; a large share of 2017 retail bankruptcies, including Toys “R” Us and Eastern Outfitters, were owned, at least partly, by PE. To be sure, PE does a world of good in plenty of situations. But there’s a big difference between helping distressed companies and distressed industries, and retail as an industry is looking pretty distressed these days. What will the industry look like if Amazon becomes the largest retailer in the world? Does Amazon even know? Such a fast-changing market might be exciting for consumers, but PE investors don’t seem quite as thrilled. PE’s newfound hesitation is showing up in the numbers. U.S. retail deal activity is down sharply this year—both PE and M&A activity were set for big year-over-year declines as this magazine went to press. Once a hotbed of PE investment, retail has become a risky play in the span of a couple of years. PE shops pride

themselves (we think rightly so) on finding undervalued opportunities. Going forward, we wouldn’t be surprised if PE’s approach to retail is permanently tweaked. Finding the right balance between physical stores and online shopping will be key—PE firms like L Catterton and TSG Consumer Partners have been able to capitalize on narrow retail niches. Success ultimately hinges on understanding where the consumer wants to shop and making that channel most compelling. Infrastructure is less importJOHN GABBERT ant today than consumer engagement Founder and CEO, PitchBook and demographics, and many firms will need to redefine their value proposition in the new landscape. Predictability, the cornerstone of PE, is now in short supply. Moreover, all those Prime members in Amazon’s loyal customer base have come to expect free shipping and same-day delivery, not to “PREDICTABILITY, THE mention low prices. Those are hard expectations for CORNERSTONE OF PE, IS middle-market retailers NOW IN SHORT SUPPLY.” to meet, and PE is having a harder time, at least for now, identifying future survivors in a new world order defined by Amazon. It’s often said that Amazon founder Jeff Bezos has an obsession with customer experience; based on his company’s success, it’s hard to think of a more important factor for retailers to consider going forward. Far Content Sponsored by from destroying the retail industry, Amazon might actually be reviving it. For now, PE seems to be taking a back seat and waiting for the dust to settle, while troubled retailers are taking cues from one of their own instead. //

MIDDLE MARKET GROWTH // JAN/FEB 2018

VERTICAL VIEW

Retail and E-Commerce HAS TRADITIONAL RETAIL PEAKED?

A Fish Worth Tackling

U.S. investment in the traditional retail space fell

Among the largest mergers completed in 2017

sharply in 2016 by $14.87 billion from the year

was Bass Pro Shops’ buyout of rival outdoor

prior for a total of 82 deals valued at $9.37 billion,

outfitter Cabela’s, a deal valued at roughly

likely the result of a robust increase in e-commerce

$5 billion that required approval from the Federal

sales. Deals in 2017 have surpassed those in

Trade Commission.

2016 by $5.74 billion, totaling $15.11 billion through mid-October. DEAL VALUE (TRADITIONAL RETAIL)

2015 2016

$24.24 billion $9.37 billion

2017*

$15.11 billion

*Through mid-October 2017

A Loan for that Bone Debt financing has gained popularity in the retail sector, characterized by the 2016 leveraged buyout

“RETAILERS MUST NOW ADAPT TO THE FUNDAMENTAL SHIFTS IN THEIR INDUSTRY, MERGING E-COMMERCE STRATEGIES SUCCESSFULLY WITH EXISTING BRICK-AND-MORTAR OPERATIONS, WHILE MORE CLOSELY ASSESSING THE LATTER’S EFFICACY. EXPECT A SHIFT IN HOW PE AND STRATEGIC BUYERS VIEW THE RETAIL INDUSTRY, WHICH IN TURN SHALL AFFECT HOW THEY INVEST.”

of Petco by CVC Capital Partners and a Canadian pension fund for $4.6 billion from PE firms TPG

REILLY HAMMOND

Inc., Leonard Green & Partners and Freeman

PitchBook Analyst

Spogli, as well as sovereign wealth fund Abu Dhabi Investment Authority.

An Online Buying Spree While the pace of traditional retail buyouts continued to slow in 2017, investment in pure e-commerce transactions rose steadily, marked by deals such as Amazon’s purchase of Middle East e-commerce site Souq.com for an undisclosed price and Walmart’s strategic acquisition of clothing brand Bonobos.

Data provided by PitchBook.

QUICK TAKES

Data: A Retailer’s Best Friend By Andrew Appel

n today’s rapidly changing consumer landscape, companies have to be relentless in staying relevant in order to connect with shoppers, develop stronger brand loyalty, and maintain or capture market share. This is especially true as traditional retail and consumer packaged goods companies experience slower sales growth. Brick-and-mortar retailers are facing a significant shift in marketplace dynamics, as store closings reach an all-time high and consumers migrate to e-commerce. Retailers and manufacturers need to find new ways to fight for and win a bigger piece of the pie. For years retailers have relied on traditional shopper insights to target their best customers, focusing solely on data from their own stores. But that’s no longer enough. Retailers are increasingly recognizing the importance of finding ways to target the market’s highest-value customers, who may or may not currently shop their banner. To grow the share of spending from these high-value customers, retailers must first identify them, then understand where there are gaps and growth opportunities, and launch campaigns that target the desired audience. The first and most difficult step requires identifying this group of high-value customers. Although most retailers know about spending in their own stores, they don’t have a good grasp of customers’ spending elsewhere. Having a 360-degree view of consumer spending is critical to winning in today’s environment, and retailers have been investing in new

E Retailers must take a 360-degree view of consumer spending

technology and analytics that provide deeper, richer data and insights across the total market space. Next, retailers need to mine hidden opportunities to grow their business across these market spenders. This requires understanding what’s driving consumer purchase behavior through granular insights and assessments. Measuring shopper mix (how well retailers attract the highest-value households into their stores) and wallet share index (how well the store captures that spending compared with other stores) can also illuminate growth opportunities. Finally, retailers can use the same vast data to support the planning of integrated advertising and promotional campaigns that are precisely tailored to high-value customers. Retailers must also ensure that these

personalized campaigns are working. Data can show when they are—and when they aren’t. Data also provides opportunities for mid-campaign course correction, enhancing shopper impact and, ultimately, boosting return on investment. Consumer market dynamics are shifting and in order to keep up, retailers need to find new ways of identifying and targeting the best possible customers. Thankfully, they’re not alone in that quest—there’s data to help at every stage of the process. // Andrew Appel is president and CEO of IRI, a provider of innovative solutions and services for consumer, retail and media companies.

MIDDLE MARKET GROWTH // JAN/FEB 2018

A QUALIFIED OPINION

John Nicolopoulos and Michael Schwartz RSM US LLP

Nicolopoulos

John Nicolopoulos is a partner and national leader for RSM US LLP’s retail and restaurant sectors practice; Michael Schwartz is a principal and national consulting leader for the real estate industry practice. Together they provide business advisory services to middle-market clients throughout the United States.

Q A Schwartz

What opportunities are you seeing for midsize retailers? John Nicolopoulos: Businesses that are nimble, have vision, and are able to invest in necessary strategies present opportunities. In particular, those taking an omnichannel approach to connect and deliver products and services to customers are certainly benefitting from these key investments. According to RSM’s recent retailer omnichannel survey, participants that integrated different methods of shopping averaged a 36 percent increase in total sales volume in the past 12 months of operations and reported a 40 percent increase in new customers during this period. Retailers that understand their brand, know how to connect with their customers, build a community, and have the foresight and funding to invest to create omnichannel connections and experiences are the ones most likely to be successful.

Michael Schwartz: In terms of real

MORE ONLINE Read more from this interview at middlemarketgrowth.org.

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estate opportunities in retail, experiential real estate—while somewhat overplayed in the media—is still growing. Lifestyle centers and reimagined mall spaces that offer restaurants, grocery marketplaces, select boutiques, entertainment venues, art

installations, live events, music, nightlife and more continue to grow in cities and represent opportunities for the right retailer. Class A malls, which offer higher-end and elite shopping, also continue to do well in markets where luxury brands are in demand. The trend of millennials returning to the suburbs to buy homes, or in some regions, migrating to newer urban areas, provides opportunities for retail center development.

