Middle Market Growth - November/December 2013 by Association for Corporate Growth

Growth Middle Market

// NOVEMBER/DECEMBER 2013

Q&A with Pam Hendrickson on Why the Middle Market Matters The Role Of Philanthropy in THE Middle Market

all in the

Family David Merageâ&#x20AC;&#x2122;s Lifelong Commitment to Growth and Prosperity for All

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executive summary Gary LaBranche // FASAE, CAE, CEO of the Association for Corporate Growth

Not by Accident

f 2013 is any guide, the future is bright for those served by ACG. More than 1,200 ACG chapter events this past year drew 50,000 registrants. Produced by 56 chapters in nine countries, these events of-

fered insights, knowledge and research. Many sectors received special attention, including energy, health care and technology. Among the many well-known presenters were former President Bill Clinton (ACG Los Angeles), coaching legend Lou Holtz (ACG Pittsburgh) and former Secretary of State Condoleezza Rice (ACG San Francisco) and Fareed Zakaria of CNN (ACG Philadelphia). But business is the heart of the ACG experience. Twenty-seven ACG Capital Connections® attracted more than 10,000 participants. Another

6,000 attended the China International Private Equity Forum, co-sponsored by ACG in Tianjin, China. InterGrowth®, held in Orlando, Fla., drew nearly 2,000 growth professionals. More than 1,200 MBA students participated in the ACG Cup® Competition. And 2013 saw the launch of EuroGrowth in London. ACG launched several new programs, including this publication. Middle Market Growth magazine, along with ACG’s weekly and a daily, form a suite of digital communications featuring videos and interactive articles. ACG’s webinar program, Middle Market Insights, reached more than 3,000 registrants. The webinars are archived at ACG.org for viewing anytime, anywhere. A special 300-page publication, Driving Growth, made an impact with policymakers. Featuring ACG’s original research, Driving Growth revealed the impact of private capital investment on jobs and growth in every state and U.S. congressional district. ACG introduced its policy agenda during the Growth Policy Summit in Washington, attended by a bipartisan delegation of U.S. senators and representatives. And ACG’s advocacy efforts made a difference for ACG members with the SEC’s reversal of its Custody Rule. By resisting proposals to eliminate the deductibility of interest and impose firm-level taxation of pass-through entities and LLCs, ACG solidified its position as the voice of the middle market. These are just a few highlights of a year that saw ACG achieve a record membership of 14,700. That record and the other achievements in 2013 did not happen by accident. They were the result of the work of more than 1,000 dedicated ACG member volunteers and 125 chapter and Global staff. It required investments in technology and service to enhance the ability of chapters to serve members and the marketplace. And it depends on the engagement of members who come together to drive middle market growth through an expanding array of programs, products and services offered by ACG. 2014 will mark the 60th anniversary of the Association for Corporate Growth. If the past is any indication, the future of ACG won’t unfold by accident, but through a thoughtful and intentional commitment of purpose, focused on the common goal of driving middle-market growth. //

LAST CHANCE TO REGISTER!

There’s still time to register for EuroGrowth 2013. This essential conference for cross-border dealmaking is global M&A deal flow at its finest. In just 36 hours, M&A professionals are able to tap into the global middle-market community – effectively and efficiently. This year’s program includes 20 executive roundtable discussions, four breakout sessions, and a keynote program featuring Marc Brown, Global Head of M&A and Strategic Investments, Microsoft. In addition, one of ACG’s signature events, ACG Capital Connection,® will be held on Wednesday of the event, allowing private equity firms to network with middle-market professionals from all over the world to discuss deal flow opportunities with new contacts and existing partners. LOOK WHO’S COMING Visit www.EuroGrowth.org for a current list of registered delegates. Check back often as this list is updated regularly.

Limited Space Available. Register Today! W WW. EURO GROW TH.ORG

Growth Middle Market

// November/December 2013

growth story

All in the Family

David Merage came to America in 1966 and, along with his brother Paul, co-founded Chef America, which produced the popular Hot Pockets brand in 1977. From the time the brothers founded the company until they sold it to Nestle in 2002 for $2.6 billion, Chef America never increased the price of Hot Pockets and yet still improved the quality of the product and its customer offerings. Read more.

“We wanted to give the customers the best quality while at the same time always looking for ways to reduce cost.” // David Merage, Co-founder of Chef America and Founder of Consolidated Investment Group

Growth Middle Market

// NOVEMBER/DECEMBER 2013

Q&A with PAM hENDRiCksON ON why thE MiDDlE MARkEt MAttERs thE ROlE Of PhilANthROPy iN PRiVAtE EQuity

all in the

family A Lifelong Commitment to Growth and Prosperity for All

A publication of

ON THE COVER // David Merage, co-founder of Chef America and founder of CIG. Photo By Matt Nager

table of contents

President & CEO Gary LaBranche, FASAE, CAE glabranche@acg.og

Vice President, Communications & Marketing Christine Melendes, CAE cmelendes@acg.org

Editor-in-Chief Kristin Gomez kgomez@acg.org

feature

Investing in the Future The term “giving back” has a different definition for all people. It can mean writing a check, volunteering or even using one’s financial prowess to start a foundation or sustainable charity. These actions produce impactful results that reverberate at all levels. See how the growth community is spending their time and money to give back to causes close to their hearts. Read more.

in every issue Executive Summary

Manager, Communications & Marketing Larry Guthrie lguthrie@acg.org

Face-to-Face

Manager, Creative and Branding

The Ladder

Brian Lubluban blubluban@acg.org

It’s the Small Things The Leadership

vice president, strategic development Ellen Moore emoore@acg.org For advertising opportunities

Director, Strategic Development

departments the round • Trends in Chinese outbound investment. • International news from Mergermarket. Read more.

a qualified opinion Pam Hendrickson, COO of The Riverside Company and ACG Global Chairman, shares her insights about the middle market and the role of ACG. Read more.

acg@work • ACG LA Annual Business Conference. • Young ACG Cleveland Opportunities. • Great Lakes & ACG Toronto Capital Connections. Read more.

the portfolio

Meredith Rollins mrollins@acg.org

The latest middle-market trends and thought leadership written exclusively by our team of expert ACG Partners. Read more.

Custom media services provided by Network Media Partners, Inc.

Association for Corporate Growth 125 South Wacker Drive, Suite 3100 Chicago, IL 60606 ACG Membership: membership@acg.org www.acg.org Copyright 2013 Middle Market Growth, InterGrowth 2013 and the Association for Corporate Growth, Inc. All rights reserved.

Reason says: go with the well-known. Instinct says: go with the know-how.

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Grant Thornton refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd.

Face-to-face Connect to your next deal Connect At Eurogrowth//

The Essential Conference for Cross-Border Deals 12-13 November

Stewart Licudi, ACG EuroGrowth co-chair and managing director with William Blair & Company talks about how EuroGrowth brings together a broad range of people with one goal in mind: to build cross-border deals.

There’s still time to register for EuroGrowth 2013. The event will be held 12-13 Nov. at the Sheraton Park Lane Hotel Piccadilly in London. This is global M&A deal flow at its finest. In just 36 hours, M&A professionals are able to tap into the global middle-market community—effectively and efficiently. At EuroGrowth 2013, you can maximize your time away from the office by not only networking with 200 of the most influential professionals from every segment of the M&A industry, but also access the latest thought leadership in the sessions available at the event. The program includes 20 executive roundtable discussions, four breakout sessions and a keynote program featuring Marc Brown, global head of M&A and strategic investments for Microsoft. In addition, on 13 Nov. ACG will hold one of its signature events, ACG Capital Connection®. At this high-energy event, private equity firms can network with middle-market intermediaries from all over the world to discuss deal flow opportunities with new contacts and existing partners. Find out who’s attending and exhibiting by visiting the event website, www.EuroGrowth.org . With limited space available, the last open spots are filling up quickly, so register for EuroGrowth 2013 today.

