20130128-NEWS--17-NAT-CCI-CL_-- 1/22/2013 1:13 PM Page 1 20130128-NEWS--18-NAT-CCI-CL_-- 1/22/2013 1:13 PM Page 1 S-2 JANUARY 28 - FEBRUARY 3, 2013 CORPORATE GROWTH & M&A Advertisement LETTER FROM THE PRESIDENT table of ACG: What’s in a name? contents By SEAN MCCAULEY land include investment bankers, munity leaders. Twice a year, corporate M&A officers, private ACG Cleveland hosts workshop ften I am asked, “What equity, “C” level corporate offi- events that bring together a pan- does Association for cers, senior asset based/corporate el of industry experts to explore a Corporate Growth lenders, junior/mezzanine lenders, specific business trend, issue, in- actually mean?” Whose transaction attorneys, tax/assur- dustry or community project. Ogrowth? Is it the companies, the ance accounting professionals and The Great Lakes ACG Capital corporate officers or the other service providers. Connection is a two-day event financial professionals Earlier this year ACG for capital providers and deal who support businesses? Cleveland was recognized makers that attracts more than The short answer is yes, as 2012 ACG Large Chap- 700 M&A professionals. ACG yes and yes. ter of Year. We are proud Cleveland hosted the event in its To be successful you to be honored ahead of first two years and we supported must always be looking to chapters in New York, successful events in Indianapolis develop new relationships. Chicago, Los Angeles, and Detroit in 2011 and 2012. A strategy to consistently Boston and Dallas. This Over the years ACG Cleveland connect with deal makers SEAN MCCAULEY achievement would not has evolved its programming and and shapers will always ACG president have been possible with- expanded its mission to address result in new business op- out the significant efforts the needs of future leaders, con- portunities. The mission of ACG is of our current and past volunteer nect with Ohio’s graduate busi- FILE PHOTO to provide this critical network- board members, our chapter ness schools and engage in the ing platform among participants members, and the thousands of economic vibrancy of our region. in mergers and acquisitions and professionals who support our Our ACG Cup brings together corporate finance. ACG Cleve- events each year. MBA student teams from the top S4 Sky’s the limit land’s primary networking efforts On Jan. 31, ACG Cleveland graduate business schools in are the 25 to 30 diverse and award- will host its 17th Annual Deal Northeast Ohio for a deal-specific Cleveland’s diverse business base and wealth winning events hosted each year. Maker Awards. This signature case study competition. Over the Social media is important, but event to recognize significant last few years ACG Cleveland has of service firms enhance private equity position. building long-term relationships merger and acquisition accom- developed programming specific is done by getting out, rolling up plishments attracts more than to Women in Transactions (WIT) your sleeves and talking to people 800 financial professionals from and a Young ACG (YACG) initia- S3 Buyer due diligence S14 Prepare for selling family face to face. No matter how big Northeast Ohio and around the tive to develop the next genera- held business or small the company, business country. M&A financial profes- tion of deal makers. S6 Purchase agreements gets done between individuals sionals know that Cleveland is If you are serious about build- S7 80/20 rule S15 Tale of M&A markets and not solely through a web page a deal-making town and an ing or growing your own busi- S16 Combining ABL with S7 Primary care revolution or phone call. important destination for net- ness network, I encourage you to syndicated term loans ACG Cleveland has a 30-year working. The event is a unique learn more about our organiza- S8 Earn-out contingent tradition of connection and experience complete with non- tion. Attend an event, talk to and high-yield bonds consideration engagement in Northeast Ohio. stop introductions and reconnec- a chapter member, visit S17 Noncorrelated Our Cleveland chapter is one of tions, past and future deal discus- www.acgcleveland.org or contact S8 Acquisition advice investments 58 around the world, including sions, and market observations me at 216-222-2847. ■ Asia, South America and Europe, and frustrations. S9 Timing deals S18 Lending alternatives and part of a 14,500-member Our monthly breakfast meet- Sean McCauley is president of ACG S10 Tax considerations S19 Leverage buyout trends ACG global organization. ings showcase Northeast Ohio’s Cleveland and a vice president with for carve-out statements The 500 members of ACG Cleve- most senior corporate and com- PNC Business Credit. S20 Global M&A S10 Corporate divestitures S20 Conflict minerals rule S11 Managing M&A fees S20 Private equity survey “I work with Benesch because of their ability to S12 Valuations S21 Judging a private equity get to the core of an issue and then develop the S13 Purchase accounting rules firm strategies