Q A

What’s the investment climate like in retail? MS: Investments are occurring in the development of large retail centers featuring office spaces, luxury apartments, hotels, restaurants and a variety of retail shops. However, despite positive sentiment from consumers around spending money on experiences, in some segments there’s also a lag in purchasing products in stores. This dichotomy is a challenge for investors. The market is responding by providing redefined spaces to offer in-demand experiences as well as appealing shops that align with consumer demographics and buying preferences. It’s a continuous evolution and the savvy investor is watching this transformation closely.

“BUSINESSES THAT ARE NIMBLE, HAVE VISION, AND ARE ABLE TO INVEST IN NECESSARY STRATEGIES PRESENT OPPORTUNITIES.” JOHN NICOLOPOULOS RSM US LLP

JN: We’re also seeing indirect invest-

ment in retail, in businesses like technology companies, marketing organizations or branding agencies that support retail. These peripheral companies are attracting investment to work with retailers and help develop needed technologies, social media strategies and marketing initiatives. Investment is also occurring in certain sectors within retail. For instance, the so-called fast-fashion segment, with its quick-to-market and discounted merchandise, is appealing to consumers and investors alike. Likewise, the home furnishings segment continues to draw attention from investors.

Q A

What’s keeping middlemarket retailers up at night? JN: Middle-market retailers are a very broad group. Some are younger companies that are growing, and others are more mature businesses. Likewise, some more established retailers have started their businesses in brick-and-mortar stores and expanded to have an online presence, while some younger brands may have begun as e-commerce operations and are now trying to leverage in-store locations. But most middle-market retailers struggle with the

same challenge that all retailers face: meeting the ever-evolving expectations of customers in an extremely dynamic retail environment. For some, that will involve significant investment at a time when sales and profitability are declining. There have been structural shifts in consumer spending, leaving fewer dollars for retail spending. Couple this with the ability to compare prices when buying online and on mobile devices, and retailers find themselves with shrinking sales and declining profit margins—that’s not even accounting for the impact of mega-retailers or Amazon. MS: Part of middle-market retailers’ strategy in meeting customers’ needs is also linked to where they’re going to conduct business. From a real estate standpoint, retailers must consider whether a store should be located in a lifestyle center, new main street location or regional mall. The challenge in identifying the ideal store location is to evaluate critically what will appeal to customers; fit with their brand, product or service; meet their rent and leasing needs; and complement their overall business strategy. It’s a complex endeavor and getting it right is key for a retailer. //

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Photos by Billy Delfs

Upping the Ante in E-Commerce Trademark Global Wins Big in the Endless Aisle

BY S.A. SWANSON

“

H Trademark Global’s Dan Sustar is betting on the future of online retail

can’t even remember where my offices were, because it looks so different,” says Dan Sustar. He’s sitting in a former Ford Motor Company plant some 30 miles west of Cleveland. Sustar worked there for 10 years— first as a weld engineer, then in upper management before leaving the company in 1999. Now he’s back in the building. His job has changed a bit, considering he owns the facility’s 300,000-square-foot north wing and leases an additional 470,000 square feet. He needs plenty of room for the business he founded, Trademark Global, which sources, warehouses and ships products for many of the biggest names in e-commerce, including Amazon, Walmart and Target. The growth of digital shopping carts has helped. According to the U.S. Department of Commerce, e-commerce sales in 2007 accounted for 3.2 percent of total retail sales. By the second quarter of 2017, that figure had nearly tripled, to 8.9 percent, or $111.5 billion. But the shift in spending brings few guarantees for entrepreneurs. “Everyone says it’s easy to succeed in e-commerce because of the tail winds of growth, but being able to handle the growth is a different story,” Sustar says. For him, e-commerce success hinges on this key question: “Can you scale?”

MIDDLE MARKET GROWTH // JAN/FEB 2018

TRADEMARK GLOBAL Business: E-commerce product sourcing, warehousing and shipping Headquarters: Converted Ford Motor Co. plant in Lorain, Ohio Annual revenue: $100 million Customers: Amazon, Walmart,

Trademark Global has responded with an unequivocal “Hell yes!” It transformed what began in 1999 as a homebased eBay business into a private equity–backed company with more than 200 employees and approximately $100 million in annual revenue, up 20 percent last year.

Wayfair, Overstock.com and more

LUCK OF THE DRAW (AND SOME SMART poker chips on eBay MOVES) Private equity backing: Profit is a good thing, Bertram Capital except when you’re running a charitable poker event that state gaming laws prohibit from making money. When Sustar and his brother did just that in 1998, they wound up serving two years’ probation and paid a $1,000 fine. Sustar contends they didn’t fully understand the law. Within a year, he left Ford. The poker incident wasn’t the main reason, he says, noting that the Lorain, Ohio, plant closed two years Genesis: Began as a seller of

later. The departure was a mutual decision and a life-changing one. While looking for another job, Sustar heard about a newish website called eBay. “I thought, ‘I can give that a try. Let’s see what it does,’” he says. In 1999, e-commerce was slowly creeping into consumers’ lives. (Consider that a year earlier, an online bookseller called Amazon had only just added movies and music to its inventory.) “I had no idea this was going to be a profession,” Sustar adds. He started in April 1999 on eBay selling Star Wars and Star Trek collector plates, which were readily available at wholesale auctions; he soon added collectible katana swords and hunting knives. Within five months, he relocated Trademark Global from his home to a 2,500 squarefoot facility and regularly shipped 200 orders daily. “I was spending two hours at the post office every day,” Sustar says. Sales rose to nearly $1 million by the second year, coinciding with e-commerce’s awkward phase, when sales volume began to outpace payment technology. In 2001, online customers paid for about 30 to 40 percent of orders with personal checks. “That created a lot of delays in shipping,” he recalls. Around that time, poker dealt Sustar another interesting hand. His uncle, a wholesaler, sold

“EVERYONE SAYS IT’S EASY TO SUCCEED IN E-COMMERCE BECAUSE OF THE TAIL WINDS OF GROWTH, BUT BEING ABLE TO HANDLE THE GROWTH IS A DIFFERENT STORY.” DAN SUSTAR CEO, Trademark Global

him about 400,000 poker chips for 2 cents each. They had to be sorted by color, so Sustar recruited three neighborhood kids for the job. “We paid them in pizza and yo-yos,” he says. He sold the whole lot that year.

CHIPPING AWAY AT ONLINE SALES The early 2000s poker craze fueled sales, thanks to legions of would-be poker stars inspired by Chris Moneymaker, an accountant and amateur player who won $2.5 million in 2003 at the World Series of Poker. Within five years, 85 percent of Trademark Global’s revenue came from poker chips sourced from China. Increased competition from other chip sellers led Sustar and his brother Jim (now Trademark Global’s co-founder and president) to rethink their focus. They decided the company’s strength was in operations, not retail. “We let a lot of other companies sell poker chips, and we became their supply chain base,” Sustar says. It was the right card to play. In 2005, Overstock.com and Target approached Trademark Global to ship poker chips on their behalf; other large accounts soon followed, including Amazon (now representing about 30 percent of Trademark Global’s revenue) and Walmart. “When we go to Bentonville,” he says, referring to Walmart’s Arkansas headquarters, “we’re there from Monday to Friday because we have meetings with every department.” With about 100 e-commerce customers, Trademark Global’s products now span 28 categories, including bedding (which experienced 40 percent year-over-year sales growth in 2017), as well as pet supplies, and lawn and garden (both categories saw nearly 100 percent year-over-year sales increases). Although most products are shipped to Trademark Global from countries such as China, Turkey and India, offerings from two categories are produced on-site. Customized barroom decor is one. The company has licensing agreements

with the NHL, NBA, Coca-Cola, Anheuser-Busch E Art on demand and other brands to develop items like stools and dart boards. Trademark Global also produces art on demand, using designs the company licenses from about 90 artists worldwide. The designs are typically printed on canvas and stretched over wooden frames. When a consumer clicks on an Amazon link to order a Trademark Fine Art item, the piece of artwork is “...FROM A STRATEGIC often finished and shipped PLANNING within 12 hours. More than STANDPOINT, IT’S 500 pieces are shipped ATTRACTIVE TO US daily on average, says Sustar, who adds that prints KNOWING THERE’S represent about 10 percent A SUPPLIER THAT of revenue.