Face-to-face Connect to your next deal

chapter events November 7, 2013 ACG Atlanta Networking Reception & Dinner Villa Christina Atlanta, Georgia More Info

November 5, 2013 ACG Denver Monthly Luncheon Speaker: Dan Burns, CEO, Accuvant Embassy Suites Downtown Convention Center Denver, Colorado More Info November 6, 2013 ACG Florida 2013 Scramble Golf Tournament Grand Cypress Gold Course Orlando, Florida More Info November 6-7, 2013 ACG Florida 2013 Florida ACG Capital ConnectionÂŽ Conference Hyatt Regency Grand Cypress Orlando, Florida More Info

November 7, 2013 ACG Central Texas ACG in San Antonio: ACG Central Texas Private Equity Two-Step Hotel Valencia San Antonio, Texas More Info November 7, 2013 ACG Pittsburgh November Lunch Meeting Fairmont Hotel Pittsburgh, Pennsylvania More Info November 8, 2013 ACG Kansas City Capital Markets Panel: A Year in Review Mission Hills Country Club Mission, Kansas More Info

To include upcoming chapter events in Middle Market Growth, please send the details to Editor-in-Chief Kristin Gomez. Be sure to include the name of the event, time, date, location, cost and link to register.

Face-to-face Connect to your next deal

chapter events November 13, 2013 ACG 101 Corridor The Restaurant Industry The Westlake Village Inn Westlake, California More Info

November 12, 2013 ACG National Capital Seminar Series—The Characteristics of an Effective Security Organization The Tower Club Vienna, Virginia More Info

November 13, 2013 ACG Central Texas ACG in Austin: Jack McDonald, Chairman & CEO, Silverback Enterprise Group The UT Club Austin, Texas More Info

November 12, 2013 ACG New Jersey ACG NJ Monthly Breakfast Meeting Pleasantdale Chateau West Orange, New Jersey More Info

November 13, 2013 ACG Connecticut ACG CT Hartford Breakfast Meeting The Hartford Club Hartford, Connecticut More Info

November 12, 2013 ACG Toronto 2013 Toronto ACG Capital Connection® Metro Toronto Convention Centre–North Building Toronto, Ontario More Info

november 13, 2013 ACG National Capital PE Series—Financial Services Legislation Venable LLP Offices Washington, D.C. More Info

Face-to-face Connect to your next deal

chapter events november 13, 2013 ACG New York Annual Retail Conference New York Athletic Club New York, New York More Info November 13, 2013 ACG Seattle Exploring Food to Table Washington Athletic Club Seattle, Washington More Info November 14, 2013 ACG Boston November DealMakers Breakfast with Communispaceâ&#x20AC;&#x2122;s Diane Hessan One Financial Conference & Events Center Boston, Massachusetts More Info November 14, 2013 ACG Columbus November Breakfast Embassy Suites Dublin Columbus, Ohio More Info

November 14, 2013 ACG Maryland 9th Annual ACG Maryland Deal of the Year Gala B&O Railroad Museum Baltimore, Maryland More Info November 15, 2013 ACG National Capital Monthly Meeting Hilton McLean McLean, Virginia More Info November 15, 2013 ACG New York Westchester Hudson Valley Breakfast Meeting Castle on the Hudson Tarrytown, New York More Info November 15, 2013 ACG Richmond ACG Richmond Breakfast Series with John Fernandez The Commonwealth Club Richmond, Virginia More Info

Face-to-face Connect to your next deal

chapter events November 19, 2013 ACG New Jersey ACG NJ Women of Leadership The Madison Morristown, New Jersey More Info

November 15, 2013 ACG St. Louis Breakfast with Jeff Quinn, Quinpario Partners Washington University Knight Center St. Louis, Missouri More Info November 19, 2013 ACG Central Texas ACG in San Antonio The Plaza Club San Antonio, Texas More Info November 19, 2013 ACG Minnesota Monthly Luncheon Featuring Dan Spiller, USBank Windows on Minnesota Minneapolis, Minnesota More Info

November 20, 2013 ACG Chicago Luncheon Program The Standard Club Chicago, Illinois More Info November 20, 2013 ACG New York 11th Annual Private Equity Wine Tasting Gala Gotham Hall New York, New York More Info November 20, 2013 ACG Orlando Industry Roundtable Forum Life Sciences The Citrus Club Orlando, Florida More Info

Face-to-face Connect to your next deal

chapter events

SAVE THE DATE

November 21, 2013 ACG Denver Leadership 20 at Unser Racing Unser Racing Denver, Colorado More Info

February 4, 2014 Chapter Leadership Meeting Grand Hyatt Washington Washington, D.C.

November 21, 2013 ACG Nebraska November Breakfast Meeting with Dennis Pate, CEO, Henry Doorly Zoo Happy Hollow Country Club Omaha, Nebraska More Info

February 5, 2014 ACG Public Policy Summit Grand Hyatt Washington Washington, D.C. April 28â&#x20AC;&#x201C;May 1, 2014 InterGrowthÂŽ ARIA Las Vegas, Nevada

November 21, 2013 ACG New York Private Equity Roundtable Series The Harvard Club New York, New York More Info November 22, 2013 ACG Austria ACG Austria Meeting Restaurant Lusthaus Vienna, Austria More Info

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the round News that Matters

ACG Provides Voice for the Middle Market in Washington Private Capital, Public Goodâ&#x201E; Learn. Act. Join. As the leading advocate for the middle market, the As-

ACG National Capital and Venable LLP Host PE Series On Nov. 13, the ACG National Capital Chapter and Venable LLP will host two congressional members to discuss and share their thoughts about the recent fiscal policy issues that affect the middle market and private capital investment professionals. A must-attend event for anyone interested in hearing directly from lawmakers, the program will be held from 4:30-7 p.m. at the Venable offices located at 575 7th St., NW, Washington, D.C. Speakers will include:

Rep. John Delaney, D-Md. Member, Financial Services Committee Member, Joint Economic Committee

sociation for Corporate Growth works to advance pro-growth and procapital policies and regulation. A key step in this effort was the adoption of a policy agenda in February. But defining the policy issues is just one step to help lawmakers understand how middle-market investment drives growth, creates jobs and stimulates the economy. Continued presence in Washington D.C., as well as visits throughout the United States, are important to keep this voice strong. To advance that effort, ACG Global has launched www.middlemarketvoice.org, as a central hub for middle-market public policy. The site encourages volunteer participation and support of ACGâ&#x20AC;&#x2122;s public policy initiatives and provides information and calls to action on issues important to the middle market. From updates on legislative and regulatory affairs, to coalition building, news and more, this is the go-to site for the latest news on what is happening on middle-market public policy matters.

Rep. Robert Hurt, R-Va. Member, Financial Services Committee Vice Chairman, Capital Markets and Government Sponsored Enterprises Subcommittee Register today.

the round News that Matters

Dixon Hughes Goodman Grows Private Equity Services Dixon Hughes Goodman, the 15th-largest accounting firm in the United States, recently expanded its private equity services. Scott Linch, partner-in-charge of the firm’s national Private Equity Services, announced the appointment of Bradley Newkirk as the lead partner over Private Equity Compliance Services and David Ferrell the lead partner over Private Equity Tax Fund Services. “Dixon Hughes Goodman continues our focus on private equity groups across the country. The formalization of key leaders over private equity compliance and fund services is a critical next step in meeting market demands.” Linch says. “With this expansion, Dixon Hughes Goodman is well positioned as the go-to service provider for private equity firms across the country.” Dixon Hughes Goodman currently provides accounting and advisory services to private equity groups in a variety of industries including health care, government contracting, dealerships, retail, manufacturing and insurance. “As a trusted adviser to private equity groups and portfolio companies nationwide, our firm continues to grow to meet our client needs,” says Martin Schlaeppi, partner-in-charge of strategic growth. Learn more about Dixon Hughes Goodman.

Tell Us Your News // Middle Market Growth wants to know what’s happening in the middle market around the world. Please share your news in 250 words or less, along with a color photo (300 dpi or greater) if available, with Editor-in-Chief Kristin Gomez.

the round News that Matters

New Report: The Good Bank – A Global Debate The Economist Intelligence Unit, along with sponsors Mazars, SAP® and Credit Suisse and supported by Capgemini, recently released “The Good Bank,” a report in response to the negative perceptions from both the public and insiders about the financial and banking industry. This comes in light of the economic downturn and the injustice felt as a result of government bailouts. Specifically, the report explores ways to address the critical questions and dilemmas facing the banking industry and offers solutions to rebuild the public trust and consumer confidence. Take a look at this inside-out perspective here. Also, recently the NYU Law School hosted a panel to discuss the “The Good Bank.” Watch the video here.

Read other reports from WeiserMazars LLP.

the round News that Matters

Trend: The Importance of Chinese Investment in the Middle Market Outbound M&A from China to the United

sumer and health care. Consumer account-

States and Europe in 1H 2013 saw an in-

ed for 48 percent by value and 22 percent

crease of 10 percent in value on a previous

by volume of total outbound investment by

record 1H in 2012.

Chinese buyers as of September.

