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4 12 Cleveland Market businesses can is sizzling build upon M&A for sellers opportunity 9 22 Competitive Manage risk landscape and liabilities necessitates as global thorough due M&A grows diligence S2 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A

Contents PRESIDENT’S LETTER President’s Letter 2 ACG Cleveland is proud to be Indemnification in M&A Deals 3 A Wealth of M&A Opportunities 4 part of momentum, growth M&A for High-Growth Companies 5 By BRIAN KELLY Ohio and around the country, will be held on Jan. 25 for the first time at the 6 Blockchain leveland is a city on the move and perpetually growing. new Hilton Cleveland Downtown. The awards ceremony, preceded New Revenue Recognition Standards 8 From the continued transformation of Cleveland’s by a special red carpet welcome, will neighborhoods and downtown, to the evolution of recognize this year’s winners: Parker Due Diligence Homework 9 C the Euclid corridor, University Circle, coupled with the Hannifin, Nordson Corp., Blue Point 10 impressive infrastructure initiatives, we see this growth all Capital Partners and Park Place Tech- Managing the Sale Process nologies. We are also very excited that, around us. Cleveland can again boast of two championship- Successful Acquisition Strategies 11 for the first time, this event will spe- caliber sports teams, and a third ready for takeoff. cifically recognize impactful Women Employee Considerations 12 in Transactions, with Karen Tule- With innovation and national leader- supporting professionals. We are na- ta of MPE Partners as the recipient of Momentum Benefits Sellers 12 ship in the medical field, world-class di- tionally recognized for providing the the inaugural award. versified industrial, manufacturing and highest-quality educational program- Special thanks to our 500 current Insurance Strategies 13 specialty chemicals companies, and a ming and networking events, enabling members for their commitment and vibrant hospitality and our members to build value in their 14 community leadership, and to our valued Private Equity’s Potential Landmines food scene, Cleve- organizations and further their careers. sponsors: Benesch, Friedlander, Coplan land has developed In 2017, the Cleveland chapter was Market Dynamics Favor Seller 15 & Aronoff; Grant Thornton; Huntington a reputation as a true again active in support of our city’s Bank; KeyBanc Capital Markets; destination for busi- growth. We hosted more than 35 events, Contemplating a Sale 16 Oswald Cos.; Roop & Co.; Aon Risk ness and cultural with speaker breakfasts, lunches and Solutions; Calfee, Halter & Griswold; events. At the start of panels on trending M&A topics, East Citizens Commercial Banking; Deloitte; Private Equity’s Evolution 17 Kelly this new year, we can and West Side networking happy and MelCap Partners. Mitigating Risk 18 reflect with pride on the successes and hours, the ACG Cup for college teams ACG Cleveland is the premier or- accomplishments of the past year and of aspiring leaders in M&A, and a Due Diligence Best Practices 18 ganization for established profession- exciting plans for the future. year-end Shoreby Club social. These als, young professionals entering the The Association for Corporate events provide members with powerful Language of Business 20 workforce and women in business. I Growth (ACG) also has much to be and creative ways to grow their profes- encourage current members to take proud of. Founded in 1954, our mis- sional relationships and share insights Making Earnouts Work 21 advantage of the outstanding oppor- sion is to drive middle-market growth as with colleagues and peers. More of this tunities their membership offers, and a networking organization for pro- growth-oriented programming from Managing Risks and Liabilities 22 for prospective members to attend an fessionals engaged in middle-market Cleveland ACG and its Women in event to witness the benefits of ACG Buy-side Advisers 22 mergers and acquisitions and associ- Transactions (WiT), Young ACG membership firsthand. ated financial transactions. Globally, and ACG Akron groups is planned Deal Maker Awards 23 I am proud and honored to ACG is made up of 59 chapters and a for 2018, including a special event at serve as the current president of ACG Cleveland 2017-18 community of 14,500 members from the Ritz Carlton on May 10, featuring ACG Cleveland and look forward to Officers & Board of Directors 23 all areas of middle-market M&A. ACG a panel discussion on New Leadership making 2018 our best year yet. serves 90,000 investors, corporate ex- in the Fortune 500. ACG Events Calendar 23 ecutives, lenders and advisers. The Deal Maker Awards, ACG’s Brian Kelly is president of ACG ACG’s Cleveland chapter, estab- flagship event, showcases Northeast Cleveland and a partner with PwC, lished in 1981, is 500 members strong, Ohio’s top corporate dealmakers for leading its Midwest Deals business. with a board and committees com- demonstrated success in using acquisi- For more information about ACG Seize posed of our city’s leaders from pub- tions, divestitures and financing to fuel Cleveland, visit www.ACGcleveland. lic companies, private equity, law growth. The 22nd annual event, which org and follow us on LinkedIn (www. firms, accounting firms, investment we anticipate will be attended by up- linkedin.com/company/acg-cleveland) Opportunities banks and all facets of dealmaking and wards of 1,000 people from Northeast and Twitter (@ACG_CLE).

About ACG We protect your interests, so you can take ACG is a global organization focused on driving middle-market growth. Its 14,500 members include profes- advantage of sionals from private equity firms, corporations and lenders that invest in middle-market companies, as well as business sale, from law, accounting, investment banking and other firms that provide advisory services. Founded in 1954, acquisiti on, ACG is a global organization with 59 chapters. Learn more at www.acg.org. ACG Cleveland serves professionals and restructuring in Northeast Ohio and has nearly 500 members. For more information, visit www.ACGcleveland.org. opportuniti es.

Managing editor, custom and special projects: Project editor: Graphic designer: Amy Ann Stoessel, [email protected] Kathy Ames Carr Staci Buck Trusted Advisors. Respected Advocates.SM www.mccarthylebit.com For more information about custom publishing opportunities, please contact Amy Ann Stoessel. SPONSORED CONTENT CORPORATE January 22, 2018 S3 GROWTH& M&A Indemnification in private M&A deals fixed period of time, meaning after the n A minimum claim threshold. This the circumstances. These monetary Allocating liability risk imperative closing date, the buyer can only bring helps avoid disputes involving small limitations usually don’t apply to By TONY KUHEL parties can typically negotiate and an indemnification claim against the claims. certain other representations or to n agree on a robust set of representations seller for a limited time. A “basket” or threshold amount after breaches of the seller’s covenants, so n most M&A transactions involv- and warranties tailored to the business For “general” (usually operational) which the seller’s indemnification the parties must carefully negotiate ing a privately held target, the sell- in question that fairly allocate the representations, the survival period obligations kick in. This may be which representations or covenants er’s representations and warranties unknown risks inherent in owning, is typically between 12 and 24 a deductible basket, similar to an are subject to, and which are exempted I months. For more “fundamental” insurance policy, where the seller’s and its indemnification obligations are operating and selling a business. from, these limitations. the most heavily negotiated provisions If, however, through its due diligence representations — such as organization indemnification obligations only apply Risk allocation is critical in private in the definitive agreement. While rep- investigation the buyer becomes aware of the seller, authority to complete after the deductible is met, and then company M&A transactions. The resentation and warranty insurance of a pre-closing liability that is not the transaction, capitalization, title only to the extent liability exceeds buyer and seller are best served has altered these ne- reflected in the purchase price offered, to assets and broker expenses — the deductible, or a “first dollar” or by negotiating indemnification gotiations when it is then relying on a seller’s representation the survival period is extended or, “tipping” basket, where the seller’s provisions that clearly and fairly used, the fundamental that may address the issue could be in certain instances, indefinite. For indemnification obligations cover the allocate economic and legal risk for purpose of represen- inadequate. Under these circumstances, other “statutory” representations entire amount of liability once the both known and unknown liabilities. tations and warranties the buyer may require a specific “line- (tax, environmental and employee basket is met. n and indemnification item” indemnity for any loss associated benefit matters), the survival period is A monetary cap on the seller’s Tony Kuhel is a partner in the Corpo- remains unchanged: with the liability in question, which often tied to the statute of limitations indemnification obligations. rate Transactions & Securities Prac- allocating risk for Kuhel would not be subject to the limitations on imposed by applicable laws governing The amount and nature of these tice Group and serves as vice chair unknown (and in some cases known) the seller’s indemnification obligations those matters. limitations are often heavily negotiated, of the practice in the Cleveland office liabilities between the buyer and seller. that apply to claims for unknown There are three standard monetary although an M&A professional can of Thompson Hine. Contact him at All buyers and sellers, regardless liabilities. Specific indemnification limitations the parties may negotiate: suggest what is customary under [email protected]. of the nature of their transaction, for matters such as pre-closing tax should keep the following principles liabilities, indebtedness or transaction and concepts in mind during their expenses not paid at or before closing negotiations. is also common. SCOPE: Typically, the seller is LIMITATIONS: Without negotiated required to indemnify the buyer for limitations on its indemnification any claim (whether a direct claim by obligations, the seller bears the the buyer or an indirect claim against entire risk of the business’s unknown the buyer by a third party) arising from liabilities. This means the seller’s or relating to any breach of either the potential liability could conceivably seller’s representations and warranties exceed the purchase price it received, or a seller’s covenant. The buyer may while the buyer would bear virtually attempt to take a broader view of no risk for pre-closing operations these obligations and ask the seller to (despite conducting extensive due indemnify it for any liability relating to diligence) yet would be entitled to the operation or conduct of the seller’s the entire economic benefit of the business prior to closing. The prudent target after closing. To more fairly seller will, however, resist this approach allocate the risk of the unknown, the because it renders the representations parties typically negotiate temporal and warranties essentially meaningless: and monetary limitations on a seller’s Why negotiate representations and indemnification obligations. warranties when the seller is responsible Representations and warranties for anything that happened prior to are made as of the closing date. They closing? Sophisticated and reasonable typically survive the closing for a

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Serving private equity groups nationwide, BMF Transaction Serving private equity groups nationwide, BMF Transaction Advisory Services provides thorough due diligence and quality Advisoryof earnings Services assessments provides that thorough help you due better diligence evaluate and the quality value of ofearnings a target assessments company so therethat help are no you surprises better downevaluate the the road. value of a target company so there are no surprises down the road.

