Crain's Cleveland BUsiness

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Hospitals seek Rx for bad debt Nonpayment from insured, growing charity care a double whammy

By TIMOTHY MAGAW tmagaw@crain.com

On top of exploding charity care rolls, Northeast Ohio hospitals are stomaching increased volumes of unpaid bills from their insured patients — the base that traditionally generates the bulk of hospital revenues.

To get a handle on their escalating bad debt, hospitals are beefing up

their front-end operations in hopes that stronger communication with patients before they go under the knife could improve the prospects that they’ll be paid. However, there’s only so much providers can do to hold down their mounting bad debt expenses.

“It’s a struggle and a two-edged sword,” said Bill Ryan, president and CEO of the Center for Health Affairs, an advocacy group repre-

senting Northeast Ohio hospitals.

“If hospitals acted like cable or utility companies, they could shut the power off,” Mr. Ryan said. “But they can’t say, ‘You’re on the bad boy list’ and refuse to give you care anymore.”

The reasons people don’t pay their bills vary. However, hospital officials attribute much of the growth in bad debt over the last four years to a boom in high-deductible

City plans per-trip fee for drivers at airport

– Bill Ryan, president and CEO, Center for Health Affairs

Welcome to the club Dan Gilbert’s purchase of the Cleveland Gladiators expands the Cavaliers’ owner’s ability to promote all of his Cleveland properties.

PAGE 3 ALSO: ■ The volume of commercial real estate sales rose in 2011.

PAGE 3

insurance plans and a dismal economy that has left many patients who don’t meet the hospitals’ charity care guidelines unable to meet their financial obligations.

See DEBT Page 5

SMOKES TAX FIRES UP ARTS BACKERS They’re already preparing their case for a ballot renewal issue in 2015

By JAY MILLER jmiller@crain.com

Officials want to trim airlines’ landing costs

W

henever he walks out of his office, Thomas Schorgl sees a 10-year timeline he posted in 2007 with ever-shrinking suns. Each sun represents a year from 2007 to 2016, and the first five suns already are X’d out by Mr. Schorgl, longtime president and CEO of the Community Partnership for Arts and Culture, a foundationbacked nonprofit that supports arts groups in Northeast Ohio.

Likewise, Karen Gahl-Mills, executive director of Cuyahoga Arts and Culture, the public

By JAY MILLER jmiller@crain.com

The city of Cleveland is planning to boost substantially the fees it charges limousine companies and hotel and off-site parking lot operators who pick up and drop off passengers at Cleveland Hopkins International Airport. The fee for taxicab drop-offs by cab companies that don’t participate in the airport taxi program also would rise.

Legislation introduced Jan. 9 would allow the city to charge Smith anyone who provides ground transportation to and from the airport a per-trip fee for access to the airport terminal. Ricky Smith, the city’s director of port control, said limousine companies, off-site parking operators and other transportation providers now pay a flat fee of $550 a year per vehicle to use the airport.

The legislation has not yet been

“If hospitals acted like cable or utility companies, they could shut the power off.”

INSIDE

See ARTS Page 9

BEST FOOT FORWARD Two groups that support arts and culture in the region are working now on getting their messages out on the value of an excise tax on cigarettes before it expires in 2016. Among their talking points: ■ Musicians, music-related organizations, the recording industry and others had an $840 million impact on Northeast Ohio’s economy in 2009, according to the Community Partnership for Arts and Culture.

■ 7.7 million visits to organizations financed by Cuyahoga Arts and Culture in 2009 and 23,971 activities offered by grant recipients.

■ A PBS documentary reporting that the $17 million distributed yearly by Cuyahoga Arts and Culture ranks the agency third nationwide among public arts supporters.

STEVE B ENNETT ILLUSTR ATION

04

See FEE Page 37

0

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SPECIAL SECTION

HIGHER EDUCATION College presidents now are more involved in the fundraising process ■ Page 11 PLUS: INNOVATORS ON CAMPUS ■ AKRON IN LAKEWOOD ■ & MORE

Entire contents © 2012

by Crain Communications Inc. Vol. 33, No. 4

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JANUARY 23 - 29, 2012

CRAIN’S CLEVELAND BUSINESS

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Commercial property sales rebound in ’11 Big deals returned, but activity level still pales compared with 2007, 2008 volume

By STAN BULLARD sbullard@crain.com

CLEVELAND CAVALIERS PHOTO

A hockey-shot contest during “Monsters Night” at a Cleveland Cavaliers basketball game last winter is an example of the cross-promotional advantage enjoyed by the teams, which are owned by Dan Gilbert.

ALL IN THE FAMILY Cavaliers owner Dan Gilbert’s latest addition to sports roster provides another avenue through which he can promote properties

By JOEL HAMMOND jmhammond@crain.com

C

leveland Cavaliers owner Dan Gilbert in May 2006 bought a dormant Utah minor-league hockey team and turned it into the Lake Erie Monsters, who in their fifth season are on pace to break franchise attendance marks.

The Monsters have reached those numbers thanks in large part to advantages other teams at their

level, in the NHL-feeding American Hockey League, don’t enjoy: a highprofile big brother in the Cavaliers, and all the accompanying perks.

Monsters gear is displayed prominently in the Cavs Team Shop at Quicken Loans Arena. The team’s games appear on Cavaliers pocket schedules. Its name is found on signage around The Q. And on Fox Sports Ohio, the Cavaliers’ broadcast television partner.

Commercial real estate’s crawl out of the cellar continued in 2011.

The volume of Northeast Ohio commercial property sales climbed to $405 million in 2011, up 40% from $290 million in 2010, according to a new report by Alec Pacella, a senior vice president at the NAI Daus brokerage in Beachwood.

Though improved, commercial sales last year still trailed by 42% the $696 million total Mr. Pacella recorded in 2008, when the worst recession since the Great Depression hit the United States.

Even more striking, the $405

INSIDE: A closer look at the data for Northeast Ohio commercial property sales, dating to 2007. Page 9 million pales compared to the last peak in commercial sales, $1.3 billion in 2007. The volume of regional sales actually softened more than a year before the recession and October 2008 banking crisis hit.

“It was healthier,” Mr. Pacella said of the commercial real estate market in 2011. “The market is moving toward normalcy. But we’re still far from healthy. I consider $600 million normal in our region — it’s neither too low like the past few years, nor is it too high, like the silly numbers See SALES Page 9

THE WEEK IN QUOTES “Ultimately, we’re trying to do everything we can to minimize the airlines’ operating costs at the airport.”

— Ricky Smith, director of port control, city of Cleveland.

Page One

“The arts and culture sector isn’t just sitting around waiting for the next levy. We want to make sure what we’ve achieved in this community is something we can hang on to.”

— Thomas Schorgl, president and CEO, Community Partnership for Arts and Culture. Page One

See FAMILY Page 37

DAN GILBERT’S QUICKEN LOANS ARENA EMPIRE

Cleveland Cavaliers

Lake Erie Monsters

Cleveland Gladiators

Bought: January 2005 Home games per season: 41 Average attendance: 15,718

Bought: May 2006 Home games per season: 38 Average attendance: 6,777

Bought: Jan. 17, 2012 Home games per season: 9 Average attendance: 6,507 (2011)

“Fundraising for public university presidents had barely been on the agenda, and now it’s really front and center.”

“We know that we’ve got content that other markets are interested in.”

— Jim Sage, chief information officer, University of Akron.

Page 14

— Michael Schwartz, former president of Cleveland State and Kent State universities. Page 11

INSIGHT

Three NE Ohio community banks targeted for TARP repayment Institutions owe a combined $37 million, but when Treasury can expect its money remains uncertain

By MICHELLE PARK mpark@crain.com

Three local banks are among 380 institutions recently contacted by the U.S. Department of the Treasury because they haven’t repaid so-called federal bailout funds, which the government wants back.

Lorain’s LNB Bancorp Inc., Fairlawn’s Central Federal Corp. and

Medina’s Western Reserve Bancorp Inc. collectively retain more than $37 million from TARP — the government’s Troubled Asset Relief Program.

Dated Nov. 30, the Treasury’s letter to each bank explains: “The purpose of this letter is to inform you that we are working with Houlihan Lokey Capital, Inc. to explore options for the manage-

ment and ultimate recovery of our remaining CPP (Capital Purchase Program) investments.”

The letter also notes: “We encourage CPP institutions that have regulatory approval to repay their TARP investment. Replacing government capital with private capital is an important component of fully restoring financial stability.”

The Treasury indicated it will contact banks to discuss the options it is considering.

Of the 707 institutions that received $205 billion through TARP’s Capital Purchase Program since

2008, about 370 still owed as of last week an approximate principal balance of $17 billion, Treasury spokesman Matt Anderson said.

That’s several banks fewer than the number of letter recipients because some have repaid the money since the letter was sent, Mr. Anderson said.

In all, $211 billion has been returned to the Treasury in the form of repayments, dividends and warrants, which means the program is in the black. Most institutions that still retain TARP money are community banks.

Noncommittal bunch The answer from local banks as to when they’ll repay the Treasury is murky.

Daniel E. Klimas, president and CEO of LNB Bancorp, the parent company of Lorain National Bank, declined comment on the bank’s plans for repaying the $25.2 million in TARP money it received in December 2008. As of Dec. 31, 2011, it had paid $3.7 million in quarterly dividends to the Treasury for the investment.

See TARP Page 37

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CRAIN’S CLEVELAND BUSINESS

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JANUARY 23 - 29, 2012

New $45M state fund to reward local government collaboration And early interest hints that many municipalities may finally be ready

By JAY MILLER jmiller@crain.com

if you are paying more than $10 per foot, you are overpaying.

This may be the year local governments truly embrace regional collaboration. Budget forecasts are so gloomy that most communities no longer can ignore the potential savings they might achieve by sharing services with their neighbors.

An added incentive to embrace such change comes from the Kasich administration, which helped create the cash crunch communities face by reducing their state support in Ohio’s current biennial budget. It has created the $45 million Local Government Initiative Fund to offer communities modest financial help to make the transition.

The lure of that money attracted 300 government officials to Corporate College East in Warrensville Heights last Tuesday, Jan. 17, to learn how to tap into the state’s fund, which is a mix of loans and grants. A similar presentation in Columbus earlier this month attracted 800 people either in person or on a webcast, said Randy Cole, president of the Ohio Controlling Board and a member of the council that will evaluate applications for the fund’s money.

Mr. Cole told the police and fire chiefs, mayors, economic development directors and other local officials gathered last week that they face “a once-in-a-lifetime chance to change the way services are delivered.”

Cutting the cost of government is a fundamental principal of Gov. John Kasich and officials in his administration. They understood that the cuts in state support to local government would force communities to rethink the wisdom of each municipality hiring its own trash collectors and of school districts

operating their own bus systems.

The money in the fund is designed to finance some of the upfront costs that have been barriers to efforts to share services or consolidate operations. Communities will be able to use grants to see if an idea is feasible and use loans to finance the hardware or other capital costs it might take to implement an idea.

Over the last year, Mr. Cole said, he has been studying the way communities are cutting costs and sharing services. He said he has found 91 different kinds of collaboration in the state.

Mr. Cole cited Hamilton County, where county government has turned over administration of its email system to the Hamilton County Educational Services Center, a county school district.

“They could provide it better and cheaper, so (the county) is getting out it,” he said.

But, Mr. Cole said, more must be done.

“Yes, you’re doing shared services,” he said he told one government official recently. “You’re doing A, we’re doing B and they’re doing C. We’re just not doing A, B, C and D together.”

Now, Mr. Cole said, “It’s time to connect the dots.”

Ahead of the curve Northeast Ohio communities have gotten off to a faster start than other areas of the state when it comes to collaborative efforts.

The foundation-financed EfficientGovNetwork has used modest financial awards to get communities thinking about collaborative efforts. From that program, communities shared information technology, formed joint economic development districts and, in the case of school districts in Orrville and Rittman in Wayne County, shared top administrators. In the latter example, the program gave the district $70,000 for new equipment, including a networked file server they could share.

The new state fund has similar

goals, as do some of the communities that had attendees at the Corporate College session.

Kenneth Perry, economic development director of Brooklyn Heights, said his mayor, Mike Procuk, will be participating in a meeting in Seven Hills next month with Mayor Richard Dell’Aquila and mayors from other nearby cities to plot a collaboration strategy. Mr. Perry said he expects centralized police and fire dispatching will be high on the list of subjects discussed.