CAN TAKE ON NEW PRODUCT CATEGORIES.”

NO FAD, NO FASHION Taken as a whole, Trademark Global’s products might appear to be a mishRYAN FITZPATRICK mash with little in comSenior Director, Wayfair mon, save the ability to fit in a box and onto a UPS truck. But they share a strategic quality: All are evergreen. As CFO Jeff Marshall puts it: “No fad, no fashion. Just basic stuff that people need.”

MIDDLE MARKET GROWTH // JAN/FEB 2018

E Building the endless aisle: (from left) Jim Sustar, Dan Sustar and Jeff Marshall

Those basics help e-commerce retailers create a so-called “endless aisle” for consumers, he says. The term may evoke an M.C. Escher drawing, but it refers to today’s online shopping experience, one of seemingly boundless product selection. Unlike brick-and-mortar stores, online retailers aren’t constrained by physical space. Drop-shippers like Trademark Global—which move products from manufacturer to customer without the need for a retailer to keep products in stock—make the endless aisle possible. Of the company’s customers, Amazon is the only one that has Trademark Global ship products to its warehouses. The rest let the business handle both product warehousing and shipping to consumers. Most of the company’s customers are focused on maximizing product selection, so they’ve given Trademark Global carte blanche when posting items on their e-commerce sites. If

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Trademark Global wants to sell something new on Walmart.com, for example, it can just add the product listing without asking for approval. That’s also true at Wayfair, an online home-furnishings retailer and a Trademark Global customer since 2007. Wayfair has more than 8 million products, including Trademark Global’s bath towels, umbrellas and faux trees, to name a few. In fact, more than 95 percent of Wayfair’s orders are drop-shipped directly by suppliers, most of which specialize in one product category, says Ryan Fitzpatrick, senior director for the site’s furniture, décor and textile categories. “Trademark is interesting to us because they carry everything from mattress toppers, to canvas art, to fireplaces, and they’ve proven they can do all those businesses well,” he says. “So from a strategic planning standpoint, it’s

attractive to us knowing there’s a supplier that can take on new product categories.”

STACKING THE DECK Trademark Global entered the online market early with several key products that received good reviews, which created a virtuous circle, Beerle says. “If you go on Amazon and search ‘bocce balls,’ they’re the No. 1 seller of bocce balls by a wide margin, and they continue to grow that margin because they were the first ones and have the most reviews.”

Photo courtesy of Bertram Capital

REPLAYING AN OLD HAND To accommodate that product volume, Trademark Global moved into the former Ford plant in 2012. Around that time, its annual revenue was increasing by about 50 percent, and the company began searching for an investor. In November 2013, Blue Point Capital became the majority shareholder. Thanks to Blue Point’s Shanghai office, which served as an incubator, Trademark Global now has six employees in China who handle product sourcing, quality assurance and logistics. Under Blue Point’s ownership, Trademark Global also placed its thousands of products into more structured categories and hired additional managers to expand those product groups. The PE firm’s approach provided a much-needed change from the early years, when the company took a more passive stance. “It was, ‘Yep, we’ll take that foot massager.’ We weren’t avidly going out and looking for product. The product was coming to us,” Sustar says. Majority ownership changed hands again in October 2016, when Bertram Capital acquired Trademark Global in a deal valued at more than $150 million (Dan and Jim Sustar retain partial ownership). “One of the biggest challenges we had with other e-commerce businesses is—how do you go find your customers?” says Tom Beerle, principal at Bertram. “The beautiful thing with Trademark is you don’t worry about that because you’re benefiting from these other retailers.”

“A PRODUCT THAT WAS ISSUED IN 2010 SOLD EVEN MORE IN 2011. AND THEN SOLD MORE IN 2012 THAN IT DID IN 2011. THESE OLD PRODUCTS CONTINUE TO GROW. ON TOP OF THAT, YOU’RE INTRODUCING NEW PRODUCTS.” TOM BEERLE Principal, Bertram Capital

Conventional e-commerce wisdom suggests that today’s products will go out of style next year when someone introduces something newer, Beerle says. But Trademark Global’s sales defy that pattern. “A product that was issued in 2010 sold even more in 2011. And then sold more in 2012 than it did in 2011. These old products continue to grow. On top of that, you’re introducing new products,” he says. Meanwhile, Trademark Global likely added more than 1,000 new products in 2017, CFO Jeff Marshall estimates. To help its portfolio companies leverage technology, Bertram relies on an in-house group called Bertram Labs that has more than 20 employees dedicated to areas such as software

MIDDLE MARKET GROWTH // JAN/FEB 2018

H Five to 10 trucks deliver products to Trademark Global’s Lorain, Ohio, facility on a typical day

development and digital marketing. The team has established a detailed process for Trademark Global’s product descripJEFF MARSHALL tions, Beerle says, with the CFO, Trademark Global goal of improved search engine research and better conversion rates. “They can source an amazing amount of SKUs for their retail partners, which is highly valued,” says Scott Orleck, managing director at consulting firm Parthenon-EY, who worked with Trademark Global during its sale to Bertram. “There are very few folks in the industry providing the product breadth they have, so it’s a very differentiated model.”

“NO FAD, NO FASHION. JUST BASIC STUFF THAT PEOPLE NEED.”

BETTING ON NEVADA— NO POKER INVOLVED In 2017, Trademark Global’s revenue increased by about 20 percent. Under Bertram’s ownership, strategic acquisitions will add to the company’s growth. Home Complete—a business

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selling shoe racks and other organizers that is mainly focused on Amazon sales—was acquired in 2017, bringing additional new products to Trademark Global’s lineup. In October 2017, another add-on acquisition was completed— DTX International Inc., a leading online seller of popcorn machines and related products (including the Great Northern Popcorn brand). Trademark Global will soon have a 350,000-square-foot facility in Reno, Nevada. Slated to open in February, it addresses the ever-shrinking time frame consumers expect for deliveries. With two facilities, Trademark Global will be within two days of ground shipping to most of the country, Sustar says. As it turns out, his time at Ford wasn’t just about assembling vehicles; it also yielded valuable lessons about building a business. “Some would say, ‘You wasted 10 years at Ford,’” Sustar says. “I would say, ‘No, that was my training ground.’” // S.A. Swanson is a freelance business writer in the Chicago area and a frequent MMG contributor.

A GLIMPSE INSIDE THE WAREHOUSE

during the end-of-year holiday season.

products, packaging has always been

When Trademark Global works on pro-

a challenge,” says Jim Sustar. “As we

jections to add seasonal workers, “we

have grown, our category managers

cross our fingers and hope we are right,”

are making every effort to bring our

says Dan Sustar, the company’s CEO.

products in pre-packaged for parcel

“In the years we’re wrong, the office clears out and we’re working in the ware-

shipping.” The company’s 40-inch licensed

house. Two years ago, I think I worked

billiard lamps create some of the

17 hours a day for about three weeks

biggest headaches. “It took several tries

On a typical day, between five and 10

straight. So did everybody else,” he says.

to produce a box and packing content

trucks deliver products to Trademark

Orders also spike between Memorial

that would reduce our damages when

Receiving

Global’s Lorain, Ohio, facility. The

Day and Father’s Day—and in July,

company works with more than 100

when Amazon has Prime Day and other

factories, and more than 70 percent of

retailers like Walmart and Target run

Shipping

items come from China. (Other source

competing promotions, says Jim Sustar,

During the 2016 holiday season, about

countries include Turkey, Malaysia, India

Trademark Global’s president.