Mark B. Bober, CPA/ABV, CFF, CVA Partner, Practice Leader, Transaction Advisory Services bobermarkey.com • 330.255.2425 Mark B. Bober, CPA/ABV, CFF, CVA Steve, C. Swann, CPA/ABV, CFE [email protected] [email protected] S4 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A Cleveland businesses should heed the wealth of M&A opportunity By BRIAN KELLY services, which have higher margins are returning large amounts of cash to and ALEX BROWN and more recurring revenue streams. S&P 500 Trailing Price to Earnings Multiple, 2012-2017 shareholders via dividends and share n Regulatory reductions — and the repurchases. For a group of 85 U.S. or many Cleveland-area promise of more — have made it easier 30.0x industrial firms, share repurchases businesses, the current business to do business and increased line-of- 25.5x represent about 25% of earnings per climate is positive. The equity sight for companies in many sectors. 24.7x share growth over the last five years. F 25.0x 22.3x markets have been torrid, with the n Tax reform has given share prices While this can satisfy value investors, S&P 500 increasing 23% over the a lift and could increase firms’ cash 19.5x 19.5x it is not a viable long-term approach last 12 months, to its highest level. balances and ability to invest. This is 20.0x for companies to remain competitive. Seasonally adjusted unemployment on top of record cash balances for U.S. 15.8x Given the unprecedented environ- 14.4x rate is just 4.1%, interest rates are low companies. 15.0x ment we are in — with both exciting and, according to PwC’s CEO Survey, As is always the case, however, U.S. opportunities and existential threats 55% of U.S. CEOs are planning on companies are also facing some dis- coexisting — how should companies acquisitions in the tinct challenges, some 10.0x respond? The following are some next 12 months. of which are new and Jan Jan Jan Jan Jan Jan Dec themes that PwC is recommending to Several factors are especially difficult to 2012 2013 2014 2015 2016 2017 2017 its clients: driving this positive respond to. SOURCE: S&P Capital IQ n Invest to create or grow platforms. outlook: n With the broad- We define platforms as businesses based run-up in n Some companies are not seeing — new or existing competitors are within the portfolio that (1) leverage a n U.S. manufacturers share prices (some the run-up in their share prices. Even bringing new business models that firm’s truly differentiating capabilities, (manufacturing is a Kelly Brown say frothy, see chart within the same sector, there have been are changing the basis of competition. (2) are focused on markets with large big part of the local above and to the winners while others have seen flat or The most talked about is the digital and growing profit pools and (3) are economy) have become more nimble right) there is significant expectation even declining share prices, which is transformation (often called Internet synergistic with other platforms in the operationally, enabling them to reduce for profitable growth already built into attracting some unwanted attention of Things), in which hardware is portfolio. earnings volatility and risk to investors equity valuations, which means that from existing investors and activists. being linked together with sensors n Make the tough decisions. Sim- as markets fluctuate. failure to deliver those expectations n A likely reason for the emergence and controls and enabling significant ply put, if a part of the portfolio is not n Many manufacturers have also or any material shocks to the macro of winners and losers in equity value performance improvement and new or cannot become a platform, exit it. moved up the value chain to focus on environment could result in a quick performance is that most sectors are services. Some companies are not Even if financial capital is not scarce, higher value-added components and and material decline in value. experiencing some form of disruption responding well to this disruption and other forms of capital are – particularly are being punished by investors. management bandwidth. It is very dif- n Many Cleveland-area companies — ficult to manage non-core parts of the our region is strong in manufacturing, portfolio and to have a clear narrative chemicals and metals, to name a to investors as to why orphaned assets few — participate in markets that make sense and create value. They are growing at or below GDP rates, should be disposed of so management which makes delivering or exceeding can focus on the platforms. the high expectations in their share n Change the investment mindset. Investment Bankers Dedicated to prices difficult to achieve without big Focusing on platforms enables investments to consolidate current management to move faster and markets or expand into adjacent sectors. with more confidence to make the Helping You Achieve Your Goals n Consolidation deals, acquisitions investments they need to make. in adjacent markets or deals to Because platforms are advantaged and Drive Your Business Forward expand into digital solutions are in their markets, companies can pay often available, but in many cases higher multiples than the competition multiples have expanded so much that and still create deal value. Moreover, MelCap Partners is an independent, private investment banking companies are struggling to justify the companies can increase critical prices (see chart below). ﬁrm that specializes in assisting businesses reach their M&A n Absent viable deals, many companies CONTINUED ON NEXT PAGE goals. Since our inception in 2000, MelCap Partners has provided its clients with the knowledge, expertise, and perseverance to GLOBAL M&A Transaction Multiples* 2012-2017 help them navigate through the challenges of completing a wide-variety of M&A transactions. EV/EBITDA All Industrials

12.0x 11.2x 11.3x Interested in learning more about what we can do for your 10.7x 10.7x business? Contact us today! 9.9x 10.0x 10.0x 9.3x 10.5x 9.2x 9.0x 8.4x 8.1x 8.0x

(330) 239-1990 6.0x melcap.com 2012 2013 2014 2015 2016 2017 * Based on median for all deals closed within given time period SOURCE: S&P Capital IQ SPONSORED CONTENT CORPORATE January 22, 2018 S5 GROWTH& M&A

more critical review process of your business and being able to scan for M&A for high-growth companies external opportunities for growth. Also, having the confidence and Evaluating possibilities for acquisition or sale is a worthwhile strategy capability to execute an acquisition strategy also helps build a mindset to By MICHAEL C. SHAW two aspects that are most likely to add and dive deeper on individual pros and This is a worthwhile exercise to consider critically review allocation of money value to the combined business, such cons of each target. whether you want to sell and will help and resources for future growth. cquisitions can elevate high- as decreasing customer concentration, Also do the same from the position identify areas to increase value. growth companies to new lev- adding key technology or expanding of the company as a seller. Discuss a Whether these exercises lead to Michael C. Shaw is a partner at Copper A els. Often, companies that can service capability. At future meetings, few potential buyers of your business acquiring a business or not, there are Run. Contact him at 614-888-1786 benefit the most from acquisitions are the team can further narrow the targets and how they’d evaluate your company. immediate benefits: implementing a or [email protected]. companies that have grown significantly at the cost of structural problems (such as a significant customer concentration). Im- plementing a regular internal M&A review will help high-growth companies stay ahead of the growth curve and find areas to improve. M&A isn’t just Shaw for the slow-growth consolidators. Here is a challenge for 2018: At the regular monthly or quarterly management meeting, set aside at least 30 minutes to have an M&A review. Assign the team to identify and evaluate a few potential targets at each meeting, whether or not the targets are for sale. Starting with ideal candidates versus those that may be for sale will be more helpful in achieving a tangible outcome. The initial evaluation of each target should focus on just one or

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organic investments (which almost always have higher rates of return than CONNECT with deals) to create and expand platforms. n Move quickly. All of the three actions above make it easier to move 500 local and 14,000 global fast. In PwC’s experience, the most fundamental difference between winners and losers is pace. Private equity firms have long recognized that their drive to do things in three months that would take a typical management team DEAL MAKERS a year or more to do was one of their main levers on value. Having a clear strategy to create platforms, prune the portfolio to focus on them, and deploy capital aggressively on the remaining core enables the speed that will create a step-change in value creation. In short, this is a time of great risk and great opportunity. Given the disruption occurring in nearly every industry, Cleveland-area companies need to move fast to seize those opportunities. By the time companies start to recognize that big change is happening around them, it may be too late to get back in the game.

In Cleveland, contact local Deals Association for Corporate Growth partner Brian Kelly at 216-875-3121 or [email protected] or Thorne Driving Middle-Market Growth Matteson at 216-875-3441 or [email protected]. Contact Deal Strategy principal www.ACGcleveland.com Alex Brown at 773-255-2400 or [email protected].

ACG_Crains_Dec 2015.indd 1 12/9/15 6:20 PM S6 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A Will blockchain change the world? Technology that improves security flow of transactions is gaining momentum

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

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CONTINUED FROM PREVIOUS PAGE Transparency: Blockchain is accurate and transparent recordation exaggeration to transparent and auditable since it of transactions within a single say it will change In a global and digital world, contains a list of every transaction of organization. the world, it will businesses and individuals engage in the underlying asset. Blockchain can take that bene- make transacting transactions with strangers every day, fit and extend it to apply between business faster, directly or indirectly. The traditional SO, WILL BLOCKCHAIN contracting parties, and therefore cheaper and safer. way to solve the inherent lack of CHANGE THE WORLD? eliminate the time, cost and risk of trust between widely separated and using intermediaries. Depending on often anonymous parties is by the There are some that argue that the Sean T. Peppard is a the type of use, blockchain could be use of intermediaries, such as Visa advent of double-entry accounting partner in Benesch’s or Mastercard, for the purchase of made capitalism possible. And while transformational (eliminating inter- Corporate & Securities goods; stockbrokers for the purchase that statement is debated in academic mediaries altogether) or incremental Practice Group. Contact him of stocks; money transmitters for circles, there is no doubt that double- (increasing speed and accuracy while at 216-363-4688 or [email protected]. transferring cash overseas; and freight entry accounting allowed for a more reducing costs). While it may be an brokers for the shipment of goods. Many of these intermediaries (and the intermediaries of the intermediaries) use highly manual processes and all charge fees for their services. While we can execute a stock purchase with the click of a mouse, it takes two to three days for such a sale to settle. Similarly, an international money transfer can take up to a week to accomplish and cost 7% or more of No guessing games. the amount of the transferred funds. The time and costs associated with Thompson Hine transparency provides you with intermediaries create friction in the complete clarity into our planning, workflow and global financial system. Perhaps more costs. Coupled with our deep legal experience, importantly, sensitive information you’re afforded the insight to make the best possible often is placed in the hands of such intermediaries and is subject to the legal decisions for your business. risk of data breach. Enter blockchain. Blockchain is a To learn more about our transparent approach to database for recording transactions service delivery, visit ThompsonHine.com/SmartPaTH. in “blocks” that are distributed to a group of users, which could be public or private. The participants in the network then authenticate the transaction using an agreed-upon protocol, which can be different based on the situation. Once authenticated, each block is linked to a previous block in the chain. Blockchain transactions have several potential advantages over traditional transactions, some of which include: Decentralized: There is no central repository of data, and therefore no centralized risk of failure or data theft. By transacting directly, the time and cost of using intermediaries is minimized or avoided.