Likewise, Richmond Heights councilwoman Meisha Headen said she hopes her community will team up with a neighboring city to look at the idea of sharing police and fire chiefs. A charter amendment on last November’s ballot unsuccessfully sought to allow the city to enter into joint service agreements.

Ms. Headen said she hopes a state grant will help the city succeed the next time.

Making the grade The state fund is open to all government entities in Ohio. Part of the money — $9 million — will be available for grants that can be used to examine the feasibility of an idea.

No-interest loans will be available for expenditures to implement the ideas.

Applications for the first round of money are due March 1, but the cash will not be available until July 1, the start of the state’s fiscal 2013.

A second application round is scheduled for fall.

In a memo to his mayor, Brooklyn Heights’ Mr. Perry summed up the requirements for a successful application: “We were also told that they will not be just issuing money for grants and loans but only where there is a ‘demonstrable return on investment’ for the ‘partnering communities and the state of Ohio.’

“They are going to be grading all of the funding submissions and the ones receiving the highest scores will be given priority,” Mr. Perry wrote in the memo. “We wouldn’t want it any other way, correct?” ■

NE Ohio housing sales outpace state last month, in 2011 Northeast Ohio’s housing market was, in most respects, stronger than the market statewide for December and all of 2011, according to data released last Friday, Jan. 20, by the Ohio Association of Realtors.

The Realtors group reported there were 7,779 homes sold statewide last month, up 5.9% from 7,344 in December 2010. The average sale price, though, fell 5.9% to $122,649 last month from $130,293 in the like month a year ago. The total dollar volume from sales statewide in December was $954.1 million, down 0.3% from $956.9 million in December 2010.

The market was quite a bit stronger in Northeast Ohio. The

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Realtors group combines sales from 17 Northeast Ohio counties into one category known as the Northeast Ohio Real Estate Exchange, or NEOHREX. There were 2,696 homes sold in December in NEOHREX, up 16% from 2,318 in December 2010. The average sales price in Northeast Ohio fell, to $119,520 from $125,050, but the 4.4% drop was better than the percentage decline in the state average. Unlike the rest of the state, NEOHREX total dollar volume rose by 11.2%, to $322.2 million last month from $289.9 million in Decem-

ber 2010.

For the full year, most of Northeast Ohio’s numbers were better than the statewide figures.

There were 32,289 homes sold in NEOHREX in 2011, up 2% from 31,649 in 2010. The average sale price fell 4.7%, to $120,543 from $126,536 in 2010. Total dollar volume of sales also was down, by 2.8%, to $3.89 billion from $4 billion.

Statewide, the number of home sales rose only 0.1%, to 99,881 in 2011 from 99,741 the prior year.

The average sales price fell 3.6%, to $127,838 from $132,678. Dollar volume was down 3.5%, to $12.8 billion from $13.2 billion.

— Scott Suttell

Volume 33, Number 4 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of May and fifth week of May, the fourth week of June and first week of July, the third week of December and fourth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2012 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00.

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CRAIN’S CLEVELAND BUSINESS

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Debt: Hospitals engaging patients on costs earlier continued from PAGE 1

“These people just don’t have the disposable cash on hand to pay deductibles,” said Don Paulson, University Hospitals’ vice president of finance revenue cycle management.

“We’re seeing it across the board for people who have less and less resources to pay these claims.”

The Cleveland Clinic, the region’s largest health system, posted $86.2 million in bad debt expenses in 2010 — a 43% increase from the $60.3 million recorded in 2009, according to Clinic chief financial officer Steven Glass. While the numbers for 2011 haven’t yet been crunched, he expects “a sizable increase” over 2010’s numbers.

“We’re limited in the number of things we can do as far as getting health care coverage for some of these individuals,” Mr. Glass said. “A big part of this burden falls on the providers.”

armed with iPads loaded with software to help them determine what patients might owe and whether they could qualify for government assistance or charity care.

“The good thing is that they’re informed,” said Craig Richmond, MetroHealth’s director of revenue cycle. “That’s what I’m calling a strong pre-registration process.”

Over the last year, MetroHealth trained its registration staffers with role-playing scenarios to help them better understand how to collect co-pays and other charges patients often aren’t prepared to pony up.

“Getting people in that comfort zone of asking a patient for their out-of-pocket expenses up front is important because, for a lot of people,

Waiting on the economy

that’s not a natural dialogue,” Mr. Richmond said. “We’re measuring how successful we are in securing that.”

Mr. Paulson said University Hospitals, which saw its bad debt expenses climb about 13% to $16.8 million in 2010, also is working with its staff to relay the importance of patients’ financial obligations and is evaluating new software that can gauge more accurately what patients might owe after service.

“Engaging the patient is difficult,” Mr. Paulson said. “We try to do that in a respectful and compassionate fashion so that we allow the patient to maintain their dignity and their ability to match their medical claims against the other bills they have in their lives.”

While hospitals might seem as if they’re coming off too aggressively in terms of collecting, Summa Health System’s Kevin Theiss said some of the changes the Akronbased system implemented have been well received by patients. For one, Summa now requires any patient scheduling an elective surgery to meet with a financial counselor beforehand to discuss which costs the patient ultimately must bear.

“To be quite honest, I think our patients before had some trepidation going into surgery about how much this would cost them,” said Mr. Theiss, Summa’s vice president of revenue cycle.

Though Summa still is hammering out its 2011 numbers, the health system posted $27.5 million in bad expenses in 2010, up about 27% from $21.6 million the prior year. Even if the growth of bad expenses doesn’t slow, Mr. Theiss said improving the patient experience would have made the changes worthwhile.

“I think it’s very important to have processes in place where we are able to educate the patient what their financial responsibility is going to be, which would lead to what I hope is an improvement in customer satisfaction,” he said.

Mr. Ryan of the Center for Health Affairs said a stronger economy might be the only way get patients paying again.

“We’re hoping to some degree this is cyclical and, as the economy improves, these numbers flatten out a bit,” he said.

■

Can we talk?

Mr. Glass said the Clinic in recent years has worked to improve seminars for patients that explain the health care billing process and the government programs patients might be able to access for help with paying their bills. For example, he said the Clinic offers a seminar for older patients struggling to pay their bills about what insurance products, such as Medicare, are available once they turn 65.

Health care administrators say the success rate of whether patients pay their bills often is determined by the strength of a provider’s financial counseling services provided prior to care.

Jeff Popp, Southwest General Health System’s director of revenue cycle, estimates that if a provider doesn’t collect or engage the patient in financial counseling up front, the probability the provider won’t be paid rises by about 50%.

Southwest’s financial counselors, for one, started meeting with patients with planned big-ticket procedures to explain their eventual financial responsibilities and to see whether they might qualify for charity care or government assistance.

“We didn’t have a process before to do this at all,” Mr. Popp said. “We were at the mercy of our patients reading our statements we sent to them and hoping they’d respond to us.”

As a result of its efforts, Southwest saw a decrease in its bad debt expenses to about $4 million in 2010 from about $6.2 million in 2009.

However, Southwest saw a corresponding increase in the amount of charity care during that period, as many of those patients who wouldn’t have paid their bills landed instead on the system’s charity care roster, according to Mary Ann Freas, Southwest’s vice president and chief financial officer.

As such, Southwest still must eat the cost of the unpaid bill, but Ms. Freas said the advantage of reclassifying patients as charity care recipients saves them the hassle of enduring the endless billing and collections cycle. It also has a public relations benefit, she noted, by providing the system with “better representation of the community benefit, in the form of charity care, that Southwest provides as a tax-exempt organization.”

iPads at the ready The county-subsidized MetroHealth System last year staffed its emergency room with financial counselors

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CRAIN’S CLEVELAND BUSINESS

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JANUARY 23 - 29, 2012

Our attorneys provide the Insight and Foresight to get your deal done.

AMRESCO Inc.

Cleveland HeartLab, Inc.

Sale to VWR International, LLC

Series B Preferred Financing

The Sterling Building in downtown Cleveland’s Theater District is the subject of a foreclosure lawsuit by Orix, the New Yorkbased holder of the building’s mortgage.

STAN BULLARD

MCM Capital Partners

Neo Material Technologies

Purchase of Zinkan Enterprises

Purchase of Gallium Compounds

Munsell fighting Theater District suit Effort to stave off foreclosure likely tied to Sterling’s 84% occupancy

By STAN BULLARD sbullard@crain.com

Palm Beach Pathology, P.A.

Sale of assets of business to American Pathology Partners, Inc.

Sanders Tools & Supplies

Sale to BlackHawk Industrial Distribution, Inc.

Techtron Systems

StyleCraft Home Collection

Parts Associates, Inc.

Financing

Strata Pathology Services, Inc. / Winchester Laboratory Associates, P.C.

Recapitalization with Linden Capital Partners

Techtron Systems

Techtron Systems

Acquisition of ofReal EstatePartners) and (A portfolio company MCM Capital Senior Financing Debt Refinancing

Acquisition of Real Estate and Acquisition of Real Estate and Financing Financing

Techtron Systems

Techtron Systems Weldmation, Inc.

November 2011

Acquisition of Real/ Vital Estate Tri-City Family Medicine Realand Estate Financing Refinancing

November 2011

November 2011

Acquisition Sale of of Real assetsEstate to and Kramer Financing International, Inc. November 2011

Breaking with the cut-and-run approach owners of distressed commercial property often take in a stagnant market, developer Mark Munsell is fighting to fend off a foreclosure lawsuit on the Sterling Building in downtown Cleveland’s Theater District.

Attorneys for the owner of Munsell Realty Advisors have asked Cuyahoga County Common Pleas Court Judge Daniel Gaul to dismiss a foreclosure suit filed by Orix Capital Markets. Orix is a New York unit of the Tokyo-based Orix financial services company that handles the $8 million mortgage on the five-story building, at 1255 Euclid Ave. Attorneys for Mr. Munsell, who holds the building through Sterling Telecom Office Building LLC, contend that Orix lacks standing to foreclose. They argue that Orix is a special servicer appointed to represent the securitized loan, which was sold to multiple note holders, and not the note holder or the party that originally wrote the loan, Prudential Mortgage Capital of Newark, N.J. In striking language for staid legal filings, the developer’s attorney wrote: “It appears that the note and mortgage are held in a mortgage

pool dreamed up by Wall Street hotshots as a vehicle to convert commercial and residential mortgages into marketable securities that are now at the forefront of the ‘Robosigning’ mortgage crisis that led to the worst financial crisis in U.S. and world history. … The real owners of the note and mortgage are a plethora of unidentified individuals and/or unidentified corporate entities who purportedly purchased an interest in the note and mortgage.”

In an opposing brief, Orix’s attorneys said the borrower was “disingenuous” to blame the lender for the nation’s 2008 financial collapse.

Moreover, Orix maintains the motion to dismiss is a delaying tactic.

The court had not ruled by last Thursday, Jan. 19, on the dueling motions, both filed in late December, nor has it ruled on the lender’s request for a receiver to run the building.

Orix sued to collect on what began as a $9 million mortgage Sterling Telecom received in 2006 that expired Dec. 31, 2010. The lender had issued a one-year extension that expired Dec. 31, 2011. Orix initially filed suit on Dec. 15, alleging that Sterling Telecom had not complied with technical requirements of the extension.

Fighting with a lender likely has

fewer chances for success than fighting with City Hall. However, Kevin Margolis, chairman of the Benesch Friedlander Coplan & Aronoff law firm’s real estate group, said it looks like the building owner is employing a strategic defense to gain time or a bargaining position.

“Fundamentally, if you fight with the bank, what is the reason?” asked Mr. Margolis, who noted he represents none of the parties. “Are they trying to reduce debt? Extend the time period to work out a solution? If you have the money to hang on, you can fight the battle to win the war.”

One reason Mr. Munsell and his investors may be trying to rebuff the foreclosure is that the office building, once the Sterling-Lindner department store, is worth keeping.

The CoStar online realty data service reports the 194,000-squarefoot property is 84% leased, primarily with technology-related tenants. Mr. Munsell declined comment, as did Michael Shuster, one of Orix’s Cleveland attorneys.

Ironically, Mr. Munsell’s investor group bought the Sterling Building as a distressed, lender-owned property in 2001 for $12 million. The property also benefits from the city’s HealthLine transit line and PlayhouseSquare’s multiple efforts to revitalize the neighborhood.