40,000 to 50,000 packages were

and Pakistan.)

“Essentially Amazon has created another Black Friday, but in July,” he says.

Picking

drop-shipping these lamps,” he says.

shipped daily—about five times typical volume. The company usually has two UPS and two FedEx trucks stationed

Order pickers, who select materials

Packaging

needed for delivery, and the rest of the

“Because we are in 28 different

switches them out up to 12 times a day.

warehouse workers are especially busy

categories with thousands of different

—S.A. Swanson

at the facility around the clock, and it

MIDDLE MARKET GROWTH // JAN/FEB 2018

The Digital Dilemma

middlemarketgrowth.org

Are Online Ads Living up to the Hype for Midmarket E-Commerce Companies? BY TAM HARBERT

ocial and streaming media services would seem to be every advertiserâ&#x20AC;&#x2122;s dream, offering the ability to target the ideal prospective customer. But their effectiveness depends on what you sell, how you sell it and to whom. Small and midmarket e-commerce companies in specific niches, for example, are finding certain channels ideal. Larger companies that rely mainly on brick-and-mortar retail stores, not so much. Spending on digital advertising is growing quickly. Internet advertising revenue in the United States totaled $72.5 billion in 2016, up nearly 22 percent over 2015, according to a report last year by PwC and the Interactive Advertising Bureau. A separate 2017 survey by Cadent Consulting Group, which works with retail and consumer packaged goods companies, reports that digital ads make up nearly 20 percent of marketing spending, nearly triple that of five years ago.

MIDDLE MARKET GROWTH // JAN/FEB 2018

Companies love digital advertising’s ability to reach specific audiences. On Facebook, for example, an advertiser can target women between the ages of 30 and 40 who live in a particular zip code and buy organic produce. But even with online advertising’s precision, the medium has limitations, and marketers are unsure of the ads’ return on investment. In the Cadent “WITH ALL OF survey, digital received the DIGITAL’S PROMISE, lowest effectiveness rating AND DESPITE by retailers and the lowest awareness and impact ratFACEBOOK AND ings by shoppers. GOOGLE TELLING YOU “With all of digital’s THEY KNOW BEYOND A promise, and despite Facebook and Google telling SHADOW OF A DOUBT you they know beyond a WHAT MAKES PEOPLE shadow of a doubt what PURCHASE, THEY makes people purchase, REALLY DON’T.” they really don’t,” says Ken Harris, managing partner at Cadent. KEN HARRIS Meanwhile, the hype Managing Partner, around digital advertising Cadent Consulting Group LLC has caused spending to outpace tangible results. “A lot of people sank a lot of money into that industry before really understanding whether it was having an effect,” says Dave Van Dyke, president of media researcher Bridge Ratings. “Some of it does work, but a lot of advertisers are not seeing an ROI.”

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DOOR TO DIGITAL DOOR Door to Door Organics, an online subscription service for organic produce, spends about 90 percent of its advertising budget on digital, says Andrea Daily, vice president of marketing for the privately held company, based in Louisville, Colorado. Most of that spending is allocated to social media, primarily Facebook and Instagram. Those platforms allow the company to zero in on demographic and interest-based targets, such as 35-year-olds with a penchant for organic food living in specific cities. With Facebook, for example, Door to Door can pull data on its existing customers who generate the most sales and upload that information to Facebook’s advertising platform. Facebook’s algorithm then identifies a group of its users that matches those characteristics and displays Door to Door’s ads on their news feeds. The company has had success on the social media platform by publishing content, like recipes or useful articles on topics like how to can fresh fruit, Daily says, but Facebook is not where it has seen the highest ROI. The company gets the biggest bang for its buck by paying for clicks on results from search engines, specifically Google. Unlike Facebook users who are served an ad while scrolling past their friends’ wedding and baby photos, consumers who type “organics” or other keywords into a search bar are often ready to buy. Meanwhile, good old-fashioned direct mail— which accounts for most of the 10 percent of dollars Door to Door allocates to traditional advertising—is similarly targeted, Daily notes. But it’s less flexible and requires upfront spending before producing results. With social media, companies can tweak or even turn off an ad if it’s not performing. “That’s what’s been the most fun and rewarding part of digital advertising,” Daily says. “We are constantly testing out new ideas and seeing what works and what doesn’t.” Madison Reed, a San Francisco-based e-commerce company that sells natural hair coloring free from harsh chemicals for in-home use, spends 85 percent of its marketing budget on digital, says

Marketing Spending by Type

Digital Spending by Vehicle Other 1.4% Mobile Specific 3.6% Sponsored Search Social Media 18.5% (Search Ads) 9.5%

Consumer Promotion 11.7% Shopper Marketing 6.0%

2012

Traditional Advertising 25.4%

Trade Promotion 49.8%

2014

Email Marketing 5.3% Website/Content Development 19.3%

Digital 7.1%

Shopper Marketing 12.9%

Digital/Banner 16.5%

Online Coupons 15.3%

Search Engine Optimization 4.1% Sponsored Content/ Native Advertising 4.9%

Consumer Promotion 10.5%

Sponsored Search (Search Ads) 4.0% Social Media 24.6%

Email Marketing 6.5%

2017

Traditional Advertising 13.3%

Search Engine Optimization 10.6%

(Projected)

Trade Promotion 43.4%

Website/Content Development 9.7%

2017

(Projected)

Digital/Banner 16.6%

Video 12.8% Digital 19.9%

Other 0.4%

Online Coupons 16.4%

Source: 2017 Marketing Spending Industry Study (Cadent Consulting Group)

Heidi Dorosin, the company’s chief marketing officer. It favors Facebook because that’s the platform where the company’s demographic—older women with graying hair—congregates. The company can easily measure performance because all its ads have a “buy now” button. If a user clicks one, Madison Reed knows the ad is effective. Even if the ad is designed to tell a story rather than directly appeal to the consumer to buy, it will include a button to “find your perfect shade,” Dorosin adds. “That’s how we invite them to our website. So we can measure the effectiveness of every story that we tell,” she adds.

CASTING A TARGETED NET MeUndies, a Los Angeles-based online seller of “softer than soft” basics such as panties and briefs, advertises on podcasts with “influencers that people trust,” Gregg Fass, the company’s marketing officer, told an audience at the ACG LA Business Conference in September (See p. 12 for more about the event). The company ran a “Celebrate Yourself” campaign during National LGBT Pride Month in June that included

underwear in a rainbow polka-dot print. Such campaigns help engage consumers “in a product category that has been very boring,” he said during a panel session at the conference. Like MeUndies, Door to Door, the produce seller, has explored podcasts. Daily says she wants to try them but has yet to find a podcasting partner that can target customers in the particular way the company is looking for. “The challenge for us is that we have a very specific delivery footprint,” she says. “So everything we do is very geo-targeted in terms of zip codes.” Door to Door has the same issue with online streaming music services like Pandora and has found traditional radio to be a better fit. NPR, for example, offers the highly educated audience that Door to Door is targeting. The company has also developed partnerships with regional DJs who can “authentically speak to their experience with (our) brand,” Daily says.