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

Authenticity: The security and immutability of the blockchain SmartPa creates comfort among users because transactions contained therein are A Smarter Way to Work – predictable, authentic and can be relied upon. efficient and aligned with client goals. For this reason, companies are using blockchain to verify the authenticity of works of art and to curb the flow of blood diamonds. S8 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A

certain criteria will be required to be capitalized. Capitalizing commissions New revenue recognition standard on these contracts will likely result in a more favorable bottom line for many businesses that were previously expensing them when incurred. could impact quality of earnings VENDOR SPECIFIC OBJECTIVE EVIDENCE FOR Evaluate private equity valuation models to avoid unexpected results SOFTWARE COMPANIES Current state: When a software li- By ANDREA SLABINSKI don’t update their valuation models, rules. Will this impact the value of Others may see a major shift, for better cense has been bundled with other ser- and JOSEPH ADAMS the models could indicate changes the target? Should it? Additionally, or worse, and in unexpected ways. vices, such as maintenance and support, in value. As a result, you need to ask, a company’s readiness to test, im- Additionally, the new standard is VSOE has been difficult for many soft- hether buying or selling “What adjustments should I be making plement and operate under the new principles-based, rather than rules- ware companies to establish, track and a portfolio company or to my valuation models to incorporate standard may have significant impli- based. This means there are plenty prove. Companies that couldn’t consis- W planning a future exit, the effects of the new cations for its appeal of judgment calls and estimates on tently do so were required to recognize it is critical that private equity standard?” as a target. It will be the part of management. It’s key for revenue over the full contract term, groups understand the new revenue While the stan- important to under- sellers to provide and for buyers to rather than recognizing license revenue recognition standard. The new model dard goes into effect stand the prospect’s consider the rationale and assumptions when the software was delivered. can affect the timing of when revenue is in 2018 for public progress toward im- behind decisions and projections, and New standard: VSOE is no longer recorded, which could have surprising business entities and plementation during to understand how those assumptions a requirement. In instances where impacts on quality of earnings. Here’s 2019 for all other due diligence and the impact the bottom line. the license is a separate performance what it means for your valuation organizations, com- Slabinski Adams obligation from the other promises costs associated with We’ve seen many examples of models during due diligence. panies could have adopted the stan- in the contract, companies could implementation if the target isn’t far unexpected changes through our work dard in 2017. This means, as a buyer, along in that process. recognize the license revenue upon with clients who have begun planning WHAT DO I NEED you could be looking both at target Closer to implementation: Under- software delivery by using an estimate for adoption. The following is a sampling TO CONSIDER? companies that have adopted the new stand how forecasts are being built — of that software’s standalone value. of some of the changes we’ve observed: The new revenue recognition standards and those that haven’t even whether under the old rules or the new This could result in some software standard could impact EBITDA thought about them at the same point rules — to determine what adjustments providers significantly accelerating the and other performance metrics that in time. That’s why it’s important to to the valuation model are necessary CAPITALIZE OR EXPENSE timing of their revenue recognition. are inputs to private equity groups’ understand where in the process a and in what periods the adjustments SALES COMMISSIONS? current valuation models. The changes company is. should be applied. Current state: Companies can MANUFACTURING are due to a shift in an accounting When performing due diligence, After implementation: Be aware of make a policy election to capitalize CUSTOM PARTS standard; however, the cash flows and private equity groups should begin to historical numbers used in analyses and sales commissions and recognize them Current state: Manufacturers operations of the business will not have consider the following: how those will need to be recalibrated as expense over the long-term contract that produce custom parts for a client changed. Since the business model isn’t Prior to implementation: Under- to be consistent with revenue under period or to expense them as incurred. recognize revenue for those parts when changing, in theory, the value shouldn’t stand how the business’s revenue and the new rules. For some companies, New standard: Sales commissions differ. But, if private equity groups EBITDA will change under the new the bottom line won’t change much. related to long-term contracts meeting CONTINUED ON NEXT PAGE © 2016. Oswald Companies. All rights reserved. DS1338 Focus Forward

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Learn more: www.OswaldCompanies.com/Private-Equity SPONSORED CONTENT CORPORATE January 22, 2018 S9 GROWTH& M&A Key questions to answer during due diligence By MARK B. BOBER one-time and/or non-recurring revenues discretionary? It’s vital to assess the statements reflect an adequate level acquisition, both from a valuation that need to be adjusted on a pro-forma probability of realizing such benefits if of cost to support the future growth standpoint as well as establishing he M&A market remains ex- basis to the extent they will not repeat the seller suggests they are “proforma” of the business? Is there adequate strategy going forward. tremely competitive, and buyer in the future? because they are achievable but have infrastructure in place to provide a T due diligence is more critical n Normalization adjustments. not been realized. platform for growth? Has adequate Mark B. Bober is a partner and than ever. Sellers often seek valuations Can underlying contemporaneous n Operational matters. Does the investment in capital expenditures and practice leader in Transaction Advisory based upon projected forward earnings documentation support the seller’s level of operating costs (selling, research and development been made? Services at Bober Markey Fedorovich. and pro-forma adjustments that may not proforma normalization adjustments? general and administrative expenses) Due diligence is critical to the Contact him at 330-255-2425 reflect the actual results of operations, Are they truly non-recurring or owner shown in the historical financial ultimate success of a contemplated or [email protected]. which require thorough diligence. While each situation is unique in terms of assessing fundamental risk areas to focus due diligence scrutiny around, below are a few of the areas that are critical Bober to the success of an investment: n Revenue and margin trends. Assess The team that gets customer concentrations, customer trends and margin trends. What are the attrition/retention trends? What are the customer acquisition costs? What are fixed and variable costs to support revenues? What is history of price your deal done! increases? Is there an ability to pass along increases in costs to support sales, such as raw materials and subcontractor costs? Are revenues and projected revenue growth sustainable? Are there

Patrick Berry, Co-Chair Christal Contini, Co-Chair CONTINUED FROM PREVIOUS PAGE the title transfers, which is usually when the parts ship. New standard: If certain criteria are met (for example, if the part has no alternative use to the company producing it) and the company has the right to payment for work completed to date in the event of contract termination, Todd Baumgartner Richard Cooper Carl Grassi Jason Klein Lisa Lauer revenue would be recognized sooner — as the parts are produced rather than when shipped. We don’t see this in all contracts for manufacturers, but contracts with these terms are common. In all three examples, revenue was advanced or expense deferred. In the year of adoption, it will be critical to adjust private equity valuation models to take into account the effects of the Michael Meaney Scott Opincar Ilirjan Pipa Frank Wardega known changes and of the adoption if you want to avoid unexpected results From start to finish – Our highly accomplished team has executed hundreds of acquisitions and divestitures and from your models. can help you through every stage of the process. Whether you own a privately held company, private equity firm Portfolio companies should assess the impact now. Start reviewing contracts to or a division of a public company; a small business looking to combine with someone down the street or an understand the accounting changes the international organization involved in a multibillion-dollar deal, our M&A team will get your deal done. business will need to make to comply with the standard. Be prepared to discuss progress during due diligence. Under- standing what the new standard means with respect to a company’s quality of earnings and your valuation models isn’t going to be business as usual.

Andrea Slabinski is a senior manager with Plante Moran’s professional standards team. Contact her at andrea.slabinski@plantemoran. mcdonaldhopkins.com com. Joseph Adams is a partner with Plante Moran’s private equity team. Contact him at joseph.adams@ Chicago | Cleveland | Columbus | Detroit | Miami | West Palm Beach plantemoran.com. S10 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A

And, by the way, you don’t get a break from your day job. If performance slips because you or your management Be wary of tempting offers team were distracted by a needy buyer, you can bet that same buyer will endeavor to amend the terms of the Enlist a qualified team of M&A advisers to manage sale process deal in their favor. Not only will your advisers take much of this burden off By CHARLES AQUINO pand your company’s horizons. In addi- both flattering and convincing. and quality of earnings experience will your shoulders so you can continue to tion, your employees will be protected, Beware, however, because once help you get through an exhaustive run your company, they will advocate erhaps you’ve spent a lifetime your legacy preserved and, most impor- you grant a party exclusive rights to due diligence process. An investment aggressively on your behalf should building your business, sacrific- tantly, their valuation will be fair and negotiate a deal, any leverage you had banking firm with relevant industry there be an unexpected hiccup. Ping personally for the betterment compelling. Sounds great, doesn’t it? previously quickly goes away. You experience can apply competitive So, should you ever be tempted by of your employees and company. Or But how do you really know if their no longer have any tangible “market pressure on the buyer, even in a one-off a buyer who wants you all to themself, maybe you are the caretaker of four gen- offer is fair? And how do you judge check” by which to judge, counter or situation, with a compelling marketing remember a little sage advice. Is it erations of growth and sacrifice, and it’s whether or not it’s compelling? improve their offer. It’s just you and package that’s ready to share with others generally better to have more than one your turn to preserve the family legacy. Before you can find answers to the buyer, and the courtship is over. once the window of exclusivity closes. buyer competing for your company? You look back your questions, the buyer wants an Now is a good time to ask yourself: Throughout the process, this team can Yes. Do private sellers regret not many years with pride answer to theirs. They know they’re who will have your back in the serve as that elusive market check on talking to other parties before at the challenges not the only party calling, and that the myriad legal, business and financial matters involving valuation multiples, committing to the first one who knocks you’ve hurdled, the sooner they lock you into exclusivity, negotiations? Who will be in your corner credible EBITDA adjustments, working at the door? All the time. value you’ve built the better their chances of avoiding helping you stand up to the buyer’s horde capital mechanisms and other key deal And is it worth having a complementary and the expectation a costly, competitive process. They of advisers who would like nothing more terms. This can give you peace of mind team of M&A specialists in your corner that when the time assure you that their offer is consistent than to impress their client by finding or when competing bidders cannot. should you find yourself mano-a-mano Aquino finally comes to sell with other deals in the market. justifying a price reduction? Perhaps the greatest benefit of with a sophisticated buyer who’s dialed the business, you and your family will If it’s a financial buyer, they’ll Like anything critical in life, having a full team of advisers in your down that pre-exclusivity charm? Only be justly rewarded. No doubt hungry illustrate how the real value lies in a selling your business really should be corner is their collective ability to if you want to assuage any doubts as to buyers will be chomping at the bit. subsequent sale after several years of handled by a complementary team of shoulder the heavy lifting throughout whether you’re getting proper value for a In a market this frothy, however, it’s imparting their strategic wisdom and specialists. the process. As a seller, you may not lifetime’s worth of work. not uncommon for a potential buyer to capital. In the end, they will tell you A good M&A attorney will protect fully appreciate the considerable time seek you out first. They may tell you why it’s in your best interest to save you on important deal terms and and energy involved in gathering Charles Aquino is a managing yours is just the business they’ve been yourself the time, distraction and fees conditions without exposing you to information, answering questions, director at Western Reserve looking for, as they have a unique per- of a formal process and move forward above-market risk. An accounting firm populating the data room and adhering Partners. Contact him at spective and resource set to vastly ex- with them exclusively. It will sound with extensive transaction services to an extensive diligence schedule. [email protected].