■

AirTran will convert to Southwest at Akron-Canton Shawn M. Riley Cleveland Managing Member

Charles B. Zellmer Chair, Business Department

McDonald Hopkins LLC 600 Superior Avenue East, Suite 2100, Cleveland, OH 44114 • 216.348.5400

www.mcdonaldhopkins.com Chicago • Cleveland • Columbus • Detroit • Miami • West Palm Beach

Akron-Canton Airport is among 22 airports nationwide that made the cut and will convert AirTran Airways operations to Southwest Airlines operations as the two carriers fully merge their services.

The announcement last Friday by Dallas-based Southwest was greeted enthusiastically by Kristie Van Auken, Akron-Canton’s senior vice president and chief marketing and communications officer.

“We’re thrilled. And that might be an understatement,” she said. “This is a great day for us.”

Ms. Van Auken said the announcement “really secures our future as the low-fare airport in Northeast Ohio.”

She said AirTran branding will remain in use at the airport for at least the rest of 2012. Southwest

ON THE WEB Story from www.CrainsCleveland.com. branding will begin to appear sometime in 2013.

The announcement is a big deal for Akron-Canton because AirTran at present carries about 75,000 passengers at the airport each month, more than half its total passenger traffic. Ms. Van Auken said AirTran offers 13 daily nonstop departures to seven cities: Atlanta, Boston, New York, Milwaukee, Orlando, Tampa and Fort Myers, Fla. Domestically, the AirTran airports that will convert to Southwest operations are Akron-Canton; Branson, Mo.; Charlotte; Dayton; Des Moines; Flint, Mich.; Grand Rapids, Mich.; Key West, Fla.; Memphis; Pensacola, Fla.; Portland, Maine; Richmond, Va.;

Rochester, N.Y.; San Juan, Puerto Rico; Washington Reagan National; and Wichita, Kan. Internationally, Southwest said it will keep the following AirTran destinations: Aruba; Bermuda; Cancun, Mexico; Montego Bay, Jamaica; Nassau, Bahamas; and Punta Cana, Dominican Republic.

“We are committed to continuing to serve these communities — at first via AirTran, and eventually as Southwest,” said Bob Jordan, Southwest’s executive vice president/chief commercial officer and president of AirTran, in a statement.

“We know there are Southwest customers who want access to these cities, but have never before had the opportunity, and the markets have long desired Southwest service,” he — Scott Suttell said.

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CRAIN’S CLEVELAND BUSINESS

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7

Utility sees numerous benefits in trash-to-energy plant Critics, though, quickly discard project for fear of potential emissions

By CHUCK SODER csoder@crain.com

Mr. Zone said.

Here’s the plan

When Cleveland City Councilman Matt Zone talks about turning the city’s garbage into electricity, he talks about cutting emissions from coal plants, increasing recycling and curtailing the use of landfills.

Funny, then, that so many local environmental activists want to trash the idea.

The activists say the waste-toenergy plant the city is thinking of building on Ridge Road would produce more emissions than a coal plant on a per-megawatt basis — a claim the top executive at Cleveland Public Power says is way off base.

The criticism is one of many that local environmentalists have lobbed at the project, which is intended to help the city meet its sustainability goals while also helping Cleveland Public Power diversify its power supply.

So far, the critics — which include various environmental groups, U.S. Rep. Dennis Kucinich, Cleveland City Councilman Brian Cummins and about 30 people who voiced their opposition at a public hearing Jan. 9 — have logged at least one victory: They convinced the U.S. Environmental Protection Agency to conduct an independent review of the project.

But they have yet to win over Cleveland City Council. Many council members remain undecided about the project, said Mr. Zone, who is head of the council’s sustainability subcommittee.

Mr. Zone said he, too, has concerns about emissions that would come from the plant — called the Cleveland Recycling & Energy Generation Center, or CREG Center — that would be built in his ward at the Ridge Road Transfer Station.

Even so, the project’s critics have been too quick to reject the plan, he said, adding that City Council must get more information before it makes a decision. Over the next few months, City Council likely will decide whether to hire an independent consultant to study the matter further.

“It’s a very complicated project,”

Today, the city takes its trash to the Ridge Road Transfer Station, which then sends it on trucks to a landfill in Stark County.

The CREG Center — which would cost roughly $180 million, according to an early estimate — would include automated devices that would remove some recyclables and inorganic material from the waste stream. The remaining trash then would be fed into what is called a gasifier.

The technology, which has been used overseas but would be new to the United States, would use high heat to convert the garbage into a synthetic fuel resembling natural gas. The gas then would be burned to power a generator.

The plant would produce about 20 megawatts of power, five of which would be used to run the plant itself. The rest would be sold

by Cleveland Public Power, said CPP commissioner Ivan Henderson, who aims to request final approval to move ahead with the project during the third quarter of this year.

The benefits of the plan would be numerous, Mr. Henderson said.

For one, it would provide the cityowned utility with more of its own power. Today, CPP buys almost all its power off the wholesale market.

However, the utility over the past five years has worked to buy stakes in a few power generation facilities of its own, a move that helps CPP ensure price stability, Mr. Henderson said.

It’s even better when that power is generated locally, he said. That way, CPP would have access to emergency power if there was another blackout such as the one in 2003.

Plus, generating power locally means creating local jobs, Mr. Henderson said, noting that CPP expects the project to create 125 jobs on top of the construction work needed to build the CREG Center.

“We want the power and we want the jobs,” he said.

Mr. Henderson argues that the project will benefit the environment by diverting trash from landfills and by providing CPP with relatively clean power. Most of the power it

buys today is produced by coal plants. If it builds the CREG Center, the city also would scale up its curbside recycling program to include all residents, he said. Today the program is available to just 26% of residents.

Fired-up opponent Sandy Buchanan argues that the new power will be dirtier than the power CPP buys today. The executive director of Ohio Citizen Action cited the draft permit for the plant that the Ohio Environmental Protection Agency issued to CPP. For instance, a draft permit for a 960-megawatt coal-fired plant that American Municipal Power considered building in southern Ohio a few years ago was permitted to emit just .0001 tons of mercury per megawatt each year. By comparison, the permit for the CREG Center said it is allowed to emit up to 0.13 tons of mercury per year, or .0065 per megawatt — an amount 65 times higher than the coal-fired plant.

The coal plant also was allowed to emit significantly less lead, nitrous oxide and volatile organic compounds

– Ivan Henderson, commissioner, Cleveland Public Power per megawatt.

“On a per-megawatt basis, this is a much dirtier way to make electricity,” Ms. Buchanan said of the waste-to-energy plant.

Mr. Henderson said the comparison is “very misleading.” The gasifier will “come in well below those numbers” because cell phones, batteries, thermometers and other items containing toxic chemicals will be removed before the trash is turned into gas.

“If you don’t have mercury going into the gasifier, you won’t have mercury going out of the gasifier,” he said.

The global view Several Cleveland officials last year visited Japan to see operating gasifiers built by Kinsei Sangyo Co. The city is considering using the company’s technology, but plans to seek proposals from other manufacturers through an open bidding process.

Where can I get a sample job description?

Richard Stuebi joined a similar fact-finding trip two years earlier, representing the Cleveland Foundation. Mr. Stuebi, who today helps evaluate clean technology companies for venture capital firm Early Stage Partners of Cleveland, saw three Kinsei gasifiers operating. The “only discernible emissions were small wisps of steam,” he wrote in an Oct. 10, 2011, post on cleantechblog .com.

“Those who are against the proposed waste-to-energy facility at Ridge Road should really see one of these plants in operation before making a rush to judgment,” he wrote in the blog post.

City Council president Martin Sweeney said he and many other council members fall into the “need to know more category.”

One thing Mr. Sweeney will need to know is how to pay for the plant.

“Can we afford it? Who’s paying for it? And does it work?” he asked.

The city likely won’t issue general obligation bonds to pay for the project, though it could be financed through other bonding mechanisms, Mr. Sweeney said. CPP has suggested that the project could be paid for through fees charged to customers.

■

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What do I need to include in my employee handbook?

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is proud to support the Capital Campaign for the expansion of the

“We want the power and we want the jobs (from generating power locally).”

Where can I get local co compensation data?

Does this qualify under FMLA?

Yeah, we can answer that. www.ercnet.org/answers | 440/684-9700

The expansion will enable them to serve even more families in the years to come.

440 575-7000

W W W . S A L E S C O N C E P TS I N C.C O M

SELL MORE.

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PUBLISHER/EDITORIAL DIRECTOR:

Brian D. Tucker (btucker@crain.com) EDITOR:

Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:

Scott Suttell (ssuttell@crain.com)

OPINION

Crisis? Nah

T

he state of Ohio doesn’t need to sell the Ohio Turnpike to avoid decade-long delays in road and bridge projects that the Ohio Department of Transportation suddenly says can’t proceed because it lacks the money to pay for them all. Just eliminate a tax break that costs the state more than $200 million a year in revenue and there would be enough money for essential projects to move forward.

ODOT’s surprise announcement last Tuesday that the state faced a “looming transportation financial crisis” succeeded in creating panic among public officials in Cleveland; they had been led to believe by ODOT as recently as two weeks ago that plans were moving ahead just fine to replace the decrepit Inner Belt Bridge with two new bridges. But under revised ODOT timelines revealed last week, construction on the second replacement bridge won’t begin until 2023 — seven years after that bridge was scheduled for completion.

Doubtless, the shock government leaders in Cleveland feel is felt by officials in other cities where ODOT projects have been greatly delayed or scrapped altogether. The latter group of projects includes a long-awaited reconstruction of Interstate 76 from Akron to Barberton.

It is amid this tempest that ODOT director Jerry Wray offered these words last week in the news release announcing long delays in a couple dozen road and bridge projects: “We know that transportation is the lifeblood of Ohio’s economy and we cannot sit back and do nothing about this dire situation,” Mr. Wray stated.

“We are going to be looking at new and innovative ways to reduce costs and generate additional transportation funding.”

In the finest political tradition of not letting a crisis go to waste, might one way to “generate additional transportation funding” be to lease the Ohio Turnpike, as advocated over the last year by Gov. John Kasich?

The governor has pegged at $3 billion the money he thinks a lease of the turnpike could yield. That stash could pay for a healthy amount of road and bridge work.

But there’s a problem with using the turnpike as a means to fill ODOT’s transportation project kitty.

You can go to that well only once every 30 to 50 years, depending on the length of the turnpike lease. And you lose sole control of a valuable asset in the process.

If, on the other hand, the state dedicated a new revenue stream beyond Ohio’s gasoline tax to pay for big transportation projects, it could have a recurring source of funds for that work. Our choice would be to capture revenue the state is missing by changing how Ohio’s commercial activity tax is applied to the first $1 million in annual taxable gross receipts brought in by businesses.

At present, a business pays just $150 in CAT taxes on that first $1 million. Taxing those receipts at the standard CAT rate would have raised, in total, about $211 million for the state in the current fiscal year.

Dictate that those new dollars go to high-priority transportation projects such as the Inner Belt Bridge and ODOT’s “crisis” could be averted.

MY VIEW

Public misperception of private equity

M

Do they succeed without creating jobs? itt Romney’s successful career Of course. in private equity has put a For example, one way to make a spotlight and millions of new company stronger is to give it capital to eyes on that profession — all make acquisitions and then fold several looking through the wrong lens. companies into one. If it’s done right, Using job creation to measure the sales can increase while duplicate funcvalue of private equity firms misses the tions like accounting and marketing can point. Like all business, they’re in it for be consolidated to decrease the money, and job creation is cost. More profits, stronger mostly incidental. I know a lot DAN company, but fewer jobs. of company owners who love SHINGLER Another way to improve a their employees, but not a single company is to decrease its proone who hired them for any readuction costs. Buy it and then son other than to make money. bring in more automated equipAs if making money, done ment, or move its production honestly, is a bad thing. It’s as from a high-cost labor market such American as making apple pie as Ohio to a lower-cost market and selling it for more than the such as Alabama or China. Again, cost of the ingredients and profits are up and the company is labor required to bake it. better able to survive, but there are either Private equity firms, like all business fewer or lower-paying jobs than before. owners, want their companies to increase Private equity firms do these things, sales, gain market share and to both sometimes because the people who sell make and be worth more money every them their companies lack either the year. They’re not on social missions, but resources or the stomach to do them on if they succeed, their companies provide their own. far more jobs than those that go out of Even the favorite success stories of business, that’s for sure.

private equity firms — the startups — might not add jobs to the overall economy.