While the media is focused on the larger

The average deal size YTD remained

headline-grabbing deals like the $4.6 billion

high at around $400 million but this is

offer by Shuanghui for Smithfield Foods and

skewed by a number of mega-deals in the

$2.6 billion offer by Dalian Wanda group for

year. The vast majority by number were

AMC Entertainment, more and more Chi-

firmly in the lower and middle market with

nese buyers are focusing on middle-market

deals up to $200 million accounting for

transactions, displaying a careful, strategic

more than 70 percent of all deals.

approach. The targets in these transactions are often not trophy assets buys, but rather

Challenges Impacting Activity

complementary smaller assets. Chinese

Investment by Chinese corporates into the

corporates are serious buyers, but the sale

United States remains challenging. Invest-

process needs to be tailored to them to maxi-

ment into Europe was significantly higher

mize their chance of success, with the poten-

than the United States. This has largely been

tial prize of a strong strategic valuation.

attributed to the U.S. political and social culture, and regulatory environment. Invest-

Recent Trends

ment into Europe in 2013 was almost twice

Chinese buyers continued to focus on

as much as the United States. Europe is ex-

complementary acquisitions in 2013, par-

pected to remain ahead in the near term due

ticularly where there is key technology that

to having fewer regulatory hurdles, appear-

can be applied to home regions to develop

ing less politically sensitive to Chinese com-

the local industry; access to raw materials

panies taking over domestic businesses and

and resources; pursue acquisitions relevant

in many cases the strategic match between

to the home country consumer; and gain

sectors of interest in Europe and Asia.

market access to developed markets (i.e. sale channels). Key sectors of investment continued to

In addition, while Chinese buyers, whether private- or state-owned, are gradually gaining confidence and ability on mid-

include the traditional interest in industrial

market transactions, they still struggle with

technology, resources and raw materials

adapting to the faster, more impersonal U.S.

with significant growth, in particular con-

auction process by which the majority of mid-

Continued on next page

the round News that Matters dle market companies are sold, often ham-

2H 2013 and 2014 Outlook

pered by internal decision-making processes

We expect to continue to see robust and

and regulatory delays. Asian buyers can take

growing interest from Chinese buyers in

longer to evaluate an opportunity and are

middle-market acquisitions driven by both

typically more cautious about acquisitions.

the Chinese governmentâ&#x20AC;&#x2122;s commitment

Probably more significant is the importance

to internationalizing key sectors and the

of personal interactions to Chinese buyers

increasing consumer demand in China in

as relationships are more important in their

2014. In particular, we expect to see growth

culture than the typical U.S. business culture.

in outbound investment from China in con-

As a seller, it is important to factor in ad-

sumer facing sectors (consumer, agriculture

ditional time when designing a process to en-

and health care) as its population urbanizes

sure that these buyers are given appropriate

and consumption continues to grow.

access and time to be competitive focusing

As more high-profile deals are complet-

on getting senior executive buy-in early and

ed, Chinese corporates and investment pro-

providing easy-to-use marketing materials.

fessionals will hopefully continue to become

Local, efficient financing continues to

more comfortable in the United States and,

be difficult for Chinese investors who often

similarly, U.S. counterparties will develop

have to finance deals in cash or from a Chi-

greater confidence in the Chinese buyersâ&#x20AC;&#x2122;

nese source despite a large U.S. presence

abilities to close deals. //

and cash flow, making acquisitions more difficult. Increasingly, we are seeing Chinese banks and investment funds set up a local U.S. presence to support these acquisitions.

â&#x20AC;&#x201D;Justine Mannering is the managing director for Business Development Asia LLC (BDA), a leader in cross-border investment banking in Asia, and a member of ACG New York

the round News that Matters

International DealMaking Uptick expected in

Indian insurers feel exit pressure

Israel-China agritech deals

due to tough environment,

Chinese companies looking to address

regulatory uncertainty

growing food shortage threats are increas-

Several insurers in India, both in the life and

ingly targeting Israeli agritech companies,

general segments, are considering an exit

several industry sources said.

of the business because of changing regula-

Read the full story online. Thailand to see robust M&A before opening of ASEAN Economic Community

tions, lackluster markets and a tough working environment, three industry sources said. Read the full story online.

Thailand is expected to see more M&A activ-

Benelux trendspotter: Food

ity as Thai companies realize the need to bulk

seen as M&A bright spot for 2H 2013

up before the ASEAN Economic Community

The Benelux food sector is tipped for ex-

(AEC) is established in 2015, industry sources

tensive M&A in 2H 2013 on the back of

said. Small companies will tend to merge,

continuing austerity, according to a cross-

while conglomerates will be looking overseas.

section of sector bankers and private equity

Read the full story online. Colombian textiles try to reinvent themselves, receive government support Colombian textile manufacturers are struggling to turn a profit, scaling back offerings and hoping government assistance will decrease competition from cheap imports and contraband. Transformations are in the works that can result in consolidation or disappearance altogether, said industry analysts. Read the full story online.

executives. The regionâ&#x20AC;&#x2122;s largest economy continues to perform sluggishly. Read the full story online.

These articles on international deals are provided by Mergermarket. To find more stories like this, please subscribe or inquire about a free trial at Mergermarket.

the round News that Matters Make Your Mark // Middle Market Growth is looking for feature stories. If you know of a company that was positively affected by private-backed capital, added jobs to the community and contributed to economic growth, please send a brief synopsis to Editor-in-Chief Kristin Gomez.

McGladrey & Bloomberg Talk Wealth for Middle Market

Profit with Purpose

The middle market employs approximately

companies that serve the needs of some 2

43 million people and accounts for about

billion consumers coming into the middle

one-third of the total U.S. workforce. Treated

class in emerging markets, says Dr. Andrew

separately, it would be the fourth-largest

Kuper, founder and president of LeapFrog

economy in the world. What happens in the

Investments, who argues that his firm’s

middle market has a large impact on the

“Profit with Purpose” investment strategy in

overall economy.

insurance and related financial services can

Middle-market business owners face

There are profits to be made by investing in

change lives as well as deliver returns.

unique challenges when it comes to managing their assets. In this second installment

This video is brought to you by Privcap. To

of the Bloomberg/McGladrey Economic

view Privcap’s library of hundreds of GP and

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Chief Economist Joe Brusuelas discuss some of the those unique challenges and why McGladrey Wealth Management is uniquely positioned to help middle-market business owners achieve their professional and personal financial goals. Tap to watch the video

Looking for a past ACG Webinar? Find it easily in ACG’s webinar library.

Tap to watch the video.

the round News that Matters

vertical view // The Food & Beverage Industry

About 18 percent of deal flow in food and beverage was in growth and expansion deals.

In 2012, 60 deals were closed in the food and beverage industry.

18%

55%

500

More than 55 percent of food and beverage deal flow was in buyout/LBO in 2013.

100 2010 saw $7.36 billion in capital exited in food and beverage, far exceeding $4.01 that billion exited in 2012.

About 49 percent of food and beverage deals in 2013 were $100 million to $500 million.

28 Food and beverage deal flow in the United States has grown from $6.27 billion in 2008 to $35.52 billion in 2013.

131

From 2008 to 2013, there were 131 exits in food and beverage.

All statistics are from PitchBook for the middle market (deal values from $25 million to $1 billion).

2008

8 2010 2012

Smaller food and beverage deals less than $25 million shrank from 28 million in 2008 to 8 million in 2012.

INNOVATIONS IN GLOBAL

PRIVATE EQUITY

do the math. Why do both private equity groups and strategics involved in mission-critical transactions turn to Duane Morris? It all adds up. Our lawyers help make your deal more than just the sum of the parts. To learn more, contact George J. Nemphos, Chair, Global Corporate Practice & Co-Head, Private Equity, at 410.949.2910 or gjnemphos@duanemorris.com. Click here to read Connections in the Middle Market—Annual Review 2012-2013, our latest Private Equity publication.