We Understand the Language of Business

At Tucker Ellis, we appreciate that legal issues are not resolved in a vacuum—almost all require a customized solution. In collaboration with our clients, we strategically analyze how the issue at hand relates to and affects their business, and we help them solve it from that perspective. In short, Tucker Ellis attorneys understand the language of business.

visit our blog: tuckerellis.com/lingua-negoti-blog @linguanegoti CHRISTOPHER J. HEWITT JAYNE E. JUVAN BRIAN M. O’NEILL Mergers & Acquisitions Group Chair Private Equity Group Chair Business Department Chair Corporate Governance Group Co-Chair Corporate Governance Group Co-Chair [email protected] [email protected] [email protected] 216.696.5590 216.696.2691 216.696.5677

and for different lengths of time. When the process is in full swing, buyers also Early preparation and team-building should anticipate that they will be negotiating the coverage of the policy as much as (and, in some cases, more is essential for successful acquisitions than) they negotiate with the seller the particular representations and warran- By JOHN MCGUIRE you should be heading into battle. before too much time and money are ASSUME THAT A REPRESEN- ties in the definitive documentation. Every professional has his or her wasted (and acquisition transactions TATIONS AND WARRANTY Indeed, in this brave new world of ractitioners of transactional work strengths, but the general practitioner can quickly consume both). Staging or POLICY WILL BE NEEDED middle-market transactions, there is otherwise managing team members’ generally agree that we are in a you have been using all these years, Thanks to the continuing sellers’ now a third chair at the negotiating ta- persistent sellers’ market. Pric- while incredibly good at what he or involvement is fine, but being penny P market, as well as the maturing repre- ble: progress! ing multiples remain high, sometimes she does, may not be the right one to wise and pound foolish is not. sentation and warranty insurance in- breathtakingly so. Middle-market sellers negotiate your multimillion-dollar ac- In transactional practice, as with so dustry, sellers are requiring that most are demanding that quisition. Take a moment for a clear- SET THE BASIC TRANSACTION many aspects of life, preparation is the (if not all) of their purchase agreement most, if not all, of their eyed evaluation of your team and make TERMS EARLY key to success. While it is tempting to indemnity exposure be handled by a indemnity exposure be an honest determination as to whether After engaging a well-qualified keep costs low early on, too lean-and- representation and warranty insurance offloaded to represen- their skill set is appropriate for this transaction team, a buyer’s next objec- mean of a strategy can send inexperi- policy purchased by the buyer. Finan- tation and warranty in- specific engagement. If not, take the tive should be ensuring that it and the enced buyers down rabbit holes from cial buyers have been quick to adopt surance policies. What time to find an attorney or accountant seller are on the same page regarding which they may never emerge. Make the use of representation and warranty should potential buy- who has deep experience in transac- what the transaction will look like (and sure you have the right team, ask the McGuire ers who do not regu- tions and then put them to work. what it will not). Eagerness on both policies, and strategic buyers will need right questions early, prepare for the larly engage in acquisitions and disposi- Flying solo in the early stages of a sides of the table often leads the parties to as well to keep pace and remain inevitable side negotiation with your tions do to be credible and competitive? transaction, hoping to streamline costs, to dive right into document drafting, competitive in auctions. representation and warranty policy rarely accomplishes anything other than heavy due diligence and negotiations. Upon embarking on a sale (particu- insurer, and you will find yourself in EVALUATE YOUR TEAM delays later, as issues are belatedly un- However, most advisers find that larly if the process is an auction, but a much better position to win the deal AND GET THEM INVOLVED covered, misunderstandings revealed spending a little time on a term sheet or even a non-auction purchase of a sav- and bring it to a successful conclusion. A successful acquisition begins with and differing expectations exposed. letter of intent that fleshes out the seminal vy seller), buyers should assume they having the right team around you who is A well-seasoned team will ensure transaction terms is worthwhile. Again, will need to purchase such a policy. John McGuire is a partner engaged from the beginning. However, that you are asking the right questions this is all about surfacing issues and mis- Buyers should engage early with their at Calfee, Halter & Griswold LLP. this may mean that your current team of upfront, spotting red flags early and, matched expectations before time and insurance brokers, who can price (at a Contact him at 216-622-8892 professionals is not the one with whom if necessary, taking that exit ramp money are lost by all concerned. high level) coverage at different levels or [email protected]. PARTNERSHIP

Partnership is the reassuring voice that always answers the call when you need it most; it’s the collaboration between your team and ours that fuels your success; it’s having someone who’s focused on inspiring your leaders just as much as you inspire ours.

Our experience handling nearly a dozen mergers and acquisitions each month for the last 15 years has taught us that partnership extends beyond what we share with our clients; it’s what we help them build with others.

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Crains half M&A.indd 1 11/16/2017 3:20:51 PM S12 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A Employee considerations in a transaction By MICHAEL D. MAKOFSKY encourage employees to remain with analyzed to determine how the rights the employee. Given that employees are often and JACK E. MORAN a company. These plans often help are triggered, how the shares are valued If, however, an employee’s tenure a central asset of a target business, companies hold onto employees with and other such terms to determine will be terminated as part of the buyers and sellers should be ever- hile there are many issues whom they've invested. whether those agreements have an acquisition, buyers will want to know mindful of the legal landscape to prepare for in any From a dealmaking perspective, impact on the proper purchase price. whether the employee has already affecting those employees as they W deal, both sellers and both sides of the The value of the agreed — perhaps in exchange for evaluate any potential deal. buyers should be cognizant of certain transaction should be transaction could also receiving a payout of stock rights employee-specific issues as the mindful of whether be affected by how — to sign a release agreement Michael D. Makofsky is a principal transaction unfolds. any employees have well the company pro- that waives any potential claims in McCarthy Lebit’s Mergers & In order for an acquisition to be stock options or tected itself against against the business. Further, if the Acquisitions, Banking & Finance, successful, key employees must often profits interests. These departing employees. employee has been paid a retention and Business & Corporate practice be retained, reassured and motivated benefits often vest Effective employ- or other similar bonus, but has not areas. Contact him at 216-696- post-closing to keep the business over time; however, it Makofsky Moran ment covenants such fully performed under the agreement 1422 or [email protected]. moving. One method a company may is common for them to automatically as non-competition, non-solicitation governing the payment, the company Jack E. Moran is a principal in the implement is a “golden handcuff,” vest and become operative upon a sale and non-disclosure requirements can will want to analyze whether it makes Employment & Litigation practice which is a collection of financial or change in control. help preserve the value of the compa- sense to attempt recovery of some or areas. Contact him at 216-696-1422 incentives that are intended to Such employee agreements must be ny and, in some instances, help retain all of the payment. or [email protected].

The missing link is flow through the first three quarters of deals. M&A volume in 2017 was down 11% from the compara- Momentum benefits sellers North America fell to ble period in 2016, reported PitchBook, By ANDREW K. PETRYK show no signs of abating. Liquidity America’s burgeoning war chest and a five-year low in the despite record fundraising activity. Scar- and the quest for growth are continuing the billions in unspent private equity third quarter of 2017, city of quality deals has resulted in fierce ggressive buyers. Hungry to drive the M&A market with an capital earmarked for deployment. according to Merger- competition among buyers and lenders. Loan demand continues to outstrip avail- lenders. Robust valuations. almost insatiable fervor. Prospective The debt markets remain highly liquid; market, which cited a Petryk A These are themes we have seen acquirers have considerable buying new investors and capital continue to 32.8% decline from the able acquisition financing opportunities, repeated over the last few years and power, calling attention to Corporate flow into private credit. year-ago period. U.S. private equity deal CONTINUED ON NEXT PAGE

Own success at every turn

Navigating deals requires confident decisiveness to stay a step ahead of frequent shifts in complex government regulations and global market demands.

Our professionals can help you move ahead boldly with the right insights at the right time for the right deals. We bring extensive regional and sector experience as well as an understanding of your culture and situation, so we can assist on a variety of your deal needs including: domestic and cross-border acquisitions, divestitures and spin-offs, capital markets transactions like IPOs and debt offerings, and bankruptcies and other business reorganizations.

For more information on how we can help you, please contact Brian Kelly at (216) 875 3121 or Thorne Matteson at (216) 875 3441.

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

409903-2018-Crain's Cleveland Deals 2018 Ad.indd 1 1/4/2018 2:22:01 PM SPONSORED CONTENT CORPORATE January 22, 2018 S13 GROWTH& M&A Overcome hurdles, improve deal outcomes Various insurance strategies help buyers, sellers achieve goals tailored to address a client’s specific resentations and warranties insurance indemnity needs. include a sharp reduction of escrows, By JAY MOROSCAK alternative to an escrow or indemnity. ance can be an effective alternative to Buy-side improvements include transformation of some or all of indem- The ability to manage and allocate risk on an escrow or a large indemnity. It can achieving a lower purchase price by nity, increased speed of a deal-closing he dearth of desirable the front end of a deal allows buyers to also be used outside of a transaction — trading for lower es- and minimizing “claw-back” exposures. acquisition targets has created bid more aggressively because sellers can simply to manage a large contingent crow. The buyer real- Transaction liability insurance is T a highly competitive landscape extract more funds at closing. exposure. Institutional tax equity in- izes greater deal pro- becoming a staple in any strategic in the M&A market. This competitive Tax insurance protects a taxpayer vestors rely on tax insurance to ensure tection through use of M&A, offering protection for both situation dictates that buyers be in the event the IRS or a state, local, an anticipated tax credit will be avail- insurance. The auction buyers and sellers. prepared with strategies and tools that or foreign taxing authority successful- able as projected and not recaptured. process can be elim- facilitate potential transactions. ly challenges his or her tax position. Representations and warranties inated in favor of the Jay Moroscak is a senior vice Moroscak Transaction liability insurance, a M&A buyers and sellers can use tax insurance covers liabilities arising buyer by accepting president in the Cleveland office relied upon tool for all M&A practitioners, insurance to avoid unanticipated tax out of a breach of one or more of the seller representations “as is” because the of Aon Risk Solutions. has emerged as an essential element of payments that could compromise the representations and warranties in an insurance provides the indemnity. Contact him at 216-272-2155 the M&A landscape and can be a viable economic upside of a deal. Tax insur- M&A transaction. Policies can be Sell-side improvements from rep- or [email protected].