Mr. Romney’s Bain Capital basically created Staples, which employs thousands of people. But it’s not as though Staples didn’t replace many other, smaller office supply companies as it gobbled up market share. People worked at those businesses, too.

Private equity firms do what capitalists always have done, which is to speed up the evolutionary process of the marketplace.

It’s neither good, nor evil. It’s just profitable.

It’s unfair to judge these firms based on social issues with which they’re not concerned. That said, it’s probably also not right to say someone’s private equity experience equates to an ability to create jobs in government. That’s a little like a successful ship captain saying that his experience at the helm has taught him how to raise the level of the ocean.

Things are rarely so simple, and this is no exception to the rule.

■ Dan Shingler covers manufacturing for Crain’s.

THE BIG ISSUE Do you think the new aquarium will become a major tourist draw for downtown Cleveland?

JOE LINDAU

JAMES MARINO

AL SAMMON

FABIANE MILLER

Aurora

Cleveland

Bay Village

I think initially, yes, they’ll have a lot of people coming to see the attraction, and hopefully it spurs additional development in the Flats.

Yes. Kids like fish. … It’s a good, family-friendly, educational tourist attraction.

Yeah, I think it will. I’ve got an interest in it already.

Beachwood (works for Fairmount Properties, one of the developers of the Flats East Bank mixed use project) Absolutely. …The aquarium is going to definitely be the missing link of our city.

➤➤ Watch more of these responses by visiting the Multimedia section at www.CrainsCleveland.com.

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Arts: Area’s support among best nationally continued from PAGE 1

agency that funds museums, theaters and troupes of actors, dancers and musicians using money from a county excise tax on cigarettes, has a Post-It note in her office that reminds her of what happens at the end of 2016.

That’s when the excise tax of 30 cents a pack expires in Cuyahoga County.

Though the tax’s expiration still is five years away, the campaign to extend this unique public support for the arts already is under way with a target of putting a renewal issue on the ballot in 2015.

“The arts and culture sector isn’t just sitting around waiting for the next levy,” Mr. Schorgl said. “We want to make sure what we’ve achieved in this community is something we can hang on to.”

A political action commit- Schorgl tee to back the tax’s renewal has not yet been formed. However, Mr. Schorgl’s organization already is stockpiling ammunition to make the case for a continuation of public support for the arts.

Armed with data To reinforce the point that the tax money yields benefits, Mr. Schorgl’s group is putting together an online arts “dashboard” — a regularly updated graphic presentation of data — composed of statistics that

track the economic impact of the arts in the community, with graphs of such data as jobs created, wages paid and taxes generated. Cuyahoga Arts and Culture also includes in its annual report a map with several hundred dots, with each representing a site where an event by a group it helped finance took place in the previous two years.

In October, the arts partnership released the first in what is expected to be a series of studies on the impact of the arts on the community.

The first study, called “Remix Cleveland,” was a 225-page study of the local music industry. It found musicians and music-making organizations, the recording industry, clubs and instrument manufacturers had an $840 million impact on the economy in 2009.

Mr. Schorgl said similar studies on other sectors will follow.

Last April, the group released the latest in a series of surveys on artists and their impact on neighborhoods; “Putting Artists on the Map” showed that artists, two-thirds of whom owned homes, were living in all communities in the county, though they had their heaviest concentrations in Cleveland’s Tremont and Ohio City neighborhoods, Lakewood, Cleveland Heights and Shaker Heights.

In addition, Cuyahoga Arts and

Cleveland Orchestra ($1.7 million) to the Lakewood Historical Society ($13,467) and the Joyful Noise Music School ($6,534). It also supports specific performances and events, such as summer concerts on Wade Oval in University Circle ($40,000) and Olmsted Performing Arts’ production of “Peter Pan” ($12,108).

Another part of the tax money Touching the arts, and voters goes toward $20,000 grants to indiThe excise tax was created when vidual artists and musicians. voters approved a 10-year levy by a The depth and breadth of the vote of 56% to 44% on the Nov. 7, spending by Cuyahoga Arts and 2006, ballot. Money started flowing Culture stems in large part from a to Cuyahoga Arts and Culture on belief that public money should Jan. 1, 2007. serve as much of the public as Before 2007, the Cleveland area possible. But arts supporters acknowllagged other communities nationedge that spreading out those wide because it offered almost no dollars also allows them to leave a public support to its arts and positive impression on as many cultural institutions. Now, it ranks future voters as possible when it at the top. comes time to renew the A recent PBS documenpublic’s tax commitment tary on the arts in Cleveto the arts. land, “Artistic Choice: “The best thing this Preserving a Legacy in agency can do in our own Cleveland,” reported that work is not only make the roughly $17 million a sure our grant-making is year distributed by the touching as many organiorganization puts it third zations as possible, but nationwide among public Gahl-Mills that we work really hard to arts supporters, behind raise the awareness of what only the states of New York and we’re doing and how our work Minnesota. strengthens the community,” Ms. Cuyahoga Arts and Culture uses Gahl-Mills said. “So hopefully, that money to provide operating when we get to a campaign in 2015, support to organizations ranging people will think of us, as one of our from the Cleveland Museum of Art board members put it, as a public ($1.6 million in 2011) and the utility.”

■

Culture and the Community Partnership for Arts and Culture have created a reporting system that allows the county agency to track how its money is spent. Its 2010 annual report tallies 7.7 million visits in 2009 to organizations it funds and 23,971 activities offered by grant recipients.

Sales: 2011 deals range from high-priced to bargains continued from PAGE 3

we saw in the mid- to late 2000s.”

The re-emergence of megadeals played a big part in the market’s resurgence in terms of dollar volume.

A single transaction — the July purchase by investment firm Blackstone of the U.S. portfolio of Centro Properties Group of Australia, now called Brixmore Property Group, for $9 billion — had a huge impact in Northeast Ohio. That deal accounted for $194 million, or 42%, of the local commercial sales volume last year; the figure includes the sale of Southland Shopping Center in Middleburg Heights for $69 million and of Midway Mall in Elyria for $57 million.

Excluding the Centro deal, nearly $211 million of commercial property traded hands last year in 53 deals, compared to $290 million in 33 transactions in 2010. However, megadeals are a big part of the region’s sales picture on a continuing basis, such as when Duke Realty Corp. of Indianapolis sold 10 Cleveland-area industrial properties to First Industrial Realty Trust of Chicago in 2005.

‘Anything but normal’ Digging deeper into the transactions shows the topsy-turvy times the commercial property business is in as the region and nation continue to emerge from the severe recession.

“Peel through the layers like an onion,” Mr. Pacella said, “and it was anything but normal.”

That is because 2011 included transactions that ranged from highpriced deals to lenders disposing of properties at bargain-basement prices.

“On the one hand you had Geis Cos. selling the Best Buy building in Streetsboro for as aggressive a price

TURN UP THE VOLUME A look at the volume of commercial property sales in Northeast Ohio in 2011; the data were compiled by Alec Pacella, a senior vice president at Beachwood brokerage NAI Daus.

Total No. of deals

Value

Less than $5 million No. of deals Value

More than $5 million No. of deals Value

2011

53

$405.1 million

35

$97.1 million

18

$308.0 million

2010

33

$290.2 million

18

$37.7 million

15

$252.5 million

2009

41

$191.0 million

31

$73.2 million

10

$117.8 million

2008

108

$696.3 million

79

$158.0 million

29

$538.2 million

2007

175

$1.29 billion

as anyone has ever gotten on that property type in Northeast Ohio,” Mr. Pacella said. He was referring to the $19.6 million Monmouth Real Estate Investment Trust of Freehold, N.J., paid last October for a new, 398,000-square-foot structure in Streetsboro that Best Buy has leased as a warehouse for the next decade.

“Then on the other hand, you had AmTrust (Financial Services Inc.) pay $8 million for 800 Superior Ave., which traded for $47 million a few years ago,” Mr. Pacella said.

AmTrust plans to house nearly 300 employees, and perhaps up to 700 more, in the office building in downtown Cleveland that it bought last August in an online auction held by LNR Corp. of Miami Beach, which invests in distressed loans and handles distressed properties for lenders.

The same, but different Likewise, consider how differently office park sales in Beachwood and North Olmsted fared.

NRP Group of Garfield Heights and Munsell Realty Advisors of Beachwood last October shelled out just $4 million to the lender for the high-vacancy Commerce Park Square I, II and III in Beachwood.

Soon thereafter, Pittsburgh investor group PWA Real Estate paid Duke Realty $27 million for the threebuilding Great Northern Corporate Center I, II and III office complex in North Olmsted.

Commerce Park dated from the 1970s and suffered from high vacancy and vast repair needs; the Great Northern buildings, constructed from 1980 to 1990, were more than 90% leased and offered as stable an investment as one can find. Besides

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The re-emergence of megadeals played a big part in the market’s resurgence in terms of dollar volume.

700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com

the building type of the two properties, their only other commonality was their similar sizes — 273,000 square feet in North Olmsted compared to 211,000 square feet in Beachwood.

In an ironic twist, some of the real estate deals that promise substantial economic development for the future did not make the top 10 list of commercial sales in Cuyahoga, Geauga, Lake, Lorain, Medina, Portage, Stark and Summit counties.

The purchase of 800 Superior by AmTrust is one example. Another is the joint venture formed by Scannell Properties of Indianapolis and DiGeronimo Cos. of Valley View, which paid just $10 million last July for the 2 million-square-foot former Chrysler Stamping Plant in Twinsburg.

Much of the 1957-vintage plant already is gone as the developers plan to use the bulk of the site to build new industrial properties, giving manufacturers and distributors room to grow in contemporary structures.

■

Keith E. Crain: Chairman Rance Crain: President Merrilee Crain: Secretary Mary Kay Crain: Treasurer William A. Morrow: Executive vice president/operations Brian D. Tucker: Vice president Robert C. Adams: Group vice president technology, circulation, manufacturing Paul Dalpiaz: Chief Information Officer Dave Kamis: Vice president/production & manufacturing G.D. Crain Jr. Founder (1885-1973) Mrs. G.D. Crain Jr. Chairman (1911-1996) Subscriptions: In Ohio: 1 year - $64, 2 year - $110.

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GOING PLACES JOB CHANGES AUTOMOTIVE

LAND FINANCIAL: Laura Gorman to marketing director; Eric Finn to financial adviser.

COLLECTION AUTO GROUP: Gabriel Despres to vice president of sales and general manager, Airport Acura; Jim Levine to general manager, Beachwood Buick/GMC; Peter Mapp to general manager, Mercedes-Benz of North Olmsted; Don Paparella to general manager, Preowned Center; Helder Rosa to executive manager, Airport Infiniti; Mark Thomas to general manager, Lotus/Saab/Spyker/MV1.

WALTHALL, DRAKE & WALLACE LLP CPAS: Ashley E. Everritt and Alicia M. Reiss to staff accountants.

DISTRIBUTION KAPPUS CO.: Eamon Blakemore to assistant service manager.

ALEX N. SILL CO.: Michael Perlmuter to president; Donald Dragony to chief financial officer, secretary and treasurer.

ENGINEERING

LEGAL

LOUIS PERRY & ASSOCIATES INC.: James T. Calderone to senior vice president, operations.

BENESCH: Lee Korland, Gregory J. Lucht, Robert A. Marchant and E. Mark Young to partners.

FINANCIAL SERVICE

MCDONALD HOPKINS LLC: Dean DePiero to of counsel.

212 CAPITAL GROUP/NEW ENG-

Blakemore Calderone

Perlmuter

Dragony

Korland

Lucht

Marchant

Young

DePiero

Gottron

WilsonDelfosse

Bergfeld

WEIBLE & ASSOCIATES CO. CPA: Shirley Berish to staff accountant.

HOSPITALITY RITZ-CARLTON CLEVELAND: Kelsey Williams to senior marketing and public relations coordinator.

INSURANCE

MANUFACTURING DVUV HOLDINGS LLC: Joshua Gottron to sales representative.

NONPROFIT FAMILY PROMISE OF GREATER CLEVELAND: Joan Maser to executive director.

to immediate past president.

SERVICE PRICE FOR PROFIT: Hrishue Mahalaha to engagement leader; Terry Oblander to senior consultant; Sara Zolton to organizational development leader; Justin Bailey to associate.