LARGE COMPANIES ARE LESS ‘SOCIAL’ While small and midsize online companies continue to rely on digital advertising, some large

MIDDLE MARKET GROWTH // JAN/FEB 2018

Podcast Listening

Social Media Use

Percent of U.S. population (age 12+) that has ever listened to a podcast

Percent of U.S. population (age 12+) that currently uses social media

36 40 29 27 30 33 25 23 22

’08 ’09 ’10 ’11

’12 ’13 ’14 ’15 ’16 ’17

48 52 53

’08 ’09 ’10 ’11

estimated 112 million

62 67

81 73 78

’12 ’13 ’14 ’15 ’16 ’17

estimated 226 million

Source: The Infinite Dial 2017 (Edison Research and Triton Digital)

companies have stepped back from it, in part because the ROI is difficult to quantify. Earlier this year, the chief brand officer of household products giant Procter & Gamble, Marc Pritchard, took the industry to task for its lack of standards that could help companies better measure online advertising’s effectiveness. Door to Door’s Daily, who previously worked for consumer packaged goods companies, understands the frustration. But large CPG companies have a different business model that makes digital advertising less effective. “It’s difficult to judge the success of your efforts because all your transactions are happening in a store offline, and (you’re not) able to identify that a particular ad “WE ARE CONSTANTLY resulted in these sales,” she explains. With an e-comTESTING OUT NEW merce model, companies IDEAS AND SEEING can see the transactions in WHAT WORKS AND real time and track what prompted them, such as an WHAT DOESN’T.” ad or coupon offer. Nevertheless, Daily ANDREA DAILY agrees that the analytics Vice President of Marketing, for ad effectiveness are Door to Door Organics not where they should be. “We’ve found certain things to be okay, but some of the visibility is shielded from us as a client,” she says, often because social media companies jealously guard their data and algorithms.

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DIGGING INTO DIGITAL Even with its shortcomings, advertising spending will inexorably shift more and more to digital, says Tom Webster, vice president of strategy at Edison Research, which studies media markets. He notes that consumers are increasingly turning away from traditional media and subscribing to services like Netflix and Pandora so they can control how, when and where they consume content. Those services offer very little, if any, advertising, he notes. “The addressable audience for advertising is shrinking and shrinking,” he says. Certain types of people in specific regions may be reachable only on digital channels. What’s more, even the most effective digital channels will continue to shift as new platforms are launched and audiences change their preferences. As an advertiser’s target market matures, it may need to shift its ads to new channels. Dorosin of Madison Reed, for example, is increasingly interested in Instagram, which millennials prefer over Facebook, as a way to put her product in front of a potential new customer base. “The oldest millennial is now 37 years old, which is when gray hair starts,” she says. // Tam Harbert is a freelance journalist in the Washington, D.C., area who frequently covers technology.

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MORE ONLINE Find updates and insight on policy issues at middlemarketgrowth.org.

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placed on private equity funds. ACG isits to Capitol Hill marked members also highlighted the work of the conclusion of ACG Globthe bipartisan Congressional Caucus al’s Public Policy Summit in for Middle Market Growth, a group September, offering ACG members formed in 2014 with support from an opportunity to educate lawmakers ACG that educates congressional staff about the contributions of the middle about legislation important to the market through direct dialogue with middle market. representatives from their home The day included meetings with districts. members of the House Financial The two-day summit in WashingServices and Ways and Means Comton, D.C., also included presentations mittees, including the office of the and panel sessions featuring members chair of the Tax Policy Subcommittee. of Congress and private equity proThese groups set policy on financial fessionals, as well as a briefing with regulation and taxation. senior-level representatives from the In today’s defensive and reacSecurities and Exchange Commission. tionary political climate, personal The event explored topics ranging engagement goes a long way. Memfrom taxation to regulatory reform and cybersecurity—keen areas of interest for midIN TODAY’S DEFENSIVE size companies and their investors. AND REACTIONARY Thirty-five ACG members POLITICAL CLIMATE, met one-on-one with conPERSONAL ENGAGEMENT gressional representatives in their offices on Sept. 27, GOES A LONG WAY. establishing themselves, their firms and their chapbers of Congress—who are required ters as middle-market resources for to understand wide-ranging issues, lawmakers. The meetings were held at from agriculture to financial sera pivotal stage in the tax reform provices—often have very limited time cess; Republicans released their initial to make decisions on legislation. framework for proposed tax changes They rely heavily on their contacts on the same day. in relevant subject areas. ACG’s Topics discussed during the Hill Hill visits help to build a constitumeetings included a provision of the ent connection that legislators can tax code allowing for the deduction refer back to. The meetings estabof interest paid on corporate debt— lish ACG’s 14,500-strong member which ACG strongly favors maintainnetwork as a resource for lawmakers, ing—and the pressing need to remove creating considerable leverage for the onerous reporting requirements

CRACKING THE COMPLIANCE CODE Become a Member of ACG’s Private Equity Regulatory Task Force

E Hill visits are an important part of ACG’s annual Public Policy Summit

the association’s public policy efforts in Washington. The visits offer ACG a better understanding of the priorities of individual legislators, an important factor in the ongoing “temperature-taking” that ACG’s public policy team performs to stay on top of the current congressional agenda.

ACG’s influence in Washington, a city built on personal connections, grows with every meeting, creating an important foundation for ongoing discussions. // Ben Marsico works on public policy issues for ACG Global. He is based in

ACG PERT gathers together CFOs, CCOs and in-house legal counsel of middle-market private equity firms nationwide. As a member of PERT, your firm will join a national network focused on shaping compliance best practices alongside federal regulators. FOR MORE INFORMATION, CONTACT CHRISTINE MELENDES, AT CMELENDES@ACG.ORG. © 2017 Association for Corporate Growth. All Rights Reserved.

Washington, D.C.

MIDDLE MARKET GROWTH // JAN/FEB 2018

GROWTH ECONOMY

CALIFORNIA // 1998–2015 California is the most active state for private investment. The state’s IT sector attracts the greatest share of capital, but California is also a retail behemoth. The industry accounts for one-quarter of the state’s employment and more than 418,840 retail establishments, according to the California Retailers Association. Across industries, the state boasts more than 12,000 private capital-backed companies.

JOBS GROWTH % BY SEGMENT

SALES

87.4%

SALES GROWTH IN PE-BACKED BUSINESSES

37%

ACG SAN FRANCISCO ACG SILICON VALLEY

SALES GROWTH IN ALL BUSINESSES

0.1% 12.7% 16.3% 66.8% 4.1%

SALES GROWTH % BY SEGMENT 0.9% 14% 13.1% 64.6% 7.4%

ACG 101 ACG LOS ANGELES

TOTAL CAPITAL INVESTED IN CALIFORNIA IN 2015

ACG ORANGE COUNTY ACG SAN DIEGO

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

$87.6 BILLION

Large: More than $1B in sales

JOBS

GROWTH IN PE-BACKED BUSINESSES

GROWTH IN ALL BUSINESSES

JOBS CREATED BY PE-BACKED BUSINESSES

65.8% 23.8% 82,494

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.

middlemarketgrowth.org

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THE PORTFOLIO

Avoiding ERP Implementation Disaster BY THE NUMBERS // Five Best Practices for Portfolio Company Success

W Jason Muhlstein Partner, Wipfli LLP – CPAs and Consultants

hen private equity firms discuss enterprise resource planning implementation, the conversation usually includes horror stories. More often than not, things go badly and become costly, delaying or reducing expected benefits. And the higher the number of companies in a portfolio and the more acquisitions pursued, the greater the challenges. But ERP implementation doesn’t have to be problematic. In fact, for private equity firms, standardizing to a modern, cloud-based platform across all portfolio companies is an extremely savvy move—and one that can yield value and drive profitability right away. Below are five best practices for avoiding disaster and ensuring a successful ERP implementation. 1. Appoint and empower a portfolio CIO and make the entire portfolio implementation a priority. The most successful private equity firms start with a strong commitment to ensuring that all business units and acquisitions get on the same standardized platform and limit customization. This requires vision and decisiveness, but it also involves persistent change management to prevent the “people factor” from derailing the initiative. 2. Identify an all-in-one business solution that’s easily expandable. Using a system that doesn’t already have the modules you might need—CRM or e-commerce, for example—will ultimately require adding disparate systems and essentially put you back where you started. By contrast, the right solution will already have all the components needed: NetSuite or Microsoft Dynamics 365, for example. Both solutions allow you to add users, modules and processes to further expand the platform amid growth and as needs evolve. 3. Identify an end-to-end standard solution

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up front. Consider all the features needed and “bake in” all those possibilities up front. Then the firm can weigh each business against the overall solution and adapt it for each unit by removing what’s not needed, rather than customizing and adding from scratch each time an organization is rolled up. 4. Tie implementation to the diligence phase. After creating the platform, plan implementation in the diligence stage of acquisitions. Firms that do so gain visibility into the various business data of target organizations immediately—not two years from now— and quickly roll them up to better understand performance in the interim stage, well before the finished ERP implementation. “Consider what you want to get out of the old systems and how it might mirror your new system,” explains Michael Vaccarella, managing director, Wipfli transaction advisory services. “Beyond doing financial and tax diligence on the target, you’re setting up the first 180 days after close for systems integration.” 5. Adopt standard, cloud-based platforms for greater automation and reduced IT overhead. Keep IT overhead light and reduce the number of full-time-equivalent hours required. Successful firms have identified the value of relying on consultants in the short term, fully knowing that the new cloud-based, scalable solutions will allow them to make their IT function even leaner going forward. // Jason Muhlstein leads the technology consulting and business intelligence practices in Wipfli’s Minnesota region and helps private equity firms convert to more modern platform technology solutions.