CONTINUED FROM PREVIOUS PAGE and 7.93x, respectively, on transactions While investors have a cautionary or better year-over-year growth. remain strong into 2018, with liquidity a sending enterprise values and leverage valued less than $250 million, and eye on the economy given the length Even cyclicality has not slowed primary catalyst. Without a material in- multiples to historically high levels. 11.24x and 8.43x on transactions valued of the current business cycle, compa- investor appetite. Building Products, crease in deal flow, capital will continue S&P Global Market Intelligence between $250 million and $500 million. nies are continuing to perform. Ac- one of the cyclical sectors that has seen to chase tight supply, keeping multiples reported the following metrics for n Total leverage (total debt to cording to an earnings report released transaction activity rise on the heels of elevated for the foreseeable future. the lower middle market (defined as EBITDA) inched up to 4.89x, steadily in December by S&P Global Market improving fundamentals, may have even enterprise values between $25 million increasing from a low of 4.57x in April. Intelligence, 73% of the reporting S&P extended its run as recent weather-related Andrew K. Petryk is a managing and $500 million) in December 2017: Total leverage of 5.5x was reported for 500 companies beat earnings expecta- events have seemingly lengthened the director and principal at Brown n Median EBITDA multiples for the broader middle market (EBITDA tions for the third quarter of 2017, with replacement cycle in affected markets. Gibbons Lang & Company. Contact him strategic and financial buyers were 7.23x less than or equal to $50 million). nearly half (45%) citing double-digit Market conditions should continue to at 216-920-6613 or [email protected].

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BEACHWOOD 3201 Enterprise Pkwy Suite 320 GROWTH Cleveland, OH 44122 Pease Acquisition Advisors We have the expertise to guide our clients FOR MORE INFORMATION through a successful buy-side process. please contact David Pease (PAA) is focused on the buy- When it’s right, we will assist clients in 216.472.4455 finalizing and closing their transaction. side needs of our clients. [email protected] PAA, along with our partner, Pease & We help companies and individuals source Associates, CPAs, leverage our experience business acquisition opportunities. Our with several hundred deals, while offering professionals identify, introduce, and due diligence, taxation, and other M&A peaseacq.com initiate deal flow. related services. S14 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A Sidestep private equity’s potential landmines securities for his own account through Buyers, sellers should consider these potential issues during deal phase a broker or otherwise.” By DAVID KERN and JON STEFANIK checklists, working capital adjustments, PAYMENT 3(4) of the Exchange Act broadly Private equity firms are often- ap baskets, caps, survival periods, carve- OF FINDER’S FEES defines a broker as “any person engaged proached by individuals or organi- 1 zations who are not registered with a t its core, an M&A transaction outs … you name it. There are, however, The Securities Exchange Act of 1934 in the business of effecting transactions self-regulatory organization to source involving a private equity buyer several under-the-radar issues unique to (the “Exchange Act”) requires most in securities for the account of others.” investments and raise capital in ex- or seller is no different than any deals involving private equity buyers brokers or dealers to register with Section 3(5) of the Exchange Act A change for a “success fee” payable other M&A transaction that involves or sellers which, without planning, can the SEC and to join a self-regulatory defines a dealer as “any person engaged upon closing of the sourced investment. all of the usual suspects: due diligence become potential problems. organization such as FINRA. Section in the business of buying and selling Per Section 15(a)(1) of the Exchange Act, it is unlawful for any person to “effect a transaction in securities” or to “induce the purchase or sale of” any security other than through a broker or dealer registered Kern under an SRO. Section Our business 29(b) of the Exchange Act renders voidable ® every contract entered into in violation of begins with you. the above-referenced broker-dealer registra- tion requirements and Stefanik gives the investor the right to rescind its purchase of securities. Private equity firms should be cautious when working with employees Hank Bloom Services, Inc. Acquisition of sale to or other unregistered persons in connection with solicitations for Sale to investor capital. Sale by Founders Dwyer Franchising LLC to Kerry Group of From SHARING OF PRICING 2 INFORMATION Private equity firms often concentrate investment in a specific industry. In the M&A context, this industry-specific focus has the potential to implicate U.S. anti-trust laws, including Section 1 of the Sherman Act, which generally prohibits the exchange of competitively sensitive information (including pricing and cost information) among competitors. Purchase of Acquisition of EmOpti Purchase of Purchase of Critical A private equity firm must take Advanced Mobility Cotton Buds, Inc. Alert Holdings LLC Systems of Texas documented precautions to avoid violating the Sherman Act when acquiring a competitor of one or more of its portfolio companies. Of course, any such precautions must be weighed against the need to conduct proper due diligence — a legitimate business concern for the buyer. In order to reduce the risk of violating antitrust laws, a confidentiality agreement prohibiting use of any disclosed information must be in place Sale of Pennsylvania Minority capitalization Purchase of prior to disclosure. Furthermore, such operations to Management Alamo Mobility, Inc. Purchase of agreement should limit internal disclo- Amera-Tech, Inc. DBA Florida Evergreen sure of pricing and cost information to individuals who are not involved in establishing pricing of competitive products or services. The information exchanged should be provided in summary format, or at least sanitized (to the Our Mergers & Acquisitions team works hand-in-hand with our business extent possible) to remove commercial- clients to help them achieve their objectives. Our promise is to deliver ly identifying information. superior service, earn your trust, and put you first. Additionally, a “clean team” agreement should be considered to permit disclosure of commercially sensitive information for confirmatory due diligence only to third-party CLEVELAND COLUMBUS CINCINNATI CHICAGO BOCA RATON ULMER.COM consultants, including accountants CONTINUED ON NEXT PAGE SPONSORED CONTENT CORPORATE January 22, 2018 S15 GROWTH& M&A Market dynamics tilt deal favor toward seller

By ALBERT D. MELCHIORRE U.S. companies have shifted their non-financial companies holding more ples increasing an entire turn over the to find businesses to acquire, banks and MATTHEW M. SWEET attention to targets in Europe, the Mid- than $1.6 trillion in cash alone. last 12 months. continue to aggressively support dle East and Asia, with dollar flow into Private equity in the U.S. continues to Buyers have taken a modified ap- quality companies. The economy he M&A markets are dynamic the regions increasing grow, with the number proach to the deal process to remain remains strong. Valuations have risen and constantly evolving. over 20% during the of buyout funds and competitive. Buyers who elect to par- to records levels. There are a number T These trends continue to have last 12 months. Glob- overall “dry powder,” ticipate in competitive sales or market- of baby boomers who are looking implications for buyers and sellers. It al valuations have or uninvested capital, ing processes are conducting mean- to transition their businesses. Both is particularly important that business surged to 14.1x EBIT- increasing significant- ingful due diligence even before an domestically and internationally, owners understand these trends to DA, forcing buyers to ly in recent years to indication of interest is due, with the it is a great time to be a seller and a prepare themselves for a successful pay a premium in or- over $600 billion. Pri- hope of identifying growth opportuni- challenging time to be a buyer. transaction. der to get deals done. Melchiorre Sweet vate equity fundrais- ties that can be factored into an offer, From a global perspective, Domestically, valuations have ing, in particular, has grown due to pri- potentially boosting the offer price. Albert D. Melchiorre is president transaction volumes have decreased surged as well. Solid earnings have vate equity’s long-term outperformance They are getting more creative to get of MelCap Partners. Contact him and are now below the five- propelled public equity markets to of most other asset classes. deals done, often bridging gaps in the at 330-239-1990 or [email protected]. year average, while cross-border all-time highs. Strategic buyers have Competition for deals is high. purchase price with a combination of Matthew M. Sweet is an associate transactions continue to make up 20% amassed record amounts of cash on Transaction multiples have surged, seller financing or earnouts. at MelCap Partners. Contact him to 25% of global deal flow. their balance sheets, with the S&P 500 with middle-market EBITDA multi- As buyers continue to struggle at 330-239-1990.

CONTINUED FROM PREVIOUS PAGE immediately prior to the closing, while directors to the boards of competitors, or them would constitute a violation of the While these issues do not arise in remaining subject to confidentiality. from having the same directors sitting antitrust laws.” all M&A transactions involving pri- and investment bankers. If absolutely In addition to criminal prosecution, on the boards of competitors. Subject to Section 8 of the Clayton Act is vate equity firms, they do arise fre- necessary, the agreement may also a violation of the Sherman Act may statutory exceptions related to industry, interpreted as prohibiting any “firm” quently enough that they merit seri- apply to employees who do not result in treble damages. capital and sales, Section 8 of the from appointing the same or different ous consideration. provide any input on pricing or Clayton Act provides that “[n]o person individuals to sit as its agents on the costing of competitive products or shall, at the same time, serve as a director board of directors of two competitors. David Kern and Jon Stefanik are services, and in each case who agree INTERLOCKING DIRECTORS or officer in any two corporations ... that A violation of Section 8 of the Clayton partners in the Business Practice to be bound by the restrictive terms of 3 are (a) engaged in whole or in part in Act is a strict liability offense, so Group at Buckingham, Doolittle & When acquiring a competitive entity, that agreement. Finally, disclosure of commerce; and (b) by virtue of their a private equity firm’s intent in Burroughs LLC. Contact David at commercially sensitive information private equity firms must be aware of businesses and locates of operation, appointing directors is not relevant. A 330-258-6489 or [email protected]. could be withheld and used as potential violations of the Clayton Act competitors, so that the elimination violation of Section 8 of the Clayton Contact Jon at 330-643-0209 part of confirmatory due diligence that may arise from their power to appoint of competition by agreement between Act may result in treble damages. or [email protected].