BOARDS GREATER CLEVELAND VOLUNTEERS: Michael E. Smith to president; Thomas H. Barnard to executive vice president; Joseph Cech, Robert F. Erzen, Jill M. Fowler, Becky S. Moldaver, Rosemary Rehner and John A. Reynolds to vice presidents; Stephanie FallCreek to secretary; Thomas Skrovan to treasurer; Lisa S. Foley and Elaine H. Rocker to executive committee-at large.

INSTITUTE OF REAL ESTATE MANAGEMENT NORTHERN OHIO CHAPTER: Brunetta Harris (Forest City Enterprises) to president; Shelly Sfiligoj to president-elect; Judy Simon to secretary/treasurer; Emily Mogen

HAVE A BALL

INTERNATIONAL ASSOCIATION OF MEDICAL SCIENCE EDUCATORS: Amy Wilson-Delfosse (Case Western Reserve University School of Medicine) to president.

NORTHEAST OHIO JOINT OFFICE OF ECONOMIC DEVELOPMENT: Russell Pry (Summit County) to chairman; John McNally to vice chairman; Joe Moroski to secretary.

YOUTH CHALLENGE: Ernest E. Vargo (Baker Hostetler) to vice president; Charles A. Koch to assistant treasurer; Charles L. Grossman to member at-large.

AWARDS AMERICAN ACADEMY OF DERMATOLOGY: Dr. Wilma F. Bergfeld (Cleveland Clinic) received the Master Dermatologist Award.

Send information for Going Places to dhillyer@crain.com.

AVAILABLE FOR SALE 1415 east 222nd street, euclid, ohio

Crain’s Meeting and Event Planner Trends • Planning • Resources ~ SHOWCASE YOUR SHOWPLACE ~ AD CLOSE: February 9 PUBLISH DATE: February 20

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INSIDE

16 SCHOOLS DIG DEEPER INTO SHALE BOOM TO PREP STUDENTS.

11

HIGHER EDUCATION Colleges still aiming to train innovators

FOR COLLEGE PRESIDENTS, BUSINESS SAVVY NOW MATTERS AS MUCH AS BRAINS

Foundations, nonprofits augment resources schools devote to entrepreneurship

By TIMOTHY MAGAW tmagaw@crain.com

N

ortheast Ohio’s colleges and universities are pumping resources into new and existing entrepreneurship programs in hopes of churning out the next Mark Zuckerberg or Steve Jobs.

Well, maybe aspirations aren’t that high, but the idea behind many of the programs is to mold an innovative work force that one day can churn out a plethora of new business ventures and thus prop up the region’s employment numbers.

“Folks realize that the economic engine is driven by entrepreneurs,” said Ven Ochaya, director of the entrepreneurship MBA at BaldwinWallace College in Berea. “These are creative problem solvers that want to take on challenges. They don’t ask, ‘Why?’ They just ask, ‘Why not?’”

INSIDE: Baldwin-Wallace receives a $1 million grant from Florida foundation for entrepreneurship programs. Page 15

From top: Ronald Berkman, tate ve Cle land S ; ity rs ve Uni Sister Diana Stano, Ursuline College; Durst, rd ha ic R lace -W Baldwin al d College; an on, Lester Left Kent State University

Fundraising’s importance grows as state support dwindles

By TIMOTHY MAGAW tmagaw@crain.com

T

he academic landscape that Michael Schwartz first delved into 50 years ago is drastically different than the one he left behind in 2009 when he retired as president of Cleveland State University.

For one, Dr. Schwartz said today’s college presidents must be more than top-notch

academics — they also must be savvy business folks just as comfortable convincing donors to open up their checkbooks as they are lecturing hundreds of wide-eyed college students.

“Fundraising for public university presidents had barely been on the agenda, and now it’s really front and center,” said Dr. Schwartz, who also served as Kent State See BUSINESS Page 13

“Fundraising and revenue generation has always been a component of a president’s job, but it has become more pressing and more pivotal in terms of what you’re able to do and how you’re able to do that.”

– Morris Beverage, president, Lakeland Community College

Entrepreneurship programs have been all the rage for at least the last five years and show little sign of waning. In addition to the colleges infusing their own resources, foundations and other nonprofits have been pumping millions of dollars into the burgeoning focus of study.

Officials involved with the programs say while many of their graduates aren’t — immediately, at least — founding the next Facebook or Google, the seeds are planted, and that’s what’s made the growth of these programs worthwhile.

They insist their entrepreneurship graduates are finding jobs — often with small companies. They aren’t sitting idly in their parents’ basements tinkering with new business ideas.

“Entrepreneurship to me is about students thinking in new ways about different opportunities, and maybe down the road they’ll start something,” said Scott Allen, an assistant professor of management, marketing and logistics at John Carroll University. “Leadership is about helping other people see that vision, get them excited and bring others along.”

Tapping those aspirations Urged by business professionals See INNOVATORS Page 15

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HIGHER EDUCATION

PLACESOFNOTE A look at Northeast Ohio’s interesting spaces

University of Akron’s Lakewood Higher Education Center

By STAN BULLARD sbullard@crain.com

F

rom 1930 to the 1970s, the three-story building on the southeast corner of Detroit and Warren roads in Lakewood was a place to buy stuff.

Once home to a branch of the Bailey Co. department store, the structure — known as the Bailey Building — also once served as a computer training school. But most recently, it’s been empty.

That’s no longer the case, though.

Last fall, much of the building’s first floor became the University of Akron’s first physical outpost in Cuyahoga County.

Credit the community, local leaders and fate for the University of Akron’s decision to create the Lakewood Higher Education Center, said Holly Harris Bane, UA’s associate vice president for strategic engagement.

“I like to say the stars aligned,” Ms. Harris Bane said. “The county

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ABOVE: The interior of the University of Akron’s Lakewood Higher Education Center. BELOW: Holly Harris Bane (left), UA’s associate vice president for strategic engagement, and Suzanne Metelko, the center’s director. executive (and former Lakewood mayor) Edward FitzGerald and current Mayor (Michael) Summers were interested, (and) state legislators were open to it. And the building was available.”

Not only was the space available, but it was undergoing a careful restoration. In 2009, the 14701 Detroit LLC investor group, led by realty broker Brad Kowit of Mayfield Heights-based Kowit & Passov, had purchased the Bailey Building and adjoining INA Building with a plan to upgrade them and woo new retail and office tenants.

“We knew the Warren Road space could be cool space because of the elevation,” Mr. Kowit said.

Oodles of drywall and concrete panels that covered the original windows and brick walls were trashed in the process. New foodoriented tenants fill all but one of the retail spaces on the Detroit side of the two buildings.

Mr. Kowit’s eagerness to reshape the space, along with the location’s

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benefits — such as a high-population density and more than 10,000 cars passing daily — prompted the university to locate in the building, Ms. Harris Bane said. Leasing the site for 10 years made it easier for the university to afford the space and the updating costs, mostly paid in its rent.

From Lakewood’s side, a citizens committee since 2004 had sought an institution of higher education to set up a satellite Lakewood home because it believed additional education would benefit the city’s economic development, said Suzanne Metelko, a member of the original committee who now serves as the center’s director.

More than $1 million later, a sum the university split between a cash investment and repaying the balance for the improvements as part of its rent, the UA center has a street level entrance and signage on Warren Road in what once was Bailey’s one-story mechanical room jutting out from the taller structure.

Mr. Kowit originally planned to demolish it for a patio, but it serves UA perfectly as an entrance, office for a receptionist and a testing room.

The 11,000-square-foot space has two computer and video-equipped distance learning classrooms seating 40 each, a 24-seat conference room with video conference capability, a 24-station computer lab and a large conference room that can serve as a

classroom.

Part of the space is underground, which suits distance-learning classes, but otherwise, the goal was to maximize the use of natural light, Ms. Harris Bane said. UA’s blue and gold colors provided wall colors.

The center will house graduatelevel education classes for teachers and bachelor of science in nursing classes for registered nurses, particularly through partnerships with Lakewood schools and Lakewood Hospital.

The center also will offer general education classes for college students and high schoolers participating in a state program that allows them to take classes at no cost for college credit before graduation.

Classes only now are starting up.

The first students began attending classes for the graduate education program earlier this month; classes for nursing students will begin in the spring, and general college classes, next fall. All told, the center can house 150 students.

Mayor Summers said the center will help residents and businesses meet education needs to compete in a global marketplace.

The city provided no financial support for the center, the mayor said, but provides “sweat equity” to help promote it.

So does Zippy, UA’s mascot, who now marches in Lakewood parades.

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Business: Financial background now plays in hiring process continued from PAGE 11

University’s president from 1982 to 1991. “As state support has dwindled just enormously, the public institutions are competing very heavily with the private institutions in the country for the same dollars.�

Because of the need to raise more funds, the role of a college president as an institution’s chief manager has shifted to that of a chief marketer of sorts — or an “external individual,� as Kent State president Lester Lefton characterized it. “Ohio’s public universities are receiving less support than ever before,� said Dr. Lefton, who has been president since 2006. “As a consequence, I’m spending a lot of time meeting with alumni, current and potential donors looking for sources of support and alternative sources of revenue. That wasn’t the case for (former KSU president) George Bowman.� Dr. Bowman was president from 1944 to 1963.

Steering a college or university in today’s economy is a lofty job, presidents say, and it’s only getting more difficult as higher education continues to evolve. “It takes even more courage today to lead than it did in the past,� said Sister Diana Stano, president of Ursuline College in Pepper Pike. “With the role of academics, accrediting agencies and everyone looking over your head,

you’re constantly on your toes.�

The pitch man In recent years, university boards of trustees have preferred to hire college presidents with some sort of fundraising acumen, said Rae Goldsmith, vice president for advancement resources at the Council for Advancement and Support of Education, a Washington, D.C.-based professional organization representing fundraising professionals in education.

Likewise, fundraising often is one of the benchmarks that determine whether a college president earns a raise or a bonus. “Institutional finances have always been important to presidents, but the role of fundraising as part of the overall financial health of an institution has grown,� Ms. Goldsmith said. “It’s what constituents have grown to expect and what the job entails.�

For one, part of what made Dr. Schwartz’s replacement — Ronald Berkman — an attractive hire in 2009 was his fundraising finesse.

While serving as a dean and as provost at the Florida International University in Miami, Dr. Berkman said he helped raise $40 million.

And while he’s only been at CSU for about 2½ years, he’s already helped broker the two largest gifts in the school’s history — $10 million

from Transtar Industries founder Monte Ahuja in 2011 and $6 million from Smart Solutions Inc. founder Anand “Bill� Julka in 2010.

University of Akron president Luis Proenza wouldn’t say fundraising takes up the bulk of his time, but rather noted that “so much of what we do is relationship building.�

Dr. Proenza said that could include courting donors or forming partnerships with local businesses.

Dr. Proenza said in many ways his job is dictated by how much money he can bring in to the university, whether that’s by developing new programs, boosting philanthropic giving or simply bringing more students to campus. “My good colleagues have been generous and tolerant to come to understand that despite our very best wishes, some of the money handed to us we have to earn,� Dr. Proenza said. “That’s what we do.�

While Dr. Proenza credits the bulk of the university fundraising success to his team, John LaGuardia, the University of Akron’s vice president for public affairs and development, said it surely doesn’t hurt to have a chief executive comfortable with shaking hands and making small talk. “Stability is so important in fundraising,� he said. “If you have turnover at the top, you’ve often got problems. Having Dr. Proenza here

for the last 13 years has been a wonderful marketing tool.�

Meanwhile, Lakeland Community College president Morris Beverage said fundraising always has been part of leading a community college.

However, with Lakeland’s enrollment growing 50% since 2001, Dr. Beverage said he’s had to intensify his fundraising efforts while ensuring levies that support the college are renewed. “Fundraising and revenue generation has always been a component of a president’s job, but it has become more pressing and more pivotal in terms of what you’re able to do and how you’re able to do that,� Dr. Beverage.

Lost in the shuffle Because rubbing elbows has become such a central part of presidential duties, some college leaders say a few items get lost in the shuffle, including spending time with students, having a heavier hand in the academic mission or, as Baldwin-Wallace president Richard Durst characterized it, having a life outside of work. “I realize as time goes by, I need to spend more time with my wife — somebody that I’ve come to only know as the lump in the bed next to me,� said Mr. Durst, who plans to retire this spring.