Family all in the

David Merageâ&#x20AC;&#x2122;s Lifelong Commitment to Growth and Prosperity for All

By Danielle Fugazy

Photo by Matt Nager

STRONG LEADERS// (From left) David Merage, CIG founder; Sue Renner, executive director, Merage Foundations; Michael Connor, CIG director of investments, Michael Crawford, CIG general manager.

uality at a fair price. That is David Merage’s motto. The Iranian immigrant came to America in 1966 and, along with his brother Paul, co-founded Chef America, which produced the popular microwaveable Hot Pockets brand in 1977. From the time the Merage brothers founded the company until they sold it to Nestle in 2002 for $2.6 billion, Chef America never once increased the price of Hot Pockets. Still, even without a price increase, the Merages were able to continuously improve the quality of the product and its customer offering. “We built a corporate culture that was based on higher quality. We wanted to give the customers the best quality while at the same time always looking for ways to reduce cost,” David Merage says. So when ingredient prices increased, the company would look to its research and development team to figure out a way to offset it. During the brothers’ ownership, the Merages automated processes, looked to build efficiencies and increased advertising budgets. “One year, we needed an additional $6 million for our advertising budget. We asked people within the organization to find the money. That year our team found $7.5 million in waste,” says David Merage, adding that Chef America grew 15 percent annually on average for the majority of the Merages’ ownership period.

premium product// CIG hopes to expand its FunkyChunky line to reach mid-level consumers.

It was after this successful experience that David Merage went on to found Consolidated Investment Group (CIG), which invests in real estate, equities and philanthropy (see chart). What’s more, in spring 2012, the Denver-based firm launched a direct private equity investment program to acquire food service companies with up to $5 million in EBITDA. Today CIG is looking to write equity checks of $5 million to $20 million to U.S.based food companies. But it’s about more than just providing the cash. “David and I had many discussions of where we could add the most value other than just writing an equity check,” says Michael Connor, director of investments with CIG. “Given his operating and marketing experience in the food industry, we decided we could be most impactful working with lower middle-market food companies.” In May, CIG made its first investment, buying Minneapolis-based FunkyChunky®, creator of artisanal chocolate caramel popcorn and gourmet snacks. Given Merage’s commitment to high quality, it was the taste of the product that got his attention. “David believes if you have a product that’s high quality and best in category the rest will take shape,” Connor says. “We have to focus on continually improving the product, growing market share, making operational improvements, and meeting customer demand down the road.” CIG already is working on expanding the reach of FunkyChunky® and targeting different segments of the market. Right now the company is limited to gift baskets in very high-end markets.

“WE HAVE TO FOCUS ON CONTINUALLY IMPROVING THE PRODUCT, GROWING MARKET SHARE, MAKING OPERATIONAL IMPROVEMENTS AND MEETING CUSTOMER DEMAND.” Michael Connor CIG Director of Investments

“There’s no reason why the mid-level markets can’t enjoy this product, but the pricing has to be adjusted accordingly,” Merage says. “We aren’t going to mess around with the quality of the product, but we will find ways to cut extraneous costs and build efficiencies.” With just some minor changes and capital investment to the sales force, CIG has increased sales of Funky Chunky® by 10 percent in the last six months. One of the bigger changes CIG made was bringing in Michael Crawford to work with the company as general manager. Crawford had worked for the Merage brothers during their Hot Pocket days and has more than 30 years of experience in the food industry. Today, Crawford is working on making the FunkyChunky® business less seasonal. “We are doing 60 percent of our business from October through December, but we are growing the business through new redistribution channels like Amazon,” Crawford says. “FunkyChunky® will be a great deal because it has two main characteristics—a high quality product and opportunities to increase market penetration.” In addition to looking for new customers, Crawford also is testing new products that FunkyChunky® may offer in the very near future. “Our emphasis is on the products being natural, so we are exploring natural and organic foods, which will allow us to sell into places like Whole Foods and Trader Joes,” Crawford says. Additionally, the firm is looking for additional investments and sees strong opportunities in the eating-on-the-go and ethnic food categories, especially with Mediterranean cuisine. “It’s perceived as healthy, has a growing demographic and, unlike the Hispanic category, it’s not overly crowded,” Connor says. CIG hopes to buy 10 food companies for its private equity portfolio. “Every week we are screening potential opportunities that fit within the parameters of what’s interesting to us,” Connor says. “We currently have two to three potential deals in the hopper and by 2014 expect to have another deal completed. Our ultimate goal is to close two deals a year.”

Giving Back The Merage family puts money and time behind their causes

“Others have helped me. Many people worked hard so I could stand on their shoulders, now it’s time for me to lend my shoulders to help others be successful.” David Merage founder of Consolidated Investment Group

In many respects, David Merage has been living the American dream. Immigrating to the United States at the age of 17, he has built a business, worked hard and been very successful. Throughout his journey he hasn’t forgotten that others have paved the way to help him achieve success in America. “Others have helped me. Many people worked hard so I could stand on their shoulders, now it’s time for me to lend my shoulders to help others be successful,” Merage says. He feels he has a responsibility to make a positive impact to society, which is why Merage treats his charity interests as seriously as he treats his for-profit businesses. Merage has been so impactful and generous with his giving that his charitable work was recently recognized by the National Ethnic Coalition Organization, which awarded Merage its Medal of Honor. The Medal of Honor is given to people who have immigrated to the United States, become citizens and distinguished themselves by helping others. Eight years ago, Sue Renner joined Consolidated Investment Group to head up Merage’s philanthropic division. Today, Merage invests approximately $5 million annually into the social sector through five different nonprofit foundations he has established. In addition to the capital Merage gives to his charities, the charity division is able to use Consolidated Investment’s marketing, finance and legal teams, which saves the five foundations about $1 million per year. “David wanted to have professionalism for his philanthropy and he wanted to lead it rather than give though community foundations,” Renner says. “He is an incredibly big thinker and a visionary, which is why the projects he invests in are so successful. He also has a unique capacity to motivate others to work toward his social impact goals.”

The five merage foundations David and Laura Merage Foundation Led by David and his wife Laura, the foundation focuses on three impact areas: early childhood education, arts and the development of the Negev region in Israel. Eight employees in Israel work to increase the population in this region by making it a more desirable place to live. The foundation promotes programs designed to accelerate the economic and business development of the region in order to ensure employment opportunities at all levels for the current and future population. The foundation also works on improving education standards in the Negev and supporting new immigrants in Israel.

Andre and Katherine Merage Foundation Named for David’s parents, this foundation is 100 percent focused on Israel. The Merages believe Israel is a country of immigrants and that newcomers are always more vulnerable than veteran populations. The foun-

dation focuses especially on youth, through focused intervention and education. The foundation assists these newcomers in adapting to Israeli society and preparing for a bright and productive future in their new homeland. To achieve these goals of societal change in Israel and improve the quality of life and future of its citizens and communities, the foundation supports bringing innovative educational programming and the most advanced educational facilities, technologies and methodologies to all.

Early Learning Ventures (ELV) According to Merage, 11 million working parents in the United States leave their children in the care of someone else each day. Merage wants to make sure all families have access to the best type of early learning programs for their small children. As a result of Merage’s persistence, Renner and her team looked hard at early childhood experiences in the United States and explored

ways they could impact as many children’s lives as possible. What the teams learned was that most early childhood education is delivered by small independent operators through places like people’s homes or faithbased organizations. “It’s expensive to have a small, good operation,” Renner says. “But David pushed us to think of ways to help them give more children access.” Indeed, Merage didn’t want these programs to lose their caring, personal touch, but he also quickly understood that they lose out on economy of scale purchasing. The Early Learning Venture (ELV) Alliance model allows child care providers to do what they do best, and gives them more time and money to invest in their programs. Utilizing a shared services approach, ELV networks small childcare businesses in regional alliances—or service hubs. ELV provides applications on a cloud platform that gives these providers the tools so they can benefit from efficiencies and economies of

scale they could not achieve on their own. When providers join an ELV, it gives them more time to think about the children in their care and more money to spend on qualified staff. ELV was recognized in June by the Clinton Global Initiative, an initiative of the Clinton Foundation, which addresses economic recovery in the United States.

Jonathan Merage Foundation David’s son, Jonathan, is a storm chaser and his foundation focuses on severe weather research and how

to mitigate the risks associated with dangerous weather conditions. “It’s Jonathan’s passion,” Renner says. “He has aligned himself with the top storm chasers in the United States to understand extreme weather, which is happening more frequently.” In fact, Jonathan was working with the team of storm chasers that was killed in Oklahoma when tornados struck in May 2013. “Jonathan wasn’t injured, but it really brings to light how important this work is,” Renner says.

Sabrina Merage Foundation David’s daughter, Sabrina, of ACG Los Angeles, supports programs that help create cultural tolerance. This foundation is involved in a number of projects that focus on Jewish and Palestinian tolerance. The foundation has invested in the Hand in Hand bicultural schools in Israel. It also brings Israeli and Palestinian children to the United States so they can attend camp together, develop long-lasting relationships and a deeper level of cultural understanding.

Danielle Fugazy is a freelance writer and contributor to Middle Market Growth.