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on internal efforts to grow revenue and profitability, which will enhance Be strategic when evaluating path the future value of the business. The owner may also consider turning the tables and seeking out to a successful business transition acquisition targets to expand the business’ product line offerings or By SCOTT MCRILL in advance is the key to a successful be a huge distraction to the business. desires you have for retirement, such geographic reach. This extra time will transition of the business. The Determine what you “need” for as a second home, education for also allow the owner to prepare well s the baby boomer generation following is an outline of steps to take the business, not what you “want” children or grandchildren, travel or in advance of the actual sale. ages and the Gen Xers and when considering a sale or transition for the business. Many sellers launch bequests to charity. These preparations may include A millennials come of age and of your business. into the process of selling their business Once the full picture is put together, cleaning up historical books go off to do their own thing, many Take a long look in the mirror. with a desired purchase price in mind. the business owner can determine and records; building a base of businesses owned by boomers are left Are you truly ready, emotionally, to Often, however, those sellers have no how much they “need” to sell the externally prepared, audited or without a natural successor. Many let go of the business? It has been your idea if that sale price will be sufficient business for in order to achieve their reviewed financial statements; and of these business baby for years, so it’s understandable to fund their retirement and other plans goals. That number may differ from building data-supported projections owners are finding why it may be difficult to cede control after the sale. Before taking a business what they “want” for the business or with deeper details of revenue and that their children and let someone else run the business. to market, the owner should take stock what it is truly worth today. profitability by product and customer. and grandchildren do Make sure you have taken stock of of their entire personal balance sheet, Do the right homework to This information will be important not want to take over what you will do in terms of hobbies including all assets and liabilities determine what the business is when it is time to go to market. the family business. or other interests to fill the void after outside the business, and future cash currently worth. Now that you know The current value of the business The good news letting go of the business. Too often, flow needs. what you need to get from the sale of meets my “need.” Now that you for them is that McRill sellers think they are ready to let go but A professional wealth adviser should the business, it’s time to take stock of know the value meets your need, and there are many other options. But no struggle to pull the trigger when the be engaged to guide the owner through the current state of the business and get you are emotionally ready to sell, you matter what type of change an owner time comes. This can result in frustra- development of a complete retirement a realistic professional view of what can move full steam ahead. decides to embark on, planning well tion, wasted time and money, and can plan. Be clear about what goals and it’s worth. Many business owners rely At this stage, it is important for on their gut feel or a “country club” owners to surround themselves value, based on nothing more than with the right team of professional conversations with other business advisers to achieve a successful owners at “the club” who recently sold transaction. This team should include businesses. This is a risky approach an investment banking firm to market and may not be realistic. the business, a transaction advisory The owner should consider services team to perform quality of engaging investment banking, earnings work on the business and transaction advisory or valuation add deeper credibility to the numbers professionals to analyze the numbers presented by the investment bankers, through a quality of earnings effort an experienced M&A attorney and a — at least at a fairly high level — to tax adviser. put a rough box around the cash flow With thoughtful reflection, a clear potential and therefore the rough goal, an accurate valuation and a value of the business today. Having a solid team, you’ll be well prepared to realistic view of current value is key transition your business and step into to a successful transition. your new role as “former owner.” The current value falls short of my “need.” Now what? Although Scott McRill is a shareholder in disappointing to learn, it is certainly the Private Equity and Transaction better to know if the value falls short Advisory Services Practice before embarking on a full-blown at Clark Schaefer Hackett. sale process, rather than after a failed Contact him at 216-526-8125 transaction. The owner can now focus or [email protected].

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

SELL-SIDE ADVISORY | BUY-SIDE ADVISORY | VALUATIONS

Copper Run Capital LLC | 614-888-1786 | Copperruncap.com SPONSORED CONTENT CORPORATE January 22, 2018 S17 GROWTH& M&A

Private equity continues to evolve By STEWART KOHL true in today’s very competitive ‘‘ environment, which has increasing he Riverside Co. has seen a compliance requirements, strong With locals on the ground in different countries looking to source lot of change in private equi- competition from within private deals, reach and help operate companies in which they invest, T ty since our founding nearly equity and other alternative asset 30 years ago. Part of that change has classes, and very high purchase- ‘‘ successful private equity firms have adopted a “glocal” mindset. been seeing some of the things we price multiples in well intermediated did become much more common and markets awash in liquidity. even necessary for success in this in- Here are some key areas where creasingly competitive and challeng- private equity has adapted and become We consider global markets and OPERATING medallion is a “safe investment.” ing environment. better in recent years: international competition when Gone are the days of buying a great Then along comes Uber and Lyft, and We see modern investigating industries and companies company and hoping it keeps growing. the value plummets by over 80% in economics founder GLOBALIZATION with which to partner. With locals Today’s private equity firms are much four years. Adam Smith’s invis- When Riverside was founded in on the ground in different countries more hands-on, lending expertise and ible hand at work, 1988, dealmaking was largely confined looking to source deals, reach and talent to help companies fundamentally EXPECT MORE CHANGE guided by demand- to the U.S. The European market help operate companies in which they improve so they can sustainably grow These are just a handful of trends ing limited partners outside of the UK was in its infancy, invest, successful private equity firms more quickly. in private equity, which we expect Kohl as well as sellers. and private equity was almost unheard have adopted a “glocal” mindset. to keep changing as the world keeps Today, it is not enough to just bring of in the Asia-Pacific region. Today, TECHNOLOGY spinning and moving forward faster financial capital — it must be married being global is becoming a prerequisite SPECIALIZATIONS Firms like Riverside can no longer and faster. Nimble, clever and proven with intellectual capital. for success. Even if you’re only At our founding, we considered say “we don’t do technology deals.” firms will capitalize on these changes As a result, only the best private working on North American deals, you ourselves a generalist firm and that is Today, every entity in some way and continue to fill the demand for this equity firms will survive and thrive. need to be able to understand, tap and still in our DNA. However, to succeed is a technology company, and any rewarding investment option. The days of relatively easy money access markets across the world. today you must have deep industry industry could be impacted tomorrow and virtually guaranteed returns are Private equity firms have learned expertise in order to pick the winners, by the likes of Amazon, artificial Stewart Kohl is co-CEO long gone. Success today demands to capture opportunities wherever recognize patterns, add value during intelligence, robotics and big data. of The Riverside Co. sophisticated systems, processes they may be, using global resources ownership and avoid adverse selection Only a few years ago, we might Contact him at 216-344-1040 and professionals. That’s especially and connections to help them grow. to stay relevant and succeed. have said that a New York City taxi or [email protected]. S18 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A Mitigating risk in M&A transactions Strategies to protect buyers, sellers from unforeseen setbacks limits to reflect recent growth or failed purchase price remains available to to add necessary coverage types. Even pay for unknown liabilities. Sellers By JACOB B. DERENTHAL synergies. Buyers look to maximize buyer’s remorse. Buyers commonly when existing coverage is appropriate, can limit downside risk by including returns, limit post-closing liability, and perform a deep dive into financial the purchase of “tail policies” or materiality and knowledge qualifiers, articipants in merger and provide that employees, customers and data but miss operational, cultural or representation and warranty insurance and indemnification baskets, caps and acquisition transactions all tell other stakeholders are treated fairly by personnel issues that, specific to the deal may be needed. time limitations. P you they intend to mitigate risk. new management. in hindsight, made a With advice from deal professionals, Remember, specialists should But in a marketplace with aggressive The best remedy is always due transaction unwise. it is possible to further reduce risk always be consulted to review tax timelines and competition, too often diligence. Sellers who fail to conduct Allowing counsel to through transaction structure and implications. As is typical in business, deals close without parties taking internal diligence risk re-pricing review legal diligence agreement terms. the ultimate takeaway is that owners simple precautions. before closing and are more likely to can similarly uncover For example, buyers typically prefer and management who plan ahead have M&A risk broadly falls into three suffer indemnification claims after non-balance sheet to acquire assets rather than equity to a variety of tools to minimize M&A Derenthal categories: financial, operational and closing. Sellers should also review liabilities in time to avoid unknown liabilities but need to transaction risk. legal. These concerns are different and buyer backgrounds to verify adequate negotiate pricing, increase escrows or consider if such structure prohibits sometimes directly contradictory when resources to complete the transaction walk away from the deal. the transfer of material contracts Jacob B. Derenthal is a partner in the viewed by sellers and purchasers. and confirm a history of fulfilling In all M&A deals, parties should and permits. Holdbacks, escrows, Corporate Transactions Practice Sellers want to avoid overpaying promises made during negotiations. analyze insurance coverage to determine seller financing and earnouts provide Group of Walter | Haverfield. and limit business disruption while Purchasers who implement a if adequate protection exists. Often purchasers with added comfort Contact him at 216-781-1212 maximizing strategic and operational rigorous diligence process can avoid businesses have not increased legacy in knowing that a portion of their or [email protected].

Don’t let due diligence deflect from the deal of a lifetime By CHRISTAL CONTINI the task of selling. identify and evaluate the business, including confidential name, and e-mail or username in and EMILY JOHNSON When it is time to sell, the value proposition information about its financial status, combination with password or security though, it is important and risk factors customers and suppliers, employees, question and answer. or many small business owners, to be prepared for the associated with the strategy, price lists, and sales and Before any confidential information founders and management buyer’s due diligence target business. A marketing data. A buyer may also is shared with a buyer, a seller F teams, selling their business is investigation. buyer will request request that a seller provide personally should understand the following key a once-in-a lifetime transaction. Most During the due that a seller locate and identifiable information. strategies to ensure that missteps Contini Johnson have spent years focused on managing diligence phase of a assemble numerous Personally identifiable information during the due diligence phase do not and growing their business — not on sale transaction, a buyer will seek to documents and information about is defined by state law, but generally detract from a lifetime of building a includes any information that can valuable business: be used to identify, contact or locate an individual, either alone or in EXECUTE A PROPER combination with other sources. It 1 CONFIDENTIALITY includes, but is not limited to, Social AGREEMENT BEFORE Security numbers, driver’s license SHARING ANY INFORMATION. Aon Risk Solutions numbers, credit and debit card Most business owners have a standard numbers, passport numbers, bank confidentiality agreement they use in account information, date of birth, the ordinary course of dealing with medical information, biometric data such as fingerprints, mother’s maiden CONTINUED ON NEXT PAGE

Your Small Business & Wealth Management Partners A successful transaction. Easy to say, hard to do. Mark J. Mediate Chuck J. Cammock Aon Strategic Advisors & Transaction Solutions can help you achieve success from due Vice President Vice President diligence through integration planning, implementation, and transformation. SBA Business Development Officer Retirement Plan Specialist* C 330.720.9929 C 216.218.0383 Be sure you have the right people at the right time, to protect your business assets and optimize your financial position. Now Open in Westlake To discover more, contact Jeff Nicholson ([email protected] | 216.623.4152), 29580 Center Ridge Road or Jay Moroscak ([email protected] | 216.623.4143). Westlake, OH 44145 P 440.250.8870

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SPONSORED CONTENT CORPORATE January 22, 2018 S19 GROWTH& M&A CONTINUED FROM PREVIOUS PAGE ‘‘ maximize the value of the business they Only disclose the minimum amount of identifiable information have spent a lifetime building. vendors and customers. This is not the time to use this document. The sale necessary to enable the parties to conduct due diligence. Christal Contini is a member and co- of a business requires a customized chair of the Mergers and Acquisitions confidentiality agreement that addresses ‘‘ Practice Group at McDonald Hopkins topics which may not be in a standard an unauthorized manner, which could external lawyers and accountants to re- The due diligence phase of a sale LLC. Contact her at 216-430-2020 agreement. For example, if the potential impact the value of the transaction. view every aspect of the target business. transaction is often the time when a or [email protected]. buyer is a competitor, a seller may want Before this occurs, the seller should have buyer decides and/or confirms how Emily Johnson is an associate in to include tailored non-solicitation of KNOW THE BUSINESS its own team vet the business so that the much it will pay for the target business. the Healthcare and Data Privacy employees and customers disclosed 4 BETTER THAN THE BUYER. seller can be prepared to respond to ques- Business owners who employ the above and Cybersecurity Practice groups. during the due diligence phase. A potential buyer of a business will en- tions and disclose any issues that a buyer strategies and engage a competent team Contact her at 312-642-1798 The confidentiality agreement gage its internal management team and may find. of advisers will be better prepared to or [email protected]. should also address safeguarding any personally identifiable information disclosed during due diligence. “Confidential information” should be defined to include personally identifiable information and protected health information if due diligence involves disclosure of protected health information. When representing the disclosing party and where possible, the receiving party should be obligated to indemnify the disclosing party for any unauthorized disclosures of personally identifiable information.