MIDDLE MARKET GROWTH // JAN/FEB 2018

THE PORTFOLIO

How Retailers Can Compete with Amazon SOUND DECISIONS // Understanding Consumer Demand

S Stephen Wyss Partner, CohnReznick

Dean Nelson Principal, CohnReznick

ome experts are predicting that the retail industry will experience greater evolution over the next five years than it has over the past 50. This rapid change will occur not as a matter of choice but as a means of survival. Despite an economic recovery that is putting more dollars in a shopper’s pocket, retailers are closing their doors at a record clip amid declining sales. There are many different reasons retailers are suffering, but the biggest one goes by the name of Amazon. The behemoth is remaking the industry with seemingly limitless offerings and ultra-convenience at reasonable prices. But a number of retailers and consumer brands are finding success by focusing on meeting consumer needs and desires, creating or reinventing vibrant brand narratives, and engaging consumers in thoughtful and innovative ways. Private equity firms can take steps to accelerate growth in their retail portfolios and position their companies for success. Focus on profitable growth. Growth is a sexy word in any industry—but creating profitable growth is the key to success. Anyone can grow in a competitive market by cutting prices or increasing promotions. But these maneuvers come at the expense of profit margins and set consumer expectations for future discounts and promotions. Over the past several years, retailers have engaged in a race to the bottom, increasingly using promotions and discounts to lure consumers while eroding profits. Successful brands understand how to move consumer focus away from price and toward perceived value. Boost consumer engagement. Engagement strategies that include exclusive offerings, free fast shipping, expedited issue resolution and a frictionless return policy can result in consumers who are willing to pay a higher price for goods because they believe they are getting something special in return. Understanding

middlemarketgrowth.org

consumers is the key to anticipating or influencing their decisions. Creating additional opportunities to engage them provides additional data points to be used to help understand them. Which leads to this next piece of advice: Invest in analytics. Savvy retailers and consumer brands continue to leverage analytics in innovative ways, enabling them to better understand their consumers and fuel opportunities to grow revenue. Using the additional data points provided by increased engagement can provide meaningful insights into consumer values and tendencies, allowing for better predictions of consumer behavior. These predictions can be used to transform inventory and merchandising strategies. Provide a seamless omnichannel experience. Many midmarket retailers and consumer brands are still at step one of their omnichannel sales and marketing strategy. As more consumers use their mobile devices to shop, retailers need to seamlessly integrate their mobile, online and brick-and-mortar shopping experiences. Across-the-board consistency in brand presentation, consumer engagement, product offerings and pricing will translate into fully engaged consumers who trust the brand and purchase more. Retailers and private equity investors who openly embrace the transformative changes reshaping their industry will not only survive— they will thrive. // Stephen Wyss is a CohnReznick partner and leads the firm’s consumer industry practice. He can be reached at stephen.wyss@cohnreznick.com. Dean Nelson serves as principal and national director of CohnReznick’s technology and digital advisory practice and can be reached at dean. nelson@cohnreznick.com.

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THE PORTFOLIO

Marketing Your Brand on Social Media SOUND DECISIONS // Err on the Side of #TMI to Avoid Fines

S Nanette Heide Corporate Partner, Duane Morris

Kristen Lin Law Clerk, Duane Morris

ocial media marketing has grown to be one of the most influential digital marketing techniques used today. It provides a platform for influencers with large followings to reach millions of people with a single post. One of the most popular platforms is Instagram. A quick search on Instagram of the hashtag “#sponsor” results in over 1 million posts alone—that doesn’t include the millions of other posts under #ad, #sp, #sponsorship, #partner or #partnership, all of which denote a marketing post in which the influencer is generally receiving some form of payment from the brand. Consumer groups have demanded that social media influencers disclose sponsorships so it’s clear to consumers that an influencer is being paid to endorse a product. Paid endorsements have grown to such an extent that to prevent misleading advertising, the Federal Trade Commission has begun policing the disclosures that influencers make in their blogs and posts about products. In 2013, the FTC attempted to address, among other things, how companies and marketers should comply with the rules of fair advertising on social media platforms, but many brands and influencers remained unsure of when and how to make effective disclosures. The guidance targets undisclosed marketing arrangements and tries to provide some direction as to the proximity and placement of the disclosure in order to be clear and conspicuous. Unfortunately—and at the risk of being fined—many influencers still do not oblige. Whether you love them or hate them, the Kardashians are arguably an empire built on social media branding and have frequently disregarded FTC guidelines. In fact, Kim Kardashian was the subject of an FDA complaint in 2015 involving an Instagram endorsement of a morning sickness drug. She later edited her post to disclose the paid content.

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In a news release published in April 2017, the FTC stated that it sent official letters to more than 90 influencers for failing to disclose their sponsored products. While there are no plans to take legal action at the moment, the FTC can seek penalties and fines if it can identify consumer harm. Although disclosures can be complicated due to limited space on social media platforms, regulators have little regard for this challenge and are focused on preventing deceptive marketing. Likely in response to influencers hiding #ad in a string of hashtags in their caption, the FTC has said that the common hashtag near the bottom of a long string of hashtags is insufficient. The disclosure needs to be clear and conspicuous, showing that a person endorsing a product “has been paid or given something of value.” The FTC has also sent notifications to numerous companies warning that their current online disclosures fall short of its standards. The FTC is very focused on regulating fair advertising in the online era and companies should err on the side of disclosure to steer clear of FTC rebuke. // Nanette Heide is a corporate partner at Duane Morris LLP (New York) and chair of the firm’s fashion, retail and consumer products industry sector group. Kristen Lin is a law clerk in the corporate practice group of Duane Morris LLP (New York).

MIDDLE MARKET GROWTH // JAN/FEB 2018

E U R O G R O W T H

M O V E S

S A V E

T H E

T O

J U N E

I N

D A T E .

W W W . E U R O G R O W T H . O R G

2 0 1 8 .