Investing in the Future The Growth Community Gives Back By Bob Cook

It is no secret that the people who work in the middle market and the larger financial industry are fortunate. They tend to be highly educated, and leaders in driving economic growth. But among this group are individuals who, beyond their commitment to the success of their companies, spend their time and money to give back to their community or to causes close to their heart. These actions produce impactful results that reverberate at all levels of the global community. The term “giving back” has a different definition for all people. It can mean writing a check, volunteering or even using one’s financial prowess to start a foundation or sustainable charity. David Rubinstein, co-founder of The Carlyle Group, is well-noted for his philanthropic giving, including being a signatory on Warren Buffett and Bill Gates’ Giving Pledge, in which billionaires pledge to give away at least half of their worth. But at Carlyle, giving isn’t just something its leaders do on their own time—it’s a growing part of the fabric of the firm itself, and of the private capital investment community in general. Carlyle gives its employees two paid days off a year to engage in charitable work, and matches up to $2,000 for each individual employee’s philanthropic giving. (That’s double the company’s original offer of one day and $1,000.) Efforts have extended to programs making its portfolio companies more environmentally responsible, and increasing minority representation in private equity. In 2011, Carlyle identified itself as the first private equity firm to issue a “corporate citizenship” report, which it now publishes annually. Chris Ullman, managing director and director of global communication for Carlyle, says the company didn’t make a big deal initially when it launched its philanthropic efforts. But he says it’s finding that people want to be a part of a private equity firm that’s doing good. “Investors like it, it’s important to them, and they want to know about it,” Ullman says. He cited a deal in which a Dutch investment bank chose Carlyle over other suitors with the responsible investing and charitable work as the deciding factor.

"Employees, especially millennials, want to work at firms that are socially sensitive." Chis Ullman, Managing Director and Director of Global Com– munications, The Carlyle Group

Also, Ullman says, “employees, especially millennials, want to work at firms that are socially sensitive.” Backing Ullman’s assertion, a recent Deloitte survey found 92 percent of adults born after 1982 believe companies should be “measured by more than just profit and should focus on a societal purpose,” while various surveys have shown anywhere from 80 to 90 percent of that age group have given money to a nonprofit cause. “They want to know a company supports them in community activities,” Ullman says. Offering time off and matching grants for charity is now important even in attracting talent, he says. The ACG chapters are also getting on board with giving back initiatives. Bobby Blumenfeld, executive director of ACG New York, says, “We are currently setting up ACG Cares a 501(c )(3) charity focused on helping young adults get their first job out of college. We are committed to helping our young professionals and providing mentorship for the next generation.” In addition, ACG New York Wine Gala participants last year contributed $4,000 to the United Way Hurricane Sandy Relief to help with recovering efforts. With plenty of individuals in private capital investment firms and the middle market making notable charitable gifts, companies increasingly see value in incorporating a more philanthropic and social mission into their work. The financial community, which has wrestled with how to improve negative portrayals about what it does, certainly can mitigate those by increasing its philanthropic presence, especially in the communities of its portfolio companies, says Karen Burns of ACG San Francisco and a partner at Sensiba San Filippo, a Northern California-based accounting and business advisory firm. She has led sessions at ACG regarding company giving and says any efforts must not be merely window-dressing. “Anyone can see through anyone who’s doing it for self-serving purposes,” Burns says.

How a company puts together philanthropic efforts can be as varied as the company itself. One thing experts recommend is giving employees a say in where they will give their time and efforts so they will enthusiastically participate. For example, some companies have has a list of organizations employees must choose from if they want the company’s backing, while others simply have to make their case to upper management. Either way, there is always a way to give back. In its 2013 corporate citizenship report, covering 2012, Carlyle says it matched more than $190,000 in employee gifts, while its workers also gave another $185,000 toward Hurricane Sandy relief. Employees spent their paid charity time on such tasks as trash cleanups, helping the homeless, building homes with Habitat for Humanity, and many other endeavors. In 2012, the company held its first Global Volunteer Month, which includes 12 formal events in six locations to encourage volunteer work, especially having employees working with others they normally don’t interact with at the office. Ullman says Carlyle would like to be a role model for its portfolio companies to participate in similar efforts, though that is left up to the companies themselves. For some private capital investment firms, their social mission is directly linked with the very core of what they do—starting funds or offering advisory services meant to make a profit for investors while also assisting business owners who might not otherwise have access to that level of funding or expertise. A survey of 99 “impact” investors, committing at least $10 million, found an expected $9 billion in investment in 2013, up from $8 billion in 2012, according to J.P. Morgan and the Global Impact Investing Network. The survey also found that returns in such investing had beaten expectations socially, environmentally—and financially.

“We’re trying to ensure the economy works for everyone, and that everyone who wants to work can get a job.” Beth Sirull Executive Director and President, Pacific Community Ventures

One pioneer in this model has been San Francisco-based Pacific Community Ventures, founded in 1997. It has a for-profit private equity fund that invests in businesses in underserved, lower-income communities. It also has a nonprofit side in which it provides loans and advisory services to small businesses in inner-city or less-fortunate communities. Beth Sirull, Pacific Community Ventures’ executive director and president, says the organization has focused on California but is beginning to expand its services nationwide. Sirull says she and her firm have been in demand from business organizations and governments worldwide—recent stops include Hong Kong and Australia—to share how its model works and how it can be adapted. The moral center of Pacific Community Ventures’ model—and others like it—is a mission to “bring the tools of capitalism to less-fortunate communities,” Sirull says. “We’re trying to ensure the economy works for everyone, and that everyone who wants to work can get a job.” Pacific Community Ventures’ 2013 annual report noted it has helped more than 3,000 businesses and created and maintained 30,000 jobs with $300 million in wages paid. Whatever the philanthropic and social model, Burns says, “it really comes down, to a certain extent, to a personal approach—believing that giving back is an important part of life.” Bob Cook is a freelance writer for Middle Market Growth. He may be reached at rkcookjr@gmail.com.

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a qualified opinion Pam Hendrickson // COO of The Riverside Company and ACG Global Chairman

amela Hendrickson is the chief operating officer for the Riverside Company in New York City where she leads the firm’s largest division. She also is an active member of the ACG New York Chapter, and this year became the chairman of the ACG Global Board of Directors. With more than 28 years of experience in finance, Hendrickson, prior to joining Riverside in 2006, spent 22 years at JP Morgan Chase—13 of them with the Private Bank. She speaks often in front of groups about the middle market and the state of the private capital investment community and is widely quoted as an expert source in the media.

select above to see q&a

Why does the middle market matter?

he middle market is really the engine of today’s economy. About 24 million American jobs are based on the middle market, and those companies’ revenues represent 40 percent of U.S. GDP. These private capital-backed companies are also growing jobs more than three times faster than the U.S. economy in general, and their sales figures are more than quadruple what other U.S. companies are seeing. In short, the middle market matters because it works so well. Middle-market companies embody the entrepreneurial spirit that makes nations thrive. ACG members are in the thick of this exciting part of the economy.

Photo by Brad Trent

a qualified opinion Pam Hendrickson // COO of The Riverside Company and ACG Global Chairman

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What new rules and policies can have an impact on acg members in the coming months?

ne of ACG’s jobs is to help policymakers understand the collateral damage that can be caused by some of these policies. Economies around the world desperately need job creation, and for that to happen businesses need to grow. Regulatory environments that impede the ability of capital to flow into businesses are counterproductive. In the United States, while nothing is likely to be agreed upon in the near future, we need to make sure that in the quest for broad tax reform, things like deductibility of interest and R&D tax credits don’t get eliminated and result in a rate that is higher than what we have today. ACG remains dedicated to promoting the important role our members play in job growth and the health of the economy. ACG has a number of targeted efforts to educate the public and lawmakers. Learn more at www.middlemarketvoice.org.

Photo by Brad Trent

a qualified opinion Pam Hendrickson // COO of The Riverside Company and ACG Global Chairman

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As chairman of ACG, what current initiative will benefit members (and non-members) the most?