to resolve it, whether an everyday S13 Sell-side due diligence S22 Transactional insurance matter or something out of the ordinary.” S14 What is your corporate S23 Asset-based lending DAVID I. MANSBERY M.P.G.? S23 Deal Maker awards President, Duck Creek Energy, Inc. David considers himself a “serial entrepreneur” COVER PHOTO: The Veterans Memorial Bridge with 200 Public and has relied on Benesch for a multitude of Square, Terminal Tower and Carl B. Stokes U.S. Courthouse in the background. Photo by Eureka Lott business needs. From handling real estate, leasing, litigation and general business matters for Duck Creek Energy to navigating the successful sale of a prior business and its DISCLAIMER intellectual property to incorporating a new The articles in this section were prepared by the respective contributors for general information purposes only and are not intended as legal, tax, accounting venture, Benesch has the breadth and depth or financial advice. Under no circumstances should any information contained in to help David go wherever his ideas take him. any of these articles be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon any such To learn more about our relationship with Duck information is solely and exclusively at your own risk. Please consult your own Creek Energy, visit beneschlaw.com/myteam counsel, accountant or other advisor regarding your specific situation. Any views expressed in the article are those of the respective contributor and are subject to change without notice due to market conditions and other factors. YOUR MARKETS With expertise encompassing business FEATURED ATTORNEYS (left-right): ROBERT A. ZIMMERMAN, law, regulatory matters and advocacy, LORI H. WELKER, DAVID MANSBERY, JR., DAVID R. MAYO MAY BE GLOBAL Squire Sanders lawyers have the skills AND JOSEPH G. TEGREENE and in-depth industry knowledge to BUT YOUR LEGAL provide the full range of legal counsel needed to implement your strategy in ISSUES ARE LOCAL Cleveland, across the country and MY BENESCH MY TEAM around the world. Cleveland • Columbus • Indianapolis • Philadelphia • Shanghai • White Plains • Wilmington • www.beneschlaw.com © 2012 Benesch Friedlander Coplan & Aronoff LLP squiresanders.com Crain’s Cleveland Business Custom Publishing 20130128-NEWS--19-NAT-CCI-CL_-- 1/23/2013 1:26 PM Page 1 Advertisement CORPORATE GROWTH & M&A JANUARY 28 - FEBRUARY 3, 2013 S-3 Best practices in financial due diligence ment of revenues and margins by should be closely assessed to ■ Scalability of the business, diligence, it’s buyer beware. ■ Target firm’s customer, product line and chan- determine the appropriateness of depth of the management team, nel to assess the quality of such such valuation given its direct adequacy of information systems Mark Bober is a partner with Bober earnings quality revenue and the sustainability of impact on reported earnings. and related items Markey Federovich. Contact him at the revenue stream. ■ Debt and debt-like liabilities. 330-255-2425 or email mbober@ key to crafting ■ Pro forma cost adjust- Items are often not recorded on bobermarkey.com. solid transaction ■ Accounting adjustments ments: Pro forma costs might in- the balance sheet impacting earnings: The clude restructuring or financing ■ Working capital require- By MARK BOBER nature of activity within reserves costs. These need to be carefully ments and thresholds and accruals, such as allowance analyzed in order to determine established in the purchase horough due diligence is for doubtful accounts, inventory the appropriateness of such agreement or letter of reserves, warranty reserves, adjustments. This will require intent an important component ■ of a transaction that, if accrued liabilities, etc., should be assessment of both the qualita- Capital expenditures, done properly, provides analyzed to determine potential tive and quantitative aspects of both past and future Ta prospective buyer with an inflation of reported earnings. these adjustments. in-depth understanding of the Acquisitions provide ■ Inventory valuation: quality of earnings of the target Capi- Other due diligence areas to tremendous opportunities, company. Knowing a target’s talization of costs into inventory consider include the following: but without adequate due quality of earnings can further assist a buyer in establishing pricing, deal structure and post- acquisition planning. Generally, it would not be disclosed in their audited financial statements or a confidential information memo- randum, which is a description of the business and its financial performance. While every situation is differ- ent, following are typical focal points of a qual- ity of earnings investigation: ■ Revenue recognition: Revenues MARK BOBER should be recog- Bober Markey nized in the Federovich proper period as well as costs related to generating such rev- enues. Generally accepted ac- counting principles (GAAP) ap- plied on a consistent basis would be the standard that would govern such treatment.