PROVIDE DUE DILIGENCE 2 RESPONSES IN STAGES. Often, business owners take the approach of responding quickly and openly about requests for information because they believe they run a good business and do not have anything to hide. While this may be true, it is customary and reasonable that a seller provides in stages its responses to questions asked during the due diligence process. The rationale for taking this approach is that a buyer is not obligated to purchase the business until a definitive purchase agreement is executed. Therefore, a seller should only provide “high-level” information about its business at the beginning of the process and save detailed responses until after the buyer has demonstrated a commitment to buy the business by either preparing a letter of intent or drafting a definitive purchase agreement.

DO NOT OVER 3 DISCLOSE PERSONALLY IDENTIFIABLE INFORMATION. Only disclose the minimum amount of Serving more than 900 private equity and portfolio identifiable information necessary to companies nationwide enable the parties to conduct due diligence. This is particularly true if the Make From evaluating investments and closing transactions, to due diligence phase will include disclosure of protected health information. mapping out a value-creation plan and exiting If a particular document contains successfully, we’re focused on your success. We provide more information than necessary, expertise throughout the investment lifecycle. the document should be redacted to the remove any unnecessary information. For example, if employment • Financial • Strategy • Technology contracts are disclosed that include • Tax • Operations the employee’s name, date of birth mark. or Social Security number, and the purpose of reviewing the employment Joseph Adams, Partner contracts is to review the language of the agreement irrespective of the [email protected] identity of the individual employee bound by the agreement, then any identifiable information should be redacted from the agreement. Failure to disclose only the minimum plantemoran.com/private-equity information necessary can trigger substantial notification obligations in the event the information is disclosed in S20 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A

receive an incomprehensible 10-page Championship-caliber dealmakers memorandum that asks more questions than it answers. Even if the advice requires some explanation, busy executives expect a succinct executive understand the language of business summary that clearly provides an answer, possibly followed by a more By CHRISTOPHER J. HEWITT business, or lingua negoti, is critical Understanding the language of the business. Lawyers who understand robust explanation that the executive and JAYNE E. JUVAN to accomplishing a client’s objectives. business requires an intelligent their clients’ priorities can assist with can read if she so chooses. Lawyers who understand business on approach to due diligence in M&A advance planning that addresses these The language of business requires s LeBron James has certainly all levels ensure that corporate trans- transactions. Legal due diligence issues before the deal closes. legal counsel to understand their witnessed this season with actions close and help their clients should focus not only on identifying The language of business requires clients’ operations. Reviewing web- A the subpar start by the Cavs, accomplish their goals with skillful issues that need to be solved to close experienced judgment. Many busi- sites for most companies can provide a building a team that includes the right precision. Conversely, the absence the deal, but also on identifying issues ness decisions move at the speed of trove of information on their products, players who understand the game on of business-savvy attorneys on a deal that may inhibit effective integration light. Business clients are constantly customers, core values, business phi- all levels is critical to cultivating a team can become an impediment to of the acquired company. The latter asking their legal counsel to answer losophy and almost all aspects of their winning ball club. closing the deal. is often overlooked and is more questions or provide guidance based business. In addition, public company LeBron is regularly From the perspec- likely to drive return on investment. on their experience and judgment, even clients have robust disclosure in their touted as being a tive of most busi- For the former, lawyers need to focus when the available information may be federal securities filings about matters player with a high ness people, many on the diligence items that are most imperfect. Experienced legal counsel that would not be included on their basketball IQ, and attorneys tend to material and, when undesirable facts do not shy away from these opportuni- websites. Being equipped with this his comprehensive speak in legalese are discovered, be creative in order to ties and can be a real value-add to the level of detail can help lawyers work understanding of the — the formal and minimize their impact on the closing. client by providing insight in real time. with their clients to identify the most language of basketball Hewitt Juvan technical language The language of business requires The language of business important objectives in a transaction. has led to three NBA championships, of law that is often hard to under- listening to clients to gain an requires succinct and clear answers. Understanding the language three NBA Finals MVP awards and stand. But understanding the lan- understanding of the issues that are Businesspeople usually want a yes of business can help source four NBA MVP awards. guage of business means more most important to them. In some or no answer. Especially in the fast- opportunities for clients. The Similarly, in the context of corpo- than having a common vernacular. instances, lawyers will negotiate hard paced M&A context, nothing is more amount of dry powder chasing deals is rate transactions, making sure that at- It also encompasses understanding for issues that their clients have less frustrating to a businessperson than staggering. With all the cash in private torneys on the deal team have the ca- how business people approach and concern over, yet neglect or be entirely to ask a question that should require pacity to understand the language of solve problems. unaware of other issues that impact a simple yes or no answer only to CONTINUED ON NEXT PAGE

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

Calfee is honored to represent companies like Blue Point Capital Partners that continue to drive middle-market growth through Mergers & Acquisitions as well as Corporate Finance.

Congratulations to all 2018 ACG Cleveland Deal Maker Award honorees!

SPONSORED CONTENT CORPORATE January 22, 2018 S21 GROWTH& M&A Business-savvy deal lawyers ‘‘ do not focus on keeping score Making earnouts work difficulty finding future sellers. of deal points won or lost. A carefully constructed arrangement ‘‘ Measuring post-closing perfor- can increase value of business 5 mance is easier if the target business remains a stand-alone division, rather CONTINUED FROM PREVIOUS PAGE a provision makes sense in the By JAMES D. VAIL the percentage of purchase price repre- than merging into the buyer’s business. context of the transaction and, on and JAMES M. GIANFAGNA sented by the earnout, doing appropri- Owners of the seller who become equity funds, in family offices and the buy side, how the acquired on company balance sheets, together ate due diligence and drafting carefully. 6 employees of the buyer post-clos- business strategically fits into the n the sale of a business, an earnout with even a minimal amount of Here are some issues to consider: ing typically have some control over client’s existing business. entitles a seller to additional leverage, there is over $10 trillion on Learn (from the buyer, your in- the target’s operation and knowledge Just as LeBron needs to surround purchase price if the target the sidelines looking to be deployed. I 1 vestment banker or independent- of its post-closing performance. himself with teammates who have a Attorneys who understand their business meets certain post-closing ly) about the buyer’s track record for high IQ for the game, lawyers who benchmarks. The benchmarks are Consider liquidated damages if clients’ businesses and the industries paying earnouts. the buyer itself may be sold before understand the language of business usually based on the target’s financial 7 in which they operate by keeping Choose a benchmark appropriate are critically important when performance — generally revenue, the earnout period expires. abreast of trends, reading trade for your transaction, preferably building a championship-caliber gross profit or EBITDA. 2 Ensure you get documentation publications and attending events one over which you have control and deal team. Earnouts can bridge a difference in supporting the buyer’s earnout are the best dealmakers because they one that is not easily 8 the value each party calculation. can help clients identify proprietary Christopher J. Hewitt is a partner, manipulated by the attributes to the target Earnouts can increase a business’s buying opportunities. On the sell M&A Group chair and Corporate buyer. business. Thus, the value, but involve risk and must be side, these attorneys can help clients Governance Group co-chair at find strategic buyers to maximize buyer pays a fixed Keep the earnout crafted carefully. Tucker Ellis LLP. Contact him period short. sales price. at 216-696-2691 or christopher. price at closing, with 3 Understanding the language [email protected]. future additional You may face James D. Vail is managing partner at of business can help deal proceeds if certain less risk if your Schneider Smeltz Spieth Bell. Contact Jayne E. Juvan is a partner, Vail Gianfagna 4 professionals of all types get their Private Equity Group chair and benchmarks are met. deal is part of a rollup. him at 216-696-4200 or jvail@sssb- deals closed. Business-savvy deal Corporate Governance Group Earnouts are unsecured promises to You may learn how the buyer treated law.com. James M. Gianfagna is an lawyers do not focus on keeping co-chair at Tucker Ellis LLP. pay. Usually buyers can better finance previous sellers. And buyers in a rol- associate at Schneider Smeltz Spieth score of deal points won or lost. Contact her at 216-696-5677 litigation if a dispute arises. Sellers lup want to avoid a reputation of not Bell. Contact him at 216-696-4200 Rather, they focus on whether or [email protected]. should recognize these risks by limiting paying earnouts because they will have or [email protected]. S22 January 22, 2018 CORPORATE SPONSORED CONTENT GROWTH& M&A Managing risk and liabilities as global M&A grows By JEFF SCHWAB and benefits advisers early members of self-funded medical plan and finding standing best practices used to protect sensitive and proprietary information. the M&A team allows your team to ex- an insurance arrangement that enables buyers by transferring risk and Experience matters when it comes homson Reuters reported amine, understand and find solutions a smooth transaction. covering unique circumstances such to navigating your deals. Choose worldwide dealmaking grew for risks in categories We see representations and war- as unforeseen taxes, indemnifications risk consultant and employee benefit T 12% in the first quarter of 2017 that can slow or miti- ranties insurance in almost every sig- and successor liabilities. advisers who understand all areas of over the same quarter in 2016, to gate a deal. nificant transaction. Protecting buy- In addition, environmental insur- M&A, and can help you find the best $777.7 billion. The number of deals Best practices in- ers from breaches or inaccuracies in ance, vital in many industries beyond practice solutions that meet your needs in the same time fell 9%. Fewer deals, volve products and the statements made in the purchase manufacturing, is an area almost al- today and grow together with you to with larger dollar amounts, result in services that protect agreement, representations and war- ways worth review. tackle the risks around the corner. increased pressure and risks that are the buyer and seller. ranties also benefit sellers through Beyond standard best-practice more complex. Comprehensive dil- Schwab faster deal closing. insurance products, we see many Jeff Schwab is a senior vice president From a risk advisory perspective, igence, including data analytics, can Other services and products, applications for cyber and privacy and director of Private Equity Services earlier involvement is the No. 1 best uncover material issues, such as iden- such as tax liability protection and liability coverages, and review at Oswald Cos. Contact him practice. Making your risk management tifying and managing an undisclosed contingent liabilities, are long- existing coverage and exposures due to at 216-658-5208.