THE PORTFOLIO

Payment Services Pose Potential Traps SOUND DECISIONS // This Fast-Changing Industry Can Trip up the Unprepared

I Charles Morton Chair, Corporate Group, Venable LLP

t goes without saying that mobile technology is making routine purchases much easier. Whether it’s a morning cup of coffee at Starbucks or a lunch order placed at a nearby restaurant, phones enable quick and easy ordering and payment for everyday items. This convenience is making alternative payment technologies ubiquitous. A 2016 report from BI Intelligence suggests that by 2020, mobile payments in the U.S. will reach $500 billion a year and the number of consumers making these payments will rise to 150 million. The current and anticipated growth in mobile payments should come as no surprise. Americans have become increasingly comfortable using their phones for financial interactions. Last fall, the American Bankers Association reported that two-thirds of Americans use digital banking—using online and mobile platforms—as their primary source of banking. For nearly half of Americans between the ages of 18 and 29, mobile banking is their top choice. There has been a wave of payment services transactions, including more than 10 large payment services deals announced last year as private equity investors and strategic acquirers took advantage of the industry’s maturing market and exceptionally strong profits. Yet behind each of these deals lurks legal complexity. Intellectual property, data protection and a dynamic regulatory environment conspire to reward scale. The ability to conveniently process payments on the go is made possible by a mountain of proprietary technology, which is often expensive to protect, purchase and defend. The data that is gathered and sold, which in turn drives sales, exists in a commercial and regulatory context that creates traps for the unwary. Changes precipitated by every security breach or assertion of jurisdiction by a foreign country make it difficult to stay up to date on current

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rules. These legal issues are time-consuming to address and therefore expensive to navigate. Driving innovation while pursuing scale is particularly challenging. That is why careful attention to attracting and retaining talent is an essential part of the equation for payment services businesses. Ensuring that incentives are aligned requires careful planning and documentation, whether a company is being built up in anticipation of a sale, or during a transaction. Potential risks are always present behind the scenes. The trust-eroding, liability-triggering impact of a data breach is nearly an everyday occurrence. The potential for vigorous scrutiny by regulators, who are eager to protect consumers, can catch business operators off guard. Ferreting out risks during diligence as part of a deal, and minimizing those risks in everyday operations, is imperative. As a business considers profiting from the growing trend of mobile commerce, it should remember that what appears easy is in fact the result of a great deal of careful planning. // Charles Morton chairs Venable LLP’s corporate group, where his practice focuses on technology-related M&A. He is a past chairman of ACG Global’s board of directors.

MIDDLE MARKET GROWTH // JAN/FEB 2018

I met a contact at an ACG event that led to one of our biggest deals to date. S E E T H E P O W E R T H AT MEMBERSHIP BRINGS. J O I N T O D AY AT W W W. A C G . O R G

THE POWER OF

THE PORTFOLIO

M&A Without Mess & Anxiety SOUND DECISIONS // How Organized Documentation Drives Deal Value

ll M&A transactions, no matter how large or critical to the future of the acquiring company, have one trait in common: No one involved—buyer, seller or adviser—has the luxury of focusing 100 percent of his or her attention on the transaction.

Richard A. Martin Jr. Senior Director, Merrill Corp.

What Drives Smart M&A? An acquisition that creates value typically falls within one of five archetypes, according to the consultancy McKinsey. They include: ɋɋ Improving the performance of the target company ɋɋ Removing excess capacity from an industry ɋɋ Creating market access for products ɋɋ Acquiring skills or technologies more quickly or at a lower cost than they could be built in-house ɋɋ Picking winners early and helping them develop their businesses These objectives are what everyone involved in an M&A transaction should focus on. The challenge, especially in the early stages of a deal, is that executives typically share information using tools they’re familiar with—such as email and Dropbox. But once they’re ready to start working on the merger in earnest, they find that documentation is a mess. When a $500-an-hour M&A attorney spends 15 minutes searching for a specific file and determining which document is which, the result is not just wasted money. It’s also a distraction for key team members who should be focused on completing the transaction. Just because the right people on your team can’t get their hands on documents doesn’t mean the wrong people won’t. The last decade has seen data breaches grow almost 500 percent in the U.S., with global figures even higher. Estimates suggest that three in five businesses will discover a breach of sensitive data this year. The

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risk of confidential materials becoming public is higher now than ever. Protecting against those risks is paramount. Smart M&A is about having the right information before, during and long after the deal has closed. This means establishing a standardized, consistent dealmaking process that reduces distractions, confusion, cost, re-work and deal risk. Leading companies will standardize their process on a single virtual data room so that no one ever has to ask, “Where is that document?” or “How did we get hacked?” Collaborate Smartly It’s wise for companies to develop consistent rules that dictate how M&A teams collaborate. Keeping all deals—even those at the earliest stages, ones that may not go forward, and those that have already closed—within one virtual data room vendor, is logical. Keeping the M&A VDR open over the long term is equally smart. VDRs keep all data about the deal in a single, easy-to-remember and secure place, and they ensure that everyone at a company knows where to access information. Few modern teams stay together long, so a consistent process reduces needless re-creation of key merger documents and useful templates. // Visit MerrillCorp.com for examples of smart M&A in action and useful checklists, and to read the full version of “M&A Without Mess & Anxiety.” Richard A. Martin Jr. is responsible for Merrill DataSite’s global marketing group.

MIDDLE MARKET GROWTH // JAN/FEB 2018

THE PORTFOLIO

Get a Head Start on Value Creation SOUND DECISIONS // Three Ways to Improve Internal Controls and Financial Reporting

R Brad Rummel Senior Manager, Plante Moran

obust controls and financial reporting capabilities quickly add to an acquisition’s value. But private equity firms often underestimate the degree of change required, particularly when it comes to newly acquired small or family-owned businesses. Focus first on these three key areas: 1. Assess the framework for internal controls. To assess an acquisition’s existing internal controls framework, if one exists, buyers must first identify gaps and opportunities for improvement. Examples of common areas that can often benefit from shoring up and improved efficiencies include inventory management, cost allocation, cash flow forecasting and financial reporting processes. The timing of the buyer’s assessment will be driven by several factors, including deadlines for the next reporting period, for an external audit, or for other reporting requirements. Once the private equity firm has assessed the existing framework for internal controls and identified areas targeted for improvement, it can begin to build a more robust structure that will better support its needs going forward. 2. Strengthen financial reporting capabilities. Managers of the acquired business may struggle with the sophisticated, metricsdriven emphasis and reporting methodologies that private equity groups bring. The smaller the acquired company, the less likely that it has been monitoring metrics at a granular level. It may very well lack accurate insights into cash flow, net revenue, selling, or daily or weekly expenses, for example. Improving management proficiency as well as accuracy, efficiency and timeliness of financial reporting won’t happen overnight. The buyer’s integration and overall portfolio strategies should drive specific

middlemarketgrowth.org

improvement efforts. Private equity firms need to consider whether, for example, the acquisition has multiple business units that should be rolled up into one framework for controls and reporting. Perhaps the framework for another business in the portfolio could be applied to the current acquisition. 3. Prepare the finance team. Some key areas of focus for the team will likely include gaining the competencies to: ɋɋ Improve efficiency and timeliness of the financial close ɋɋ Prepare monthly reconciliations and financial statements ɋɋ Forecast 13-week cash flow and conduct cost analyses ɋɋ Prepare accurate budgets ɋɋ Better understand purchase agreement compliance Less sophisticated finance teams may need some guidance and support. Private equity firms can bring in their own finance resources or enlist expertise from a third party. Ultimately, the finance team, regardless of its composition, should do more than just facilitate reporting; it should have the acumen to glean insights that further improve efficiencies and add value. Strengthening internal controls and financial reporting capabilities needs to be a crucial early part of every integration. Even the best-laid integration and value-creation plans falter without a clearly detailed picture of the acquisition’s financial performance. Focusing on the controls framework, reporting capabilities and the finance team gives buyers a head start toward success. // Brad Rummel is a senior manager with Plante Moran who specializes in the development of financial project management solutions, processes and procedures for private equity-owned portfolio companies.

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ACG has the top global network for middle-market businesses, hands down. S E E T H E P O W E R T H AT MEMBERSHIP BRINGS. J O I N T O D AY AT W W W. A C G . O R G

THE POWER OF

ACG@WORK

ACG SAN DIEGO F ACG San Diego hosted its annual Surfside Summer Social in August at La Jolla Beach and Tennis Club. More than a hundred attendees gathered beachside to celebrate the end of summer and their relationships in the middle market.