An academic at heart, Mr. Durst

laments the fact that he hasn’t been involved in his discipline, theater and set design, since he took the helm of Baldwin-Wallace in 2006. “The stuff that matters to this campus doesn’t suffer,� he said. “But people will call who would love to get together for dinner, but I’m looking to book them two months out.�

Moreover, Dr. Schwartz said there’s a growing division between university presidents and the academic mission of the institution — something he sees as unfortunate. The academic direction of the university isn’t necessarily being ignored, he noted, but presidents have a smaller hand and often delegate those duties to the provost. “It’s looking as though you’ve got some division between the top two officers of the institution,� Dr. Schwartz said. “There’s a great deal more than there used to be, and there’s concern on part of faculty everywhere.�

Dr. Lefton of Kent State noted that pinning more responsibilities on other administrators isn’t necessarily a bad thing. “I’ve got some top-notch decision makers doing the work of the university, and I rely upon them,â€? he said. “You don’t get to travel around the state or country or be an economic development agent unless you have the time to do so.â€? â–

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HIGHER EDUCATION “Save 10 times the cost of the class in reduction of scrap, downtime, returns, and rework.”

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Colleges devote more time to online efforts Many develop concrete plans to adapt to technology

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few years from now, colleges will offer more “blended” courses that include a mix of class time and online work.

Degree programs that students can complete without setting foot in a classroom will be more prevalent.

Free online lectures will be easier to find. Some colleges even will adopt laboratory simulators that make it possible to move some lab classes online. Regardless of what the future looks like, though, Northeast Ohio colleges are taking steps to make sure they’re not surprised by it.

A few institutions in Northeast Ohio recently have created plans designed to help them manage and expand their online offerings over the next several years.

Lakeland Community College in Kirtland is among them.

The college is in the process of creating a strategic plan for its distance learning programs, said William Knapp, dean of learning technologies at Lakeland.

Other colleges are spending more time planning for their online futures, he said, noting that strategic planning was a big discussion topic among his peers who attended the Instructional Technology Council’s eLearning Conference last year.

Colleges are focusing more on planning for two reasons, he said: Demand for online courses continues to rise, and the technology to meet that demand has improved.

College presidents nationwide are predicting demand to keep growing: 50% predict that most of their students will take some classes online 10 years from now, according to information collected within the past year by the Pew Research Center. Only 15% say that most of their students take online classes today.

Best-laid plans Lakeland has offered online courses for years, and in 2011 it built the Holden University Center next to its campus. The center includes video-conferencing equipment that allows students to take courses taught at other schools. Still, Lakeland needed a formal plan to help guide additional expansion of its distance learning programs, Mr. Knapp said, noting that the school aims to release the plan this fall.

“I think we need to be more intentional about it,” he said.

The University of Akron is planning for the future, too: The university last year created an eLearning Study Committee to make recommendations on how it should expand its online course offerings.

The committee recommended the university form a partnership with the online education division of Pearson plc, a London-based education services company. Pearson earlier this month helped the university launch the school’s first two fully online degree programs and more degrees will be offered soon, said Jim Sage, the university’s chief information officer.

Mr. Sage said Pearson for the foreseeable future will market the new courses and provide some additional services to students, helping the university achieve one of its main goals: reaching older adults in Northeast Ohio and beyond.

“We know that we’ve got content that other markets are interested in,” he said, noting that the University of Akron is designing the courses and providing most of the affiliated student services.

Hiram College last year in its strategic plan included a focus on “extended learning,” said Tom Ford, director of college relations for Hiram. The phrase refers to the college’s online course offerings and a program that allows students to earn a Hiram bachelor’s degree while attending a select community college near where they live.

“There’s more need for us to expand our horizons to nontraditional students,” Mr. Ford said.

Best of both worlds So what will come of all this planning? Officials from different colleges had different answers, but a few said they expect to offer more blended courses in the future.

In blended courses, some classroom time is replaced with online work, but students still have the benefit of being able to work with their peers and ask questions in a classroom, said John Crooks, associate provost of the University Partnership program at Lorain County Community College.

Blended courses also require less physical space, given that students spend less time in the classroom than their peers in traditional courses, he said.

“You’ve doubled the ability to utilize the physical space,” said Dr. Crooks, who until recently was director of distance learning at LCCC. Liberal arts classes aren’t the only ones moving online. Technology allows students to do some laboratory work via the Internet, too, Dr. Crooks said. For instance, LCCC’s Chemistry 161 class uses software and kits that allow students to simulate some lab tests, he said.

Case Western Reserve University considers itself more of a follower than a leader when it comes to implementing online courses, given that it is a selective school with a focus on research, said chief information officer Lev Gonick.

Even so, the university is offering educational resources for free via the Internet. For instance, the school of medicine provides online seminars that could be informative to medical students, practicing doctors and even patients. The university’s law school provides online seminars for the public, too.

In a insidehighered.com column, Dr. Gonick described how he expects colleges this year to start offering more courses and other resources for free online.

He’s a big believer in the trend: In the column, he described it as “the most important and explosive opportunity in postsecondary learning in over half a century.” ■

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Innovators: Training expanded beyond business schools continued from PAGE 11

who advise Kent State University’s business school, the university launched an entrepreneurship minor in 2006 and a full major by 2008, according to Julie Messing, the director of Kent State’s Center for Entrepreneurship.

Aside from businesses looking for throngs of creative workers, Ms. Messing said the launches of Kent State’s entrepreneurship programs and others in the region were outgrowths of students wanting to be their own bosses. According to a recent Gallup poll, 77% of students in fifth through 12th grades want to be their own boss and 45% say they plan to start their own business.

“Students around Northeast Ohio and the contiguous counties have been directly affected by the recession,” Ms. Messing said.

“Their parents, relatives and friends have lost their jobs. They want to be responsible for their own destiny.”

Mark Hauserman, director of the Muldoon Center for Entrepreneurship at John Carroll, said students simply don’t want to work for large corporations anymore, which has led to the “tremendous surge” in interest of entrepreneurship programs.

“Rather than going to work for a large company where they’re uncomfortable anyway, we would like them to go to a company where they can see firsthand what they want to do in the future and ways they can get into that,” Mr. Hauserman said.

JOHN CARROLL UNIVERSITY PHOTO

Students Patrick Grogan (from left), Matthew Gordon, Ryan Drake and William Johnson with Mark Hauserman (back right), the director of John Carroll’s Muldoon Center for Entrepreneurship.

Campuswide push One of the more evident shifts in entrepreneurship education in recent years is the effort to incorporate entrepreneurial thinking across disciplines. The idea isn’t to limit entrepreneurship to the business schools, but to expand that way of thinking to the entire campus.

“Teaching entrepreneurship at a business school is the hijacking of the century,” said John Carroll’s Mr. Hauserman, noting that most entrepreneurs are from arts and sciences disciplines.

John Carroll’s Muldoon Center for Entrepreneurship, which launched in 1999, runs a

“hatchery” — a workspace armed with office equipment for students, regardless of major, interested in developing or running their own businesses. With assistance from business professionals, students can see if their ideas have legs and garner hands-on experience in the process.

More recently, that sort of thinking was the impetus behind a combined $3.2 million investment by two foundations — the Burton D. Morgan Foundation in Hudson and the Blackstone Charitable Foundation in New York City — to develop a program they’ve dubbed the Blackstone LaunchPad at Case Western Reserve University, Baldwin-Wallace College, Kent State University and Lorain County Community College.

The idea is to offer all students and faculty — regardless of their disciplines — resources, such as venture coaches, to get new businesses off the ground.

Bob Chalfant, director of the University of Akron’s FitzGerald Institute for Entrepreneurial Studies, also said he’s been tasked with reaching out to other academic units throughout the university since joining the institute.

After all, Mr. Chalfant said it’s not just those in the business school who will be employing tomorrow’s work force.

“Those entrepreneurs have created more than jobs than any politician ever did,” he said. “They have created hundreds of ■ thousands if not millions of jobs.”

B-W lands $1M for entrepreneurship Baldwin-Wallace College in Berea is the latest to receive a hefty cash infusion — $1 million, in fact — to help spread the spirit of entrepreneurship throughout its campus.

The 10-year grant from the Philip E. and Carole R. Ratcliffe Foundation in Fort Lauderdale, Fla., will support Baldwin-Wallace’s Center for Innovation and Growth, an initiative launched in 2007 to help students turn their lofty ideas into well-executed business plans.

“We need more people cranking out companies,” said Peter Rea, director of B-W’s Center for Innovation and Growth.

“We’re helping students early in their career.”

About 40 students from across disciplines are selected as fellows to participate in programs through the center, allowing them to work with outside business professionals to hone their ideas and innovation skills.

Similarly, over the last year, staff at the center has worked with Baldwin-Wallace’s sports coaches to develop a similar program targeting student-athletes.

In addition to the standard fellows program, 40 student-athletes are expected to be recruited to participate in the center’s programs each year in hopes of churning out even more student entrepreneurs.

— Timothy Magaw

In one year, Northeast Ohio gained NOCHE is leading the Northeast Ohio Talent Dividend to increase the number of college graduates in the region.

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HIGHER EDUCATION

Following job forecasts, schools look to shale Gas industry opens door for new coursework

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he number of jobs estimated to be created by Ohio’s shale gas rush vary greatly, but one thing’s for sure — the industry is going to need more people to find gas, determine how to drill for and extract it and manage all the other aspects of the complicated business of modern drilling and exploration.

And while most schools say they’ve yet to change their curricula, a handful of area colleges already are starting to prepare students for those roles.

Perhaps the most aggressive university in the region when it comes to educating students to work in the natural gas industry is Youngstown State University, which announced at the end of 2011 that it was starting a Natural Gas and Water Resources Institute and offering a minor with the same name.

“We’ve seen that our students can benefit from this, and we were interested in putting something together,” said Martin Abraham, dean of the college of Science, Technology, Engineering and Mathematics at Youngstown State.

The school hopes to begin offering the minor in natural gas and water resources this spring, pending final approval by YSU’s academic senate.

If that happens, as Dr. Abraham expects, students already pursuing majors in subjects such as geology, chemistry or civil engineering could graduate with the new minor, beginning as soon as May 2013, the dean said.

The new minor and institute both are interdisciplinary and will involve multiple university departments, all of which will contribute students, research, equipment and space for the endeavor, he said.

YSU’s move is in direct response to all of the natural gas activity around it — from new wells being dug in western Pennsylvania and eastern Ohio to the construction of a new steel mill in Youngstown to make steel tubing for the industry.

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The number of jobs that will be created in the coming years ranges from an oil and gas industry estimate of 200,000 jobs in Ohio to more conservative estimates of as few as 20,000 jobs made by independent academic researchers. Either way, Dr. Abraham says, the projections all point to the industry being a major source of employment in Ohio in years to come — and YSU wants its students to have a chance to compete for those jobs.

“People in the industry tell us that when they hire a geologist or engineer, it takes about six months to get that person up to speed on the industry,” Dr. Abraham said.

That’s largely because the new graduates have had little or no direct experience with things like fracking, which is the process of drilling horizontally inside deep

shale and then breaking it up with pressure to release natural gas.

The institute and minor will change that, and “this puts our students that much further ahead,” Dr. Abraham said.

Youngstown State does not yet know how many students actually will enroll in the new minor, but Dr. Abraham said students already are expressing interest. College students are well aware of the activity going on around shale gas, he said, and others agree.

At the University of Akron, educators are seeing an increase in the number of students taking courses and pursuing majors in subjects such as geology, officials said. Shale gas was the reason the University of Akron began offering its new class, Rock Fracture Mechanics, in the current semester, said assistant professor Ashley Griffith, who teaches the course.

Dr. Griffith said his class deals with the science behind shale gas fracking, also known as “hydraulic fracturing,” because it uses highly pressurized fluids to break up shale rock deposits thousands of feet underground, in order to extract gas and oil from them.

Most students haven’t heard of the class yet, and only seven are enrolled, but Dr. Griffith said that’s not bad for a new course in a small department — especially one that involves difficult math, as his does.

“They’re all very aware of shale gas,” Dr. Griffith said, noting that at least two of his students have taken the class specifically because they want to work in Ohio’s growing shale gas industry.

Fueling other specialties Interest is geology generally is up, thanks to shale gas, said Ira Sasowsky, a University of Akron professor who teaches petroleum geology at the school. Once abandoned, the course was revived about 12 years ago and has typically drawn about eight students per semester. But this semester, 13 signed up and more are expressing interest, Dr. Sasowsky said.

So far, educators have not offered a major in something like shale gas geology. They’ve considered it, but so far decided against it, at least at Youngstown State, said Dr. Abraham.