Enlist a buy-side adviser to gain the advantage By DAVID PEASE more than ever, investors in businesses industry. The second method is to it will have to find and identify new the auction process, is significantly in the mid- to large-sized markets are look for investment bank deals that acquisition targets. Most companies diminished. ergers and acquisitions rep- looking to leadership teams to complete are put through an auction process. will find it difficult to uncover and Searching for deals primarily in resent a key strategic growth acquisitions to help fuel growth and ulti- Both methods can provide success, but engage additional targets, as well as the auction market, as opposed to M tool for business owners and mately increase the value of their stock. have their set of challenges that can be devote the proper time needed. using a buy-side adviser who can run executives in today’s business environ- So, what does the typical company difficult to navigate without the proper It tends to be easier to source and a process that results in proprietary ment. Given the desire and popularity for do once it decides that growth through experience, resources and guidance. have success with this approach — opportunities, will increase the buyer’s growth by using this approach, oppor- acquisition is in its strategic plan? Of The first method starts by the outside of using an adviser — when odds of paying a higher premium tunities to acquire targets have become the various ways to find acquisition acquiring company reaching out the buyer is visible and well-known to for the target company. The ability increasingly more difficult to source in opportunities, there are two main directly to known companies within the market. Sellers tend to view well- to speak to attractive targets, when a competitive climate with a growing methods to source and complete a deal. a targeted industry. After a company known companies more favorably no other prospective buyer is, can be number of strategic and financial buyers The first method is to identify reaches out to known acquisition targets because of their perceived ability to very valuable for the buyer at closing. looking to place available capital. Now and contact companies in a targeted and is unsuccessful in closing a deal, offer a significant exit. Well-known That ultimately leads to success companies are more attractive to the when measuring the results of your prospective buyers, acquisition goals. which makes the Because of the challenges presented acquisition search by the two main methods to source TMA Ohio Chapter announces process easier. and complete an acquisition, engaging Lesser-known a qualified buy-side adviser as a companies do not professional intermediary is usually the 2017 award winner! have this advantage. most proactive way for a prospective They will proba- Pease buyer to be successful in acquiring the bly have to go through a lengthier, target company. In these situations, the time-consuming process to find and buyer engages the adviser to execute identify acquisition targets beyond the a comprehensive buy-side process for known ones. A buy-side firm can help identifying and facilitating the successful bring value to the process. Relying on closing of one or more transactions. the expertise and experience of a buy- It is important to understand a buy- side firm’s ability to manage the acqui- side firm’s methods and tactics while sition search process can be key to the managing the search process. You will ultimate success of the search. want to know how they will execute a The second method companies use to search process that is measurable and identify target opportunities is contacting backed by the performance statistics sell-side investment banking firms. Sell- of the firm. This will ultimately lead to side focused investment banking firms a successful engagement. put their clients through a competitive Additionally, you may also want auction process. It can be difficult to to find an adviser who not only is get a deal done when the buyer enters an expert in closing transactions the auction process to acquire the target from a deal prospective, but from because the buyer has to compete against the tax side as well. If your adviser other attractive buyers. understands deal structure and how Other buyers can be difficult to post-transaction taxes can affect the compete against and may be able to move seller, there may be an alternative through the initial diligence process deal structure that helps increase the faster, allowing them to offer a higher amount made by the seller, without Alan R. Lepene, Thompson Hine LLP, winner of the 2017 Lifetime Achievement Award, pictured with Mark Kozel, multiple of earnings. Additionally, this increasing the purchase price. TMA Ohio Chapter President. may also lead the prospective buyer Using a buy-side adviser to help to overpay for the target because of with your acquisition growth goals We thank Alan for his leadership and the the competitive bidding nature of the can be a very smart strategic decision auction process. In contrast, when a that will lead to a successful result. contributions he has made both in the buyer purchases a target in a proprietary deal, the buyer will typically pay a lower David Pease is vice president multiple of earnings than they would in at Pease Acquisition Advisors. turnaround industry and our community. an auction process. The likelihood of a Contact him at 216-472-4455 deal reaching the closing stage, given or [email protected]. SPONSORED CONTENT CORPORATE January 22, 2018 S23 GROWTH& M&A

ACG Cleveland 2017-18 NORTHEAST OHIO’S LEADING Officers and Board DEAL MAKERS TO BE HONORED of Directors ACG Cleveland, Northeast Ohio’s leading organization Park Place Technologies for merger and acquisition and corporate growth Private Company Category OFFICERS professionals, will recognize the winners of its 22nd Park Place Technologies is a global leader in third-party hardware maintenance and President – Brian Kelly, PwC Annual Deal Maker Awards at 5:30 p.m. Thursday, Jan. 25, at the Hilton Cleveland Downtown. service. It provides an alternative to post- President Elect – Dale Vernon, warranty storage, server and networking Bernstein The Deal Maker Awards are a tribute to Northeast hardware maintenance for IT data centers. Acquisitions have played an Executive Vice President, Ohio’s preeminent corporate deal makers for their important role in Park Place’s rapid growth. Over the past year, the company Brand – Brad Kostka, Roop has made six acquisitions, enabling it to increase its client base, broaden & Co. Strategic Integrated accomplishments in using acquisitions, divestitures, service offerings, improve customer support, streamline operations and Communication financings and other transactions to fuel sustainable expand its geographic reach both domestically and in international markets. Executive Vice President, growth. The 2018 winners are: Programming & Innovation – John Grabner, Hylant Group Blue Point Capital Partners Executive Vice President, Parker Hannifin Corp. Private Equity Category Resources – Joseph C. Adams, Deal of the Year Blue Point is a private equity firm that partners with Plante Moran Parker Hannifin is a global manufacturer entrepreneurs and management teams, investing in Treasurer – Brian Leonard, of motion and control technologies and and growing lower-middle-market companies. The Edgewater Capital Partners systems. In 2017, the company completed its largest transaction ever firm earned a Deal Maker Award because of the torrid Secretary – M. Joan McCarthy, with the acquisition of filtration products manufacturer CLARCOR Inc. It pace of transactions and exceptional results it has MJM Services LLC acquired CLARCOR for $4.3 billion in cash, including the assumption of generated for its investors. Blue Point has made 24 acquisitions, composed net debt. The strategic transaction creates a combined organization with of four platforms and 20 add-ons, since November 2015 and has divested Immediate Past President – a comprehensive portfolio of filtration products and technologies. It can four portfolio companies since June 2015. John Saada, Jr., Jones Day offer customers a single, streamlined source for all of their purification and separation needs. The transaction is expected to be accretive to Parker’s BOARD earnings, after adjusting for one-time costs. Karen Tuleta, MPE Partners OF DIRECTORS Women in Transactions Deal Maker of the Year Kevin Bader, Nordson Corp. Karen Tuleta is a partner with MPE Partners MCM Capital Partners and has been with the firm (including its Public Company Category predecessor, Morgenthaler Private Equity) Tricia Balser, CIBC With operations in more than 30 countries, since 1995. She serves on all transaction Rudy Bentlage, Nordson is the leader in precision dispensing, fluid management and deal teams and works closely with the firm’s portfolio companies to help Chase Business Credit related technologies. Since August 2014, the company has completed drive their growth. Tuleta has more than 25 years of corporate finance Mark Brandt, Northern Trust 10 strategic acquisitions, which added nearly $300 million in top-line experience and has been involved in more than 60 transactions over the growth, strong EBITDA margins, differentiated technologies and nearly Jeffrey Fickes, Vorys course of her career. She has served on the local and global ACG boards 1,500 employees. In 2017 alone, it made four acquisitions, including ACE and is currently on the ACG InterGrowth Task Force Committee. Beyond her Sarah Gregg, Partners Production Technologies, InterSelect GmbH, Plas-Pak Industries Inc. and aptitude for transactions, she has been a helpful mentor to many women in Environmental Consulting Vention Medical Advanced Technologies. the dealmaking community, helping them to further their careers. Beth Haas, Cyprium Partners Chris Hogan, Sponsors supporting the 2018 Deal Maker Awards include Benesch, Grant Thornton, Huntington, KeyBanc Capital Markets, Oswald Cos. KeyBanc Capital Markets and Roop & Co. Strategic Integrated Communication. Megan Horvath, Resilience Capital Partners Jonathan Ives, SCG Partners Tom Libeg, Grant Thornton 2018 ACG Events Calendar For more information and to register, visit www.ACGcleveland.org Martin McCormick, Huntington Capital Investment Co. Jay Moroscak, DATE EVENT TIME LOCATION Aon Risk Solutions Jan. 25 22nd Annual Deal Maker Awards 5:30 p.m. Hilton Cleveland Downtown Kevin Murphy, Deloitte Feb. 6 Regional Networking, East | Scot Lowry, CEO, Fathom 5:30 p.m. Cedar Creek Grille Matt Roberts, MelCap Partners Feb. 15 Regional Networking, Central | A.J. Petitti, President, Petitti Garden Centers 5:30 p.m. Lockkeepers Jeff Schwab, Oswald Cos. Feb. 15 Young ACG Winter Social TBD Margaritaville Peter Shelton, Benesch Feb. 20 John Gordon, President, Ultimate Air (joint event with FEI) 5:00 p.m. Union Club Bertrand Smyers, Feb. 22 Regional Networking, West | Mike Malley, President, Malley’s Chocolates 5:30 p.m. Lakewood Country Club New Heights Research PWC March 8 Laurel Stauber, Regional Economic Development, NASA 11:45 a.m. Union Club Cheryl Strom, The Riverside Co. March 22 Young ACG Professional Development Program TBD TBD Theodore Wagner, Bober Markey Fedorovich May 10 New Leadership in Fortune 500 Companies 4:00 p.m. Ritz Carlton, Cleveland William Watkins, May 22 Young ACG Professional Development Program TBD TBD Harris Williams & Co. June 12 Spring Social 5:30 p.m. Shoreby Club Thomas Welsh, Sept. 5-6 Great Lakes Capital Connection TBD Marriott Indianapolis Downtown Calfee Halter & Griswold LLP Sept. 24 14th Annual Golf Outing TBD Firestone Country Club Rebecca White, Kenan Advantage Group