E ACG CLEVELAND ACG Clevelandâ&#x20AC;&#x2122;s chapter executive, Joan McCarthy (center), and her staff celebrated the 30th anniversary of MJM Services, the association man-

E ACG INDIANA

agement company McCarthy founded, at an open

ACG Indiana hosted its 12th Annual Golf

house on Aug. 4. Past ACG Cleveland presidents

Outing on Aug. 10. More than 100 people

and board members traveled from around the

played golf to foster networking outside

country to celebrate the milestone.

the business environment. Pictured (left to right) are Matt Servies, Tom Stvening, Brian Sullivan and Michael Millikan.

middlemarketgrowth.org

G ACG KANSAS CITY ACG Kansas City hosted the annual Edward Stacy Crumm Memorial Golf Tournament on Aug. 28 at the Lake Quivira Country Club. More than a hundred attendees played golf to raise money for Junior Achievement, a charity focused on the youth of Kansas City, and to honor the founding member of ACG Kansas City, Edward Stacy Crumm.

E ACG KENTUCKY The 2017 ACG Kentucky Golf Outing was hosted on Aug. 21 at the prestigious PGA Valhalla Golf Club in Louisville. Players from Kentucky, Tennessee, Ohio, Indiana and Illinois participated. Tim Rodgers and Michael Schneider (pictured), executives at KeyBank, Cincinnati, were members of the team that took home the winnerâ&#x20AC;&#x2122;s belt.

H GLCC The Great Lakes ACG Capital Connection took place in early September at the Amway Grand Plaza Hotel in Grand Rapids, Michigan, where more than a thousand people attended. Tom Izzo, the Michigan State menâ&#x20AC;&#x2122;s basketball coach, and Kathleen Powers Dunlap (pictured) of nonprofit Girls Who Invest were among the speakers.

MIDDLE MARKET GROWTH // JAN/FEB 2018

ACG@WORK

G ACG LOS ANGELES “Deals Happen Here” is the motto of ACG Los Angeles, which held its 20th annual ACG LA Business Conference Sept. 12–13 at the Beverly Hilton with 1,250 attendees. Former President Barack Obama was the keynote speaker.

E ACG DALLAS/FORT WORTH ACG Dallas/Fort Worth kicked off its 4th annual “back to business” networking event, ACG Is All the Way Up, at Altitude on the W Dallas Victory Hotel’s 33rd floor. This event draws nearly 300 M&A professionals each year from the DFW area and the broader state of Texas.

H ACG CHARLOTTE ACG Charlotte hosted its 5th Annual Deal Crawl on Sept. 14 at the Ritz Carlton Charlotte. The conference has grown to include 37 private equity firms and 32 investment banks, plus hundreds of trusted middle-market advisers.

middlemarketgrowth.org

ACG BOSTON/CONNECTICUT F The 3rd Annual ACG New England Fall Conference, a collaboration between ACG Boston and ACG Connecticut, took place Sept. 18â&#x20AC;&#x201C;19 at the Newport Marriott and Newport Vineyards in Rhode Island. One hundred and fifty attendees came together for two days of dynamic networking and to hear from their peers and industry experts on the state of M&A.

H ACG NEW YORK ACG New York hosted its 13th Annual Golf and Tennis Outing at the Old Oaks Country Club in Purchase, New York, on Sept. 18. Attendees had an exciting day of golf, tennis, contests, prizes and valuable networking at one of the finest 18-hole golf facilities in Westchester.

â&#x20AC;&#x201D;Compiled by Hollie Merrick

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

MIDDLE MARKET GROWTH // JAN/FEB 2018

THE LADDER

Duane Morris has announced MATTHEW A. TAYLOR as its new chairman and CEO effective January 2018, when he will become the ninth in the post since the law firm was founded in 1904. Taylor has been with Duane Morris for 20 years and was previously the firm’s vice chair. John J. Soroko, who served as chairman and CEO for the past 10 years, will become chairman emeritus.

BRIAN MIAZGA has joined middle-market lender NXT Capital as managing director, west region, in the firm’s corporate finance group, where he will be responsible for new business origination, underwriting and closing transactions. Miazga was previously the managing director of CIT’s sponsor finance group.

M&A advisory firm Touchstone Advisors LLC announced that JEFFREY RICH (top) and STEVEN PAPPAS have been named partner. Both were previously M&A advisers at the firm. Earlier in his career, Rich worked as a hedge fund trader; Pappas has more than 20 years of business management and sales leadership experience.

—Compiled by Hollie Merrick

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

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BRIAN WILLIAMS (top) of Carl Marks Advisors was promoted to partner. Williams has more than 20 years of experience in strategic advisory, investment banking, executive management, and mergers and acquisitions, primarily in the energy industry. PATRICK FLYNN joined Carl Marks as managing director. He will be responsible for business development and financial advisory services. Flynn brings over 20 years of experience working in distressed situations as a direct lender and principal investor for regulated banks and private capital firms, including GE Capital.

MICHAEL GEREND (top) and MARK THOM have joined middlemarket investment firm Norwest Equity Partners as operating partners. Both are consumer industry veterans with experience investing in healthy lifestyle brands, and health and wellness technology. They will play an active role at NEP in strategic planning, business growth and corporate governance.

Western Reserve Partners, a Cleveland-based middle-market advisory firm, announced three new hires: JOHN PAUL SIEMBORSKI (top) and BRENNAN IGOE (center) as vice presidents and ROBERT J. EXLER as analyst. Siemborski joins Western Reserve with 11 years of financial advisory experience and previously worked in transaction advisory services at Ernst & Young. Igoe was formerly at Harris Williams & Co. in the technology, media and telecom group, where he worked on M&A transactions. Exler was previously an analyst intern at Western Reserve.

I found the right investor to grow my client’s business through ACG. S E E T H E P O W E R T H AT MEMBERSHIP BRINGS. J O I N T O D AY AT W W W. A C G . O R G

THE POWER OF

IT’S THE SMALL THINGS

RETAIL INDUSTRY TRENDS // Sell me something good…

DING DONG! IT’S AN AVON DRONE CALLING

SHOW. ME. THE. ROOOOOOOM (AND THE MONEY).

Retail is going high tech! Drone delivery, robotics,

Showrooms are back in vogue, giving businesses

e-commerce anti-fraud tools, blockchain and

like menswear seller Bonobos the benefits of a

bitcoin, and virtual/digital assistants are shaking up

smaller store and increased brand awareness.

the industry.

—Shopify

—Retail Dive

HEY RETAIL, YOU’VE GOT MALE!

blockchain has the potential to disrupt many

clothing and accessories each month, and they

industries beyond e-commerce, including financial

spend 20% more time shopping each week than

services, foreign currency exchange, supply chain

women do.

management and identity management.

—Slate

—Forbes

WHO SAYS BRICK-AND-MORTAR IS DEAD? NOT AMAZON Whole Foods. It has also opened bookstores, cashierless stores, pop-up shops and more, showing its faith in brick-and-mortar retail. —CNBC

A LITTLE NIP AND TUCK … AND HAMMER AND NAIL With 15% of malls disappearing in the next 10 years, developers are transforming dead spaces into everything from office buildings to apartment complexes, medical centers and more. —Business Insider

A BLOCKCHAIN REACTION More than just the technology behind bitcoin,

American men drop $10 more than women on

Amazon isn’t limiting its physical presence to

THE CUSTOMER IS ALWAYS RIGHT More than ever, customer feedback plays a vital role in success; 89% of companies say that they compete mostly on the basis of customer experience. —Forbes

—Larry Guthrie, director, communications & marketing, ACG Global

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Sole Lead Arranger & Administrative Agent Add-On Acquisition

SEPT EMBER 2 0 1 7

A UGUS T 2 017

AUGUST 2017

$44M

$98M

Sole Lead Arranger & Administrative Agent Refinance

Sole Lead Arranger & Administrative Agent Leveraged Buyout

Sole Lead Arranger & Administrative Agent Add-On Acquisition

Sole Lead Arranger & Administrative Agent Leveraged Buyout

JULY 20 17

J ULY 2 0 17

JULY 2017

Twin Brook Capital Partners’ senior-level team has been serving the middle market for over 20 years. We’ve established long-term relationships with over 300 PE sponsors and closed transactions with over 220 middle market PE ﬁrms. For a complete list of transactions, visit twincp.com.