That’s partly because more students will be involved in shale gas in other ways than as just geologists, he said. The industry will need civil and mechanical engineers that will have to have all of the skills traditionally associated with their fields — as well as lawyers, accountants, business executives and a host of other professionals, he said.

Besides, Dr. Abraham points out, while the shale boom may be big and fairly long lived, there’s a decent chance it won’t last as long as the working careers of his graduates — and he doesn’t want to pigeonhole them to just one industry.

“We see opportunities over the next ten years, even the next 20 years in this field,” he said, “but our graduates are going to be working for 40 more years.”

■

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CORPORATE GROWTH & M&A

S-2 JANUARY 23 - 29, 2012

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CG Cleveland, investors, advisers and the local chapter lenders from around the of the Association country plan their winter for Corporate travel to make sure they Growth, is best known are in Cleveland the last for two things: our annual week of January for the Deal Maker Awards exDeal Maker Awards. travaganza and the great So ACG Cleveland’s networking crowds that reputation extends well RANDY attend our monthly beyond Ohio’s borders.

MARKEY breakfast speaker And with about 500 ACG C L E V E L A N D series and our spring and PRESIDENT members, Cleveland is fall workshops. Cleveland one of the largest chapBusiness Connects magaters in the ACG universe. zine has called the Deal Maker But we haven’t been resting on Awards the best financial industry our laurels. Three years ago we event in town. decided to leverage our position Cleveland long has been a by launching the Great Lakes ACG regional center of deal making.

Capital Connection (GLCC) in There are other second-tier centers partnership with the ACG chapters outside of New York, Chicago, Los in Cincinnati, Columbus, PittsAngeles and Boston, but according burgh, Indianapolis and Detroit. to a 2010 story in The Deal, The inaugural two-day 2009 “Perhaps none … boast Cleveland’s event attracted 600 registrants in outsized numbers.” a tough economy, and it was The magazine noted that the topped in 2012 with 650 attendees. local deal community encompasses The partnership took the show to almost 60 companies, including Indianapolis in 2011, and our marquee legal firms, leading Hoosier partners notched anothnational audit advisories, top er unqualified success. The event mezzanine lenders and experienced rotates to Detroit this fall. middle-market investment On the local front, ACG Clevebankers. And that does not even land members also play an integral consider the likes of Eaton Corp., role in maintaining the economic Parker Hannifin, Lubrizol, Transvibrancy in Northeast Ohio. We Digm and other companies based are providing expertise and assishere that have established corpotance to Team NEO’s Deal Advisory rate development teams that Committee, the Cuyahoga County collectively account for dozens of Economic Development Fund, acquisitions each year. and the manufacturing advisory Cleveland’s 21 private equity and growth group MAGNET for its firms (ranked fifth among U.S. Prism Project, which helps manucities) make the city a must-call facturers focus on innovation as destination for prospective the key to their long-term growth buyers and sellers. Scores of and success.

Last year we brought an independent local networking group named Women in Transactions into the ACG Cleveland tent to provide administrative support and to help grow its membership.

A chapter task force is looking into adding programming in Akron to better serve the deal community.

Other new initiatives include Young ACG Cleveland and the ACG Cup, which you can read more about in this section.

Members tell us they join ACG Cleveland for two primary reasons: to attend educational events that help them build value in their companies and for their clients, and for the opportunity to network with a diverse and influential community of business people.

With more than 14,000 members worldwide, ACG is the pre-eminent organization for merger-andacquisition professionals in public and private companies, private equity, corporate and investment banking, finance, accounting, law and related service fields.

ACG Cleveland Chapter members have access to the full suite of ACG Global benefits and services.

If this sounds like an organization for you, we encourage you to attend one of our events or to apply for membership.

For information contact me at (216) 241-6689, ACG Cleveland at (216) 696-8484 or visit www.acgcleveland.org.

■

Randy Markey is a partner at Cleveland-based global X, a strategic tax consulting firm.

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Building a new generation of deal makers Mentoring, networking propel Young ACG members toward bright future in Cleveland

By CHERYL HIGLEY

C

leveland has long been a vibrant deal-making hotbed, and with the addition of a young professionals’ (YP) contingent and a tie-in to MBA programs around the region, ACG Cleveland is forging a foundation that it hopes will support the next generation of greatness.

Seeking what he believed to be a missing opportunity for younger professionals, Kevin Bader, an analyst with MelCap Partners, LLC, surrounded himKEVIN self with a BADER diverse YP MELCAP board, who P A R T N E R S LLC reached out to friends in their respective industries in 2010 to create the M&A Young Professionals of Cleveland. As the group found its footing, it captured the attention of ACG Cleveland.

Shortly after came an invitation to bring this YP networking

group into the ACG family.

Like any good M&A executive team, Bader and the YP board performed their diligence to ensure synergies existed and it made good sense for the group’s members to become part of ACG. Satisfied that it did, the new Young ACG kicked off in March 2011.

The group, which is for professionals age 35 and younger, is growing and now has more than 85 members. Now that the group is established, Bader is hopeful that it can continue to add valuable membership benefits, including philanthropy and more educational opportunities. “I don’t think anyone had the idea it would become as successful as it has, in such a short time,� said Bader, who is president of Young ACG and represents the group on the ACG Board of Directors. “There are a lot more people out there; it’s just a matter of getting them engaged.�

Casting a wider net By focusing on networking, education and mentoring, ACG Cleveland sees good things for the local M&A youth movement.

Networking is the root of many deals, and ACG Cleveland has formed a group for young M&A professionals to help them get in on the act.

Tod Wagner, of the accounting firm Libman, Goldstine, Kopperman & Wolf, Inc., was ACG Cleveland president when the Young ACG initiative began and is a strong supporter. He currently acts as a sounding board for the Young ACG leadership and helps shape programming and planning so that it aligns with ACG Cleveland’s strategic mission. “This program can help young professionals grow their professional network and give them perspective on M&A that may be

Go for it. We’ve got your back.

At Roetzel, our attorneys are like our clients - entrepreneurial, innovative and results oriented. Just ask Mark Sarlson and Al Salvatore.

outside their own profesunder way since the sional background,� program began.

Wagner said.

David Akers, founder of One of the key compoCollaborent Group, was nents built into the among those that ACG Young ACG platform — Cleveland brought in to in addition to networking assist in designing the and education — is ACG mentorship program.

Cleveland Connections, a Akers is renowned for TOD mentoring program that his work in leadership WAGNER matches veterans from development and was LIBMAN, the strongest network of impressed by the level of GOLDSTINE, dealmakers in the state thought and time ACG KOPPERMAN with up-and-comers Cleveland is putting in to & WOLF hungry for broader make sure Young ACG knowledge about M&A. and ACG Connections live up to ACG Cleveland Connections is their expectations. a customized program that takes “Usually when organizations into account the needs and decide to put together a young desires of both parties. Whether professionals group within an orthe Young ACG member is seeking ganization, they put together the career counseling, better networking kids’ table, sit them there and or learning how to strike a never work to really integrate balance between work and life, them into the organization. It is ACG Cleveland looks at the the same with mentorship proobjectives and aligns them with a grams, where those seeking senior dealmaker that has the mentors outnumber the people best skill set to match. There are who step up to help,� Akers said. nearly 50 mentor partnerships See NEW Page S-18

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JANUARY 23 - 29, 2012

S-5

ACG Cleveland honors this year’s top Deal Makers

I

n 2011, a number of significant corporate growth and dealmaking activities took place in Northeast Ohio. Those organizations deemed the best engines of growth during the past year will be recognized at the 16th Annual ACG Cleveland Deal Maker Awards this Thursday, Jan. 26, at the Marriott at Key Center. The 2012 Deal Maker Award winners are:

also acquired Nalco Performance Products Group, a supplier of value-added specialty polymers and formulation additives to the global personal care and household care industries; and Merquinsa, a Barcelona-based producer of specialty thermoplastic polyurethanes.

OM Group, Inc. OM Group (NYSE: OMG) is

a global provider of specialty chemicals, advanced materials, electrochemical energy storage, magnetic materials and other unique technologies. Its growth strategy is to focus on valueadded solutions for its endmarket customers while reducing its exposure to volatility in commodity prices. Over the past several years, the company has completed three key acquisitions: the electronics businesses of Rockwood Holdings Inc. for $315 million; EaglePicher Technologies, LLC, a battery and energetic device manufacturer, for $172 million; and Vacuumschmelze GmbH & Co. KG, a leader in

advanced energy materials and specialty magnetics for approximately $900 million.

TransDigm Group Inc. TransDigm (NYSE: TDG) is a leading global designer, producer and supplier of highly engineered aircraft components. Implementing an acquisition strategy focused on proprietary component businesses has enabled TransDigm to grow its revenue from $48 million in 1993 to $1.2 billion in 2011. Over the last two years, the company has completed five transactions, including its largest to date, the $1.27 billion acquisi-

Linsalata Capital Partners (LinCap) LinCap is a leading middlemarket buyout firm that has consummated 99 acquisitions with an aggregate transaction value exceeding $3 billion since its inception in 1984. During the past two years, LinCap exited two investments, Transtar Industries and Lund International. Transtar is a manufacturer of automotive refinishing products. At exit, it had sales of $490 million, a 99 percent increase from the $246 million in sales it generated at the time of its acquisition five years earlier. Lund is a designer, manufacturer and marketer of branded automotive aftermarket accessories, which had annual sales of $100 million when sold. Collectively, the two investments generated more than double LinCap’s invested capital.

Additionally, LinCap acquired NeuroTherm, Inc.; Whitcraft Group; Eatem Foods Co.; Manhattan Beachwear; and Spartan Foods of America and made several other add-on investments.

The Lubrizol Corp.

Lubrizol is a specialty chemical company that produces and supplies technologies to customers in the global transportation, industrial and consumer markets.

In 2011, Lubrizol engaged in three transactions, the most significant being its acquisition by Berkshire Hathaway for $9.7 billion. The price paid by Berkshire Hathaway of $135 per share was a 28 percent premium over the closing price of Lubrizol’s shares the day before the merger was announced and 18 percent higher than Lubrizol’s all-time high share closing price.

The transaction was approved by 95 percent of Lubrizol’s shareholders. During the year, Lubrizol

NOMINATE A DEAL MAKER Nominations for the 2013 ACG Cleveland Deal Maker Awards may be submitted at any time of the year.

The deadline is Nov. 1, 2012.

For a nomination form, contact ACG Cleveland at (216) 696-8484 or admin@acgcleveland.org.

Crain’s Cleveland Business Custom Publishing

tion of McKechnie Aerospace Holdings. Other 2010-2011 acquisitions include Semco Instruments Inc., a manufacturer of highly engineered components for turbo-charged engines, for $74 million; Harco Laboratories, a commercial aircraft components manufacturer, for $84 million; the actuation business of Telair International Inc. for $94 million; and Kent, Ohio-based Schneller Holdings LLC, a laminates manufacturer for commercial aircraft, for $289 million.

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Advertisement

Private equity firms flex their operating muscles

I

t’s no secret that private equity is changing rapidly — a process both necessitated by and accelerated by the bubble and then the great financial crisis and the resulting recession.

We think of this as a natural evolution following the principles set forth by Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.� Competition for capital, talent and great acquisitions forces us to bring our “A� game or go home.

There is about $400 billion in legacy “use it or lose it� dry powder sloshing around the coffers of private equity firms around

the world. A lot of money One-third to one-half is chasing the great comof the 5,000 PE firms in panies for sale, creating the world won’t survive bidding wars for the best this shakeout. The opportunities. Meanwinners will be the firms while, lenders remain that most successfully conservative and build their portfolio investors are more companies by creating demanding and skeptical STEWART EBITDA. Those firms’ than ever, with fresh efforts will be validated KOHL capital invested in PE on by their ability to raise THE R I V E R S I D E the decline. future funds from CO. PE firms must consisinvestors. The rest will tently outperform in returns in become reliant on the “kindness order to raise their next fund. of strangers� in an unkind The only sure way to do this is to market. create more EBITDA faster at our Strong operating teams and portfolio companies. There is no deep industry specializations time to waste and there is no allow us to sleep at night even room for error. after agreeing to pay a multiple

that might have seemed far too high just a couple of years ago.

The involvement of our operating teams pre-acquisition gives us comfort that we are buying the right company in the right space.