CG wants to help people find deals, capital, connections and opportunities in the most efficient way possible. My unofficial theme for ACG this year is “evolve or fade away.” We’re carefully evaluating the things our members need most, and that’s leading us to be more global and more focused on connecting people with those who can help them succeed. We have an exciting year ahead. EuroGrowth is November 12-13 in London and is a great chance to meet key ACG members and deal professionals from across Europe and beyond to explore global growth opportunities. Looking to 2014, we’re going to refine InterGrowth to make it even more relevant to member requests and needs. Finally, we are striving to improve technology to help make reaching each other and sharing information easier for ACG members. Photo by Brad Trent

a qualified opinion Pam Hendrickson // COO of The Riverside Company and ACG Global Chairman

select above to see q&a

What impresses you most about the next generation of business leaders?

ounger people in the field are not only bright and talented, but they’re passionate about making a difference in the world. We’ve seen a growing interest in ESG and impact investing across the world, and the new generation is helping lead that charge. They are still passionate about growth, but they also want to do something more and have a meaningful positive impact. They are recognizing at an early age that there is more to life than just making money. I think these attitudes are great for the industry, and will ultimately lead to even more success.

Photo by Brad Trent

a qualified opinion Pam Hendrickson // COO of The Riverside Company and ACG Global Chairman

select above to see q&a

What are some of your favorite stories about Private Capital, Public Good?

suppose I’m a bit biased as a Riversider, but we really have had the privilege of owning some very special companies over the years. One current portfolio company that springs to mind is the Emergency Communications Network (ECN). This company helps government entities deliver life-saving emergency communications regarding public safety challenges. We’ve grown the company through four add-on acquisitions that brought new customers and capabilities, and the company has enjoyed earnings and EBITDA growth. During our ownership, ECN has done amazing work helping communities, including keeping people informed before, during and after Superstorm Sandy. This is just one small example of a company thriving and helping the broader community at the same time.

Photo by Brad Trent

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APRIL 28, 2014

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Cleveland

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ACG Pittsburgh

Great Lakes ACG Capital Connection® Kicks Off Fall Season With record attendance of more than 900, the fifth Great Lakes ACG Capital Connection® (GLCC) hosted this September by ACG Pittsburgh required not one, but two, professional sports venues to accommodate the larger-than-anticipated crowd. The conference was a collaborative effort of seven ACG chapters: ACG Pittsburgh, Cincinnati, Cleveland, Columbus, Detroit, Indiana and Western Michigan. The chapter event held programs in both PNC Park, home to the Pittsburgh Pirates, and Heinz Field, home to the Pittsburgh Steelers. This was the ACG Pittsburgh Chapter’s first turn hosting the conference, which kicks off the fall chapter event season. “It was a huge undertaking,” says Kelly Szejko, chapter president and lead organizer. “But we couldn’t have been happier with the number and quality of attendees, the venues, the speakers and networking opportunities.” Continued on next page

Tell Us // Middle Market Growth wants to highlight ACG chapters around the world. Share your recent events or member news in 250 words or less, along with a color photo if available, with Editor-in-Chief Kristin Gomez.

acg@work chapter news from around the globe the coach // Legendary coach Lou Holtz (second from right) meets ACG Pittsburgh members (from left) David Jaffe, Mike Rost, Kelly Szejko and Damian Georgino.

She added, “We could not have done it without our huge network of volunteers and the financial and human resources that our 60-plus sponsors contributed. I am most proud of this incredible community of support that we amassed.” While the event drew ACG members and attendees from throughout the Great Lakes and Mid-Atlantic regions, it also attracted investment bankers and private equity groups from as far as the Virgin Islands and England. “Clearly, the reach of the conference is moving well beyond the original geographic footprint, which is a great testimony to the quality of the event,” says Mike Rost of PNC Riverarch Capital and a member of the ACG Pittsburgh Executive Committee. Keynote speaker Lou Holtz shared his formula for a successful professional and personal life, gleaned from his experiences as one of college football’s most successful coaches, a husband, father and sports analyst. Other GLCC highlights: • A luncheon, PNC Park tours and presentation, hosted by the Future Corporate Leaders Board, featuring Jeffrey Mortimer, director of investment strategy for BNY Mellon Wealth Management. • Panels on “Fostering an Entrepreneurial Culture within a Large Organization” and “M&A Opportunities within the Marcellus & Utica.” • ACG Capital Connection® with more than 80 exhibits. Be sure to save the date for the 2014 GLCC in Columbus, Ohio, Sept. 8-9.

• ACG DealSource® with more than 40 tables for private, speed-round meetings. The co-chairs for the GLCC were David Jaffe of Fox Rothchild, LLP, and Mike Rost of PNC Riverarch Capital.

acg@work chapter news from around the globe keynote // Former President Bill Clinton addresses attendees in the closing session of the ACG LA Annual Business Conference.

ACG Los Angeles ACG LA Hosts Sold-Out ACG Capital Connection® at Business Conference This September, the ACG Los Angeles Chapter hosted its annual business conference for more than 1,300 attendees at the Beverly Hilton Hotel in Los Angeles. “There was a buzz in the room that we haven’t felt in the last couple of years. With 120 private equity firms at our ACG Capital Connection® and over 50 investment bankers with DealSource® tables, we really displayed the ACG Los Angeles theme of ‘Deals Happen Here,’” says ACG Los Angeles CEO Bill Webster. The conference was a two-day event that featured prominent speakers, including a keynote from former President Bill Clinton. The first day kicked off with a presentation from Michael White, CEO and president of DIRECTV, the world’s leading provider of digital television. He discussed DIRECTV’s strategic direction for both the U.S. and Latin American markets. He was followed by John T. Stankey, group president and chief strategy officer for AT&T, who talked about the company’s strategy for growth, trends in wireless capacity and how to leverage strategic assets. The business conference was an all-encompassing event for middle-market dealmakers from all over the United States and Europe. “My goal for the conference was for our members to be inspired by the speakers and to connect with other deal community professionals to find ways to work together. For non-members, I wanted to showcase what ACG Los Angeles has to offer and encourage them to attend our other events,” says Andrew Apfelberg, ACG Los Angeles president and partner at Greenberg Glusker. Continued on next page

acg@work chapter news from around the globe

The second day featured a series of panels from thought leaders, including speakers from Pandora Radio, Second Avenue Partners, TicketMaster and Yahoo! who spoke on the future of digital media. Next were a series of breakout sessions and a lunch keynote with Disney Co-Chair Ann Sweeney, who was interviewed by Cynthia Littleton, editor-in-chief/ television for Variety. To add to the jam-packed schedule of top-notch speakers, the afternoon featured a private equity panel with partners from Platinum Equity, PCCP LLC, and Marlin Equity. The panel was moderated by Martyn Curragh, US Deals Leaders, PwC. The conference ended with the much-anticipated keynote from former President Bill Clinton. He spoke to a packed room of attendees on the current political environment in Washington, the Clinton Global Initiative’s fight against AIDS and poverty, and how the business community can contribute to the success and growth of the U.S. economy. Apfelberg says the conference accomplished a variety of objectives. “We learned a lot. We built relationships. We had the celebrity experience on the roof top of the Beverly Hilton. We had fun. Deals got done,” he says. // To learn more about the events at ACG Los Angeles please visit the chapter’s website.

acg@work chapter news from around the globe

To learn more about creating a program like this at your local chapter, you are invited to connect with Young ACG Cleveland via LinkedIn or reach out directly to Elizabeth Evans of ACG Cleveland.

ACG Cleveland Next Generation Leadership: The Value of ACG for Younger Mid-Market Professionals At ACG Cleveland, a comment frequently heard from experienced ACG members is, “I wish I would have started developing business relationships earlier.” For young professionals, it’s all about access. They are fresh out of school, new to the job world and eager to learn more about how to find success in the deal world. From this need an opportunity arose to develop a network to assist the young talent in Cleveland, and the Young Association for Corporate Growth (YACG) was created in March 2011. YACG Cleveland, like most organizations, was established because the current marketplace didn’t serve the needs of young professionals. The YACG mission is to connect young professionals within the corporate community to network, explore best practices and share in professional development. YACG typically holds eight events per year, including educational lunch and learns, social cocktail receptions, networking panel discussions and golf clinics. YACG members are invited and often attend ACG events as well, providing additional opportunities to network with more established deal professionals. ACG Cleveland believes an organization is only as good as the people in it, and YACG Cleveland continues to attract and retain quality members. YACG members and event attendees are involved in the buying, selling, consulting or financing of middle-market businesses. At any given event you can connect with investment bankers, private equity professionals, commercial bankers, deal attorneys, due diligence accountants, insurance and investment advisers and corporate professionals, among many other transaction-related advisers. Currently, YACG Cleveland is the largest group of young professionals among ACG’s 56 global chapters. More than 100 young professionals are current YACG Cleveland members and more than 400 young professionals have attended their events in the last few years.

acg@work chapter news from around the globe Share Recent Chapter News Middle Market Growth wants to highlight ACG chapter events, dealmaking and other news coming from the local chapter level. Please share news in 250 words or less, along with a color photo (300 dpi or above) if available,with Editor-in-Chief Kristin Gomez.

ACG Toronto Find Opportunity Nov. 12 at Canada’s Largest Private Debt & Private Equity Marketplace This year’s Toronto ACG Capital Connection® at the Metro Toronto Convention Centre is expected to attract 100-plus C-suite attendees, as well as an expanded number of capital providers from across Canada and the United States. “The economic climate in Canada today has created a lot of opportunities for midmarket businesses and Toronto’s ACG Capital Connection represents an excellent opportunity for deal sourcing, particularly for those who may be new to the Canadian marketplace,” says event Chair Jason Sparaga, president and CEO of Spara Capital Partners Inc. The event will feature keynote speakers Bruce Croxon and Jim Treliving from the Canadian version of the internationally renowned TV series “Dragon’s Den.” It also will also host 50-plus exhibitors, with private equity exhibitors alone representing approximately $30 billion in capital under management. Others in attendance will be more than 400 business owners, middle- market senior executives and investment professionals including M&A, legal and accounting advisers, and investment, corporate and commercial bankers. Register today.

From 1995â&#x20AC;&#x201C;2010, private capital-backed companies in Colorado grew jobs by

292.8%

Private capital helps middle-market companies grow. See how. www.GrowthEconomy.org

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Cloud Caution, Good News on Capital Gains, Captive Insurance Generates Buzz IN THIS ISSUE sound decisions Of increasing importance to M&A professionals is the issue of mitigating risk through effective due diligence. In recent years, virtual data rooms (VDRs) have been widely used for due diligence purposes in place of the antiquated paper data rooms. But the rise in unsecured cloud-based solutions in recent years has confused the issue for dealmakers.

by the numbers Itâ&#x20AC;&#x2122;s not often that you find a tax silver lining, but there is indeed just that with the American Taxpayer Relief Act of 2012. It reinstated the 100 percent Section 1202 capital gain exclusion for non-corporate taxpayers on the sale of qualifying small business stock acquired through the end of this year.

mid-market trends There is growing buzz about the movement of captive insurance carriers into the middle market. The excitement is well-founded and points to particular opportunities for serial dealmakers.

COMING SOON Check out the Portfolio section of the January 2014 issue for more on the latest middle-market trends, written exclusively by our team of expert ACG Partners. To learn more about contributing to this section, please contact Meredith Rollins, (312) 957-4260 or Ellen Moore, (312) 957-4274. These articles are brought to you by ACGâ&#x20AC;&#x2122;s Global Partners.

the portfolio sound decisions // Merlin Piscitelli, Senior Director, Merrill DataSite

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Reducing M&A Risk through Improved Due Diligence

Virtual Data Rooms Have Edge Over Generic Cloud-Based Systems

hen bringing a deal to market, M&A professionals have to consider a number of things and of increasing importance is the issue of mitigating risk through effective due diligence. In the past, dealmakers used inefficient paper data rooms to collate and disseminate their company information to all those involved in the dealmaking process. Dealmakers had to factor in the cross-border costs of traveling to and from these physical data rooms and, of course, these costs are variable and difficult to budget for. The myriad other problems with this form of data sharing are plain to see.

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the portfolio sound decisions // Merlin Piscitelli, Senior Director, Merrill DataSite

sound decisions

by the numbers

mid-market trends

tap buttons to navigate columns ers are increasingly turning to VDRs to facilitate their deals. One of the most common and poten-

Merlin Piscitelli

By conducting a detailed due diligence of this kind, buyers can ensure they are aware of all undisclosed risks, can price

tially costly errors made during M&A

the transaction appropriately, and put

transactions is the tendency to treat due

in place a clear mitigation plan for the

diligence efforts as a compliance-driven,

post-acquisition phase. It can also highly

box-ticking exercise. In fact, in many

assist in communication with regulators,

instances, due diligence can be a critical

and limit successor liability, which has

intelligence-gathering tool, providing key

become a key theme of FCPA enforcement

commercial and strategic insights. For

in recent years. //

acquisitions where the company has any kind of international footprint, it is no

Merlin Piscitelli is a Senior Director for

longer sufficient to focus due diligence

Merrill DataSite-International out of its

only on legal and financial aspects of the

London office. He joined Merrill in 2006 to

transaction. A confidential, intelligence-

help lead international sales.

gathering exercise focused on identifying hidden risks can help ensure the transaction is priced accurately and also determine areas where risk mitigation is critical once the transaction is completed. The exercise should address key issues such as the sustainability of the current business model, the degree to which financial results are dependent on problematic political, criminal or commercial association, hidden liabilities and pending litigation, and the targetsâ&#x20AC;&#x2122; relationships with regulators and its suppliers, customers and distributors.

the portfolio BY THE NUMBERS // David A. Sterling, National Tax Leader of McGladrey’s Mergers and Acquisitions Tax Practice

sound decisions

by the numbers

mid-market trends

tap buttons to navigate columns

Private Equity and Venture Capital May See Silver Lining in Tax Legislation

Taxpayer Relief Act Extended Exclusion to Investments in 2012 and 2013.

t’s not often that you find a tax silver lining, but there is indeed just that with a 100 percent capital gains tax exclusion for non-corporate taxpayers on sales of qualified small business stock. Many private equity investments made after Sept. 27, 2010, and before Jan. 1, 2014, will qualify for a 100 percent capital gains tax exclusion. The exclusion represents a valuable opportunity for tax-efficient investing.

While The American Taxpayer Relief Act

In addition, certain service and finance

of 2012 confirmed tax increases to many

businesses are excluded from the defini-

taxpayers, it also provided a silver lining

tion of a qualified small business.

by reinstating the 100 percent Section 1202

Although the 100 percent Section 1202

gain exclusion for non-corporate taxpayers

gain exclusion offers a valuable tax ben-

on the sale of qualifying small business

efit, there are a number of requirements

stock acquired through Dec. 31, 2013. The

that must be met and potential pitfalls that

act signed by President Obama extended

must be avoided along the way to ensure

the gain exclusion to investments made in

the exclusion is obtained, so it is important

2013 as well as retroactively to investments

to seek advice from a qualified tax profes-

made in 2012. With this extension, the ex-

sional prior to making an investment. //

clusion applies to qualified business stock

For more information, watch ACG’s recent webinar, “The 100 Percent Capital Gains Tax Exclusion.”

acquired after Sept. 27, 2010, and before

David Sterling is the National Tax Leader of

Jan. 1, 2014. Each taxpayer is eligible to

McGladrey’s Mergers and Acquisitions Tax

exclude up to the greater of $10 million or

Practice. He has more than 25 years of ex-

10 times the taxpayer’s basis in the stock.

perience in public accounting in such areas

Where the qualified stock is held by a part-

as consolidated returns, C corporations,

nership, the exclusion is generally deter-

S corporations, partnerships, cooperatives,

mined at the partner level.

mergers, acquisitions and divestitures.

In general, qualifying small business stock is stock issued by a C corporation with gross assets not exceeding $50 million immediately after the issuance, which is held by the taxpayer for at least five years.

the portfolio mid-market trends // Charles J. Morton, Jr., Partner, Venable LLP

sound decisions

by the numbers

mid-market trends

tap buttons to navigate columns

Captive Insurance Carriers Present Opportunities for Private Equity Firms

Firms Offer Multiple Benefits in Protecting MiddleMarket Businesses

here is growing buzz about the movement of captive insurance carriers into the middle market. The excitement is well-founded and points to particular opportunities for serial dealmakers.

Captive insurance companies are insurers

Stewart A. Feldman, CEO and general

that are controlled by a single company or

counsel for Capstone, a firm that special-

a small circle of companies, which may be

izes in forming captives, explains, “In

related. They provide coverage for claims

today’s challenging economy, a captive

that would otherwise be self-insured or

insurance company offers middle-market

insured by a third-party insurer. They

businesses multiple benefits in protecting

were initially intended as a way for large

against loss contingencies.” These compa-

companies to save money on premiums by

nies provide a way for middle-market busi-

getting coverage for operations and liabili-

nesses to lower insurance costs, enhance

ties that would have otherwise resulted in

control over cash flows and investments,

higher premiums. More than 90 percent of

and improve risk management and loss

Fortune 500 companies now have captive

control. There are also potential tax effi-

insurance companies, and more than 30

ciencies to be gained from the structure.

states have enacted legislation to specifically enable such activity. Captives are exploding in popularity in

One challenge that faces captives is the establishment of a risk pool that is appropriate. When the pool is large enough to

the middle market. There are now nearly

provide for meaningful risk-sharing, there

6,000 captive insurance companies in the

is the real possibility that those in the pool

United States. Most of the recent growth

will be on the hook for the risk of another.

has been for middle-market companies

This can cause discomfort and lead middle-

under Section 831(b) or “small” property

market businesses to shy away from an oth-

& casualty captive, which has become the

erwise very attractive way to manage risk.

preferred vehicle for middle-market com-

It is in the pooling where private equity

panies. The complexities presented by the

funds and others who own a number of

regulatory environment, including the Af-

operating entities have a real advantage.

fordable Care Act, have driven companies

By sharing the risks across portfolio com-

to this solution.

panies, funds can allocate the risk across a

the portfolio mid-market trends // Charles J. Morton, Jr., Partner, Venable LLP

sound decisions

by the numbers

mid-market trends

tap buttons to navigate columns large enough pool to have the risk shared

Charles J. Morton, Jr. is a Partner at Ven-

reasonably and yet have insight and con-

able LLC in its Baltimore office. He also is

trol over the risk management practices

the Immediate Past Chairman of the ACG

of the various firms. Kevin Atkinson from

Global Board of Directors.

Montpelier Advisors, which helps design, Charles J. Morton

structure and administer captive insurance companies, says, â&#x20AC;&#x153;Private equity funds are particularly well-positioned to take advantage of captive insurance companies. They can help funds produce better returns for their investors.â&#x20AC;? The proper design of the plan, including legal and consulting support to navigate Section 831(b), is essential for anyone interested in taking advantage of the opportunity. If you have not yet explored this opportunity, now is the time. //

THANK YOU ACG GLOBAL PARTNERS ACG Global thanks the following Partners who play a critical role in supporting ACG’s mission of Driving Middle-Market Growth.SM OFFICIAL SPONSOR OF GROWTHSM PARTNER

GROWTH LEADER PARTNER

GROWTH CHAMPION PARTNER

GROWTH SUPPORTER PARTNER

For information on becoming an ACG Partner, download the ACG Global Partnership Program Prospectus or contact Meredith Rollins, mrollins@acg.org/312-957-4260 or Ellen Moore, emoore@acg.org/312-957-4274. ©2013 Association for Corporate Growth. All Rights Reserved.

the ladder ACG MEMBERS ON THE MOVE Cassandra Mott of ACG Hous-

Leslie Kwang of ACG Dallas/

ton was brought on as a partner

Fort Worth was hired by Trinity

at Thompson & Knight LLP at its

Hunt Partners as an associate.

Houston office. Cassandra Mott

Leslie Kwang

Bradley Newkirk was promoted

Jake Moore of ACG Dallas/Fort

to lead partner over Private

Worth was promoted by Trinity

Equity Compliance Services at

Hunt Partners to an associate.

Dixon Hughes Goodman LLP.

He joined Trinity Hunt from SunTrust Robinson Humphrey

Bradley Newkirk

Jake Moore

in 2012.

David Ferrell was promoted to

Blake Apel of ACG Dallas/Fort

lead partner over Private

Worth was promoted by Trinity

Equity Tax Fund Services at

Hunt Partners to vice president.

Dixon Hughes Goodman LLP.

He originally joined Trinity Hunt in 2007 as an analyst.

David Ferrell

Blake Apel

Emily Tindel of ACG Charlotte

Natalie Oâ&#x20AC;&#x2122;Hanna of ACG Dallas/

was named the first executive

Fort Worth was named execu-

director of the ACG Charlotte

tive director of the ACG Dallas/

Chapter.

Fort Worth Chapter.

Emily Tindel

Natalie Oâ&#x20AC;&#x2122;Hanna

Melanie Brandt of ACG Atlanta

Emma Brown of ACG Kentucky

was named executive director of

the ACG Atlanta Chapter.

the ACG Kentucky Chapter.

Melanie Brandt

To submit promotions, job changes and other accomplishments to the Ladder section of Middle Market Growth, please send information and a color headshot (hi-res 300 dpi or above) to Editor-in-Chief Kristin Gomez.

it’s the small things Good Eats // Growth in the Food Industry

HUNGRY FOR A DEAL? //

Super Markets //

POINT, CLICK AND EAT //

FROM FARM TO TABLE //

GOING ORGANIC //

PAPER, PLASTIC OR REUSABLE? //

According to a recent market report, more than half of the M&A deals in consumer packaged goods last year involved foodbased companies. There were 1,199 deals, representing 55.1 percent of the deals and $112 billion.

Online grocery shopping is poised to grow at an annual rate of 9.5 percent— with the potential to become a $9.4 billion industry by 2017.

Organic food is a $63 billion industry globally. From 2002 to 2011, the industry grew 170 percent, or about 19 percent a year. In the United States, the organic industry reached $31.5 billion in sales, rising 9.5 percent from the previous year.

There were 37,053 supermarkets in the United States as of last year, with 3.4 million employees and total sales of more than $602.6 billion. On average, consumers take 2.2 trips per week to the grocery store, spending an average of $27.30 per trip.

There were 7,864 U.S. farmers markets in 2012, an increase of 28 percent in just two years and more than 4.5 times the number of markets in 1994. Of those, 1,864 are winter farmers markets, which increased 52 percent in just the last year.

It’s estimated that 100 billion new plastic bags are used every year in the United States. On the other hand, 14 million trees are turned into paper bags annually. Given the environmental component and heavy promotion, reusable bags are growing in popularity.

The Leadership acg directors ACG Board of Directors //

Chapter Representative Directors //

Directors At Large //

Chairman Pamela Hendrickson* The Riverside Company ACG New York Term expires 8/31/2014

Bradford Adams* TM Capital ACG Boston Term expires 8/31/2015

Jason Brown GE Capital Corp. ACG Los Angeles Term expires 8/31/2016

Robert Burns Lazard Middle Market, LLC ACG Minnesota Term expires 8/31/2014

Greg Cinnamon Kilpatrick Townsend & Stockton LLP ACG Atlanta Term expires 8/31/2016

J.B. Dollison* Crutchfield Capital Corporation ACG Houston Term expires 8/31/2014

Mike Ehlert Capital One Leverage Finance Corp. ACG Houston Term expires 8/31/2015

Roy Graham Corporate Finance Associates ACG Central Texas Term expires 8/31/2015

Brian Gilbreath Merrill Corporation ACG Nebraska Term expires 8/31/2015

W. Braun Jones III Outcome Capital, LLC ACG National Capital Term expires 8/31/2014

Ramsey Goodrich Carter Morse & Mathias ACG Connecticut Term expires 8/31/2016

Patricia King Bank of America ACG Tennessee Term expires 8/31/2015

Angie MacPhee RGL Forensics ACG Denver Term expires 8/31/2016

Brian Moll Polsinelli Shughart PC ACG Arizona Term expires 8/31/2014

Frank Mack Merk Capital Corp. ACG Chicago Term expires 8/31/2014

Robert Napoli* First West Capital ACG British Columbia Term expires 8/31/2015

Gretchen Perkins Huron Capital Partners ACG Detroit Term expires 8/31/2016

Steven Peterson Brass Ring Capital, Inc. ACG Wisconsin Term expires 8/31/2015

Durant (Randy) Schwimmer The Carlyle Group ACG New York Term expires 8/31/2014

Joel Rosenthal Schneider Downs & Co., Inc. ACG Pittsburgh Term expires 8/31/2014

Tom Washbush Benesch, Friedlander Coplan & Aronoff ACG Columbus Term expires 8/31/2015

Hans-Josef Vogel Beiten Burkhardt ACG Germany Term expires 8/31/2015

ACG Honorary Directors //

Vice Chairman Doug Tatum Newport Board Group ACG Atlanta Term expires 8/31/2014 President & Chief Executive Officer Gary A. LaBranche, FASAE, CAE* ACG Global Chairman of Finance Stephen V. Prostor Citi Private Bank ACG New York Term expires 8/31/2014 Secretary Richard P. Jaffe Duane Morris LLP ACG Philadelphia Term expires 8/31/2014 Immediate Past Chairman Charles J. Morton, Jr.* Venable LLP ACG Maryland Term expires 8/31/2014 Chairman of InterGrowth 2014 Ken Berryman CapitalSouth Partners ACG Kentucky Term expires 8/31/2014

Robert G. Coffey Alan B. Gelband

*denotes member of Executive Committee

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