Post-close, they can supercharge growth at a portfolio company by helping to develop new products, improving sales and marketing, driving international expansion, integrating add-on acquisitions, and most importantly, making sure that we have the right management team and the right strategy.

In the old days, we could buy companies cheaply, leverage them fully and get rich quick.

Those days are long gone. As

private equity has matured into a “get rich slowly� scheme, the PE firms that survive will be both better buyers and better owners.

They will deliver growth thanks to well-developed industry specializations and deeply talented operating experts. We embrace this reality as a good thing for our firm, our industry, the companies in which we invest, and, most importantly, our investors. â–

Stewart Kohl is co-CEO of The Riverside Co., a global private equity firm focused on acquiring growing enterprises valued at up to $200 million. Contact him at (216) 344-1040 or skohl@riverside company.com.

ABCs of valuation: Which companies are making the grade?

C

urrent market commitment to the future uncertainty is growth of the business. factoring into valuGrowth. Healthy ations of M&A growth can fetch a transactions. Buyers are purchase multiple in being more disciplined in the high single to low their approach to acquisidouble digits, depending tions, causing a flight to on the industry and quality that is pushing up ANDREW prospects for a business. purchase price multiples Companies that can offer PETRYK for the best companies.

BROWN GIBBONS identifiable synergies Buyers are evaluating and clear opportunities to L A N G & CO. companies by tallying a grow through acquisition quality scorecard, with are sought-after assets. the number of positive attributes Earnings quality. Business defining the overall grade — A, B models with recurring revenues or C. The key factors driving the and stable and predictable cash valuation multiple are: flows are in focus.

Management. Buyers are Size. High free cash flow, mealooking for deep and experienced sured by EBITDA, is a measure of management teams with a strong stability. For companies with cash

flow in excess of $10 million, the “large company� premium is getting larger. The premium on the purchase price multiple can equate to 1x or more of EBITDA. Industry. Sectors less impacted by the downturn, such as business services, technology, food and health care, are generating greater buyer interest. Multiples for cyclical businesses whose performance is more directly tied to the economy are under pressure, though quality companies are garnering significant interest and attractive multiples.

Based on these attributes, buyers are assigning a score, or grade, to given opportunities: Grade A businesses possessing all of the above characteristics

are attracting significant interest from both strategic and private equity buyers at robust valuations of 8x EBITDA or more.

Grade B businesses possessing most of the characteristics are being sold at valuations that are respectable from a historical perspective, with purchase multiples in the 6x to 8x range, but are highly scrutinized during due diligence.

Grade C businesses are more challenging in terms of attracting interest, as buyers and lenders are focusing their attention on higher quality companies. Valuations are modest, causing some owners to hold and wait for a longer trend line of improving performance.

A key driver of M&A, and

ultimately deal value, is capital availability. Corporate acquirers are sitting on cash reserves, with acquisitions the primary means to boost their top line in a slow growth economy. Private equity funds are just beginning to tap the oft-cited capital surplus and are looking for investments. Capital needs to be put to work, and lenders are aggressively supporting their efforts. For middle-market companies that can make the grade, there are hungry buyers willing to support healthy valuations. â–

Andrew K. Petryk is managing director and principal of Brown Gibbons Lang & Co. LLC, an investment bank serving the middle market. Contact him at (216) 920-6613 or apetryk@bglco.com.

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20120123-NEWS--23-NAT-CCI-CL_--

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How to manage M&A legal fees

N

ow that you have decided to either buy or sell a business, you will need to engage your attorney.

Legal fees can be large but there are ways to control them. So what are the factors that drive legal fees and how do you manage them?

Make certain your counsel understands your concerns and goals from the beginning so that the transaction can be structured properly. Will it be a stock or asset sale? Should there be a contingent purchase price or a significant purchase price adjustment, post closing?

Are there environmental, labor or intellectual property considerations?

Having to restructure a deal is

Investing via PIPE remains attractive

I

n 2007 and 2008, the global financial crisis and recession combined to drastically increase the PIPE (private investment in public equity) market.

According to DealFlow Media, there were $23 billion in PIPE transactions in 2005, and $121.2 billion of such transactions in 2008. In a PIPE transaction, a public company sells common stock, preferred stock or debt to SEAN private investors.

PEPPARD The securities ULMER in a PIPE trans& B E R N E , LLP action are sold in a private placement and, therefore, cannot be immediately resold without registration. Typically, the investors are granted registration rights and the securities are registered soon after the closing of the PIPE transaction.

PIPE issuers historically have been used by small- to mid-sized public companies — those that may not have full access to the capital or credit markets. While an expensive source of capital, PIPE transactions offered such issuers speed of execution as well as confidentiality. As a result, they often were used to fund acquisitions. During the financial crisis, large public companies used PIPEs to add cash to their balance sheets, such as Berkshire Hathaway’s investment in General Electric.

Typically, PIPE investors have been large institutional investors, like mutual funds and hedge funds. During and since the financial crisis, private equity investors have increasingly used PIPEs to invest in public companies. With the advent of private equity involvement, PIPE transactions are increasingly highly negotiated and offer investors additional protections, including

ALBERT SALVATORE

MARK SARLSON

ROETZEL & ANDRESS

expensive. If you plan on using a Letter of Intent to communicate an offer, involve your legal counsel.

Counsel’s involvement at this stage will pay off later.

Due diligence can involve significant legal expenses. As the

November 2011

HMR Acquisition Company, Inc.

seller, it is your responsibility to respond to the buyer’s request for information regarding your business. Experienced legal counsel can explain what the buyer is looking for and point you in the right direction. You can help reduce legal expenses by minimizing the involvement of legal counsel in assembling and organizing the requested information.

The due diligence information will be used in preparing the various schedules that are part of the definitive agreement. You can control legal fees by limiting counsel’s role to simply reviewing the schedules you prepared.

When drafting agreements, client

September 2011

JANUARY 23 - 29, 2012

and counsel should discuss what terms are typical in your type of transaction; for example, being reasonable on the survival period of the representations and warranties; understanding whether a partial holdback of the purchase price should be expected; and what the threshold amounts should be for indemnification. Initially drafting a fair, balanced agreement will reduce redrafts and result in a quicker finalization of the definitive agreement. Every redraft increases legal fees.

Negotiating the definitive agreement can take on a life of its own. Some counsel will feel that it is their job to prevent every hypothetical risk that may arise — however unlikely that risk may be. It is essential that your legal counsel has a clear understanding

of what issues are truly important to you and what your risk tolerance is.

If both buyer and seller desire to keep legal fees to a minimum, their reasonableness and cooperation certainly will go a long way in achieving that goal. If either side is unreasonable or loses control of its counsel, legal fees can be significantly higher than normal.

Open communication between a client and its legal counsel can help minimize any surprises and control legal expenses.

■

Albert N. Salvatore and Mark L. Sarlson are partners in the Cleveland office of Roetzel & Andress. Contact Salvatore at asalvatore@ralaw.com or (216) 615-4845 and Sarlson at (216) 615-4855 or msarlson@ralaw.com.

July 2011

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To learn more: Contact Randy Paine, Co-Head of KeyBanc Capital Markets 216-689-4119, Doug Preiser, Co-Head of KeyBanc Capital Markets 216-689-5944 or Paul Schneir, Managing Director and Group Head of Mergers & Acquisitions and Private Capital Group 216-689-4005.

Visit key.com/m&a KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/ FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. Key.com is a federally registered service mark of KeyCorp. ©2011 KeyCorp ADL4293

See PIPE Page S-12

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Don’t overlook insurance and Auction or proprietary bid? employee benefits in M&A

I

n today’s M&A environment, advisers, buyers and other parties should place a higher priority on the evolving insurance and employee benefit marketplace. The landscape in the property and casualty and employee benefits markets is changing, and buyers should take notice.

Property insurance carriers are focused on rates and recalculating models around wind and storm damage. Last year’s tornadoes in Joplin, Mo., and Tuscaloosa, Ala., created a shift to reclassify inland wind damage exposures. The property JEFFREY risk can change during SCHWAB due diligence. What was OSWALD COS. normally considered inland risk within a coastal state may have been reclassified as “coastal” exposure. As M&A professionals know, lenders are keen about seeing adequate property insurance.

Another area of concern for buyers is the workers’ compensation program. Thorough due diligence into a target company’s claims history, frequency and experience modification calculations is essential.

Carriers are pulling back on discounts until loss history improves. A focus on pre- and post-lost risk control is paramount. The target business may have some catching up to do on safety management, loss control and claims management. A good broker can add value with a strategic plan.

Employee benefit plans, particularly medical, continue to see escalating premiums

and uncertainty around recent health care reform provisions. The situation demands that senior management dedicate more resources toward medical plan strategy, composition and cost sharing.

Many employers are switching to a resultsbased approach to their medical plans, where employee contributions are determined by individuals meeting biometric measures (e.g., cholesterol, blood pressure, triglycerides, glucose and waist circumference).

Health care is the only form of insurance in which individuals do not pay disproportionate premiums based on the amount of risk they pose. Homeowner’s insurance costs more for an oceanfront house in Florida than it does for a single-family home on a cul-de-sac in Ohio, so why should medical be any different?

A full and complete understanding of the target company’s approach to health management is critical to understanding the potential landscape for an acquirer.

Reducing claims utilization throughout the hold period results in lower renewal increases, creating equity value at exit.

A good broker with a dedicated M&A practice can help buyers navigate the dynamics of a well-constructed risk management and benefits program throughout the life cycle of an M&A investment.

■

Jeffrey Schwab is the practice leader of the Mergers & Acquisitions and Private Equity Practice at Oswald Companies. He is also an account executive for Oswald’s middle-market and financially sponsored clients. Contact him at (216) 658-5208 or jschwab@oswaldcompanies.com.

M

ost companies are division or product line, the sale acquired in one of two will be less emotional and more processes: an auction likely to go through. But segregating bid or a proprietary sale. the business as to financial perforIn either scenario, the factors mance and ongoing transaction that matter to sellers (and their services can be challenging. investment bankers if an auction) If there is no investment banker are the buyer’s credibility and or corporate development head JAMES professional reputation, industry representing the target and taking HILL knowledge of the target, and ownership of the process, getting BENESCH, having committed capital and a the deal closed on the seller’s side FRIEDLANDER, record of closing deals that have can be challenging. Don’t count COPLAN & financing commitments. Price on the seller, who may have lastARONOFF matters, but it also depends on minute regrets. And the seller’s terms: “Your price, my terms.” advisers may be more motivated to As a buyer in an auction, you keep the client than close the sale. need to show you are willing to spend Family ownership infighting also can be a money in the process before getting dead end. exclusivity. Conduct a complete data room Establish up front the motivation behind analysis. Mark up the purchase agreement the sale and whether it rings true. Proprirather than write a memo discussing it. etary buyers often make the mistake of Show you are serious by using advisers — dealing with sellers who are only testing lawyers, accountants, consultants. Stay on the market. They often realize at some top of the process with the investment point that they will not get their price. Or banking firm. they may realize that without their busiDon’t be “all business.” Warm to ness they will have no life. management; give them a vision for the In a proprietary deal, even more so future. If possible, provide equity incenthan in an auction, how you relate to the tives. Make sure the deal is in your size owners/management is critical: You don’t range in terms of enterprise value. Most wear a $1,000 suit to buy an agricultural sellers don’t want to be part of something distribution business. that is a stretch for the buyer. Once you Just as in an auction, demonstrating agree to terms, don’t “re-trade,” unless there’s industry knowledge and teaming with a material adverse change, as that kind of well-regarded advisers will always make thing gets around in the deal community. you more credible as a buyer.

■ Proprietary bids are clearly preferred by most potential buyers. But they can present James M. Hill is chairman of the Private Equity different risks. Here are some things to Practice and executive chairman of Benesch, remember about proprietary bids: Friedlander, Coplan & Aronoff, LLP. Contact him at If a deal involves a corporate seller of a (216) 363-4444 or jhill@beneschlaw.com.

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Three mistakes to avoid in due diligence process

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onducted properly, post-close. Here are due diligence three frequently made should provide mistakes: buyers with valiPoor communicadation of purchase price tion with seller. and identify potential Establishing an open risks. For experienced communication channel acquirers, this process is and building rapport easily repeatable with early in the process with JEFF internal and third-party the seller will improve JOHNSTON experts working seamlessly KEYBANC the diligence process. together.

There is a tendency to CAPITAL However, while hiring limit or delay communiMARKETS third-party advisers helps cations with the seller, to professionalize the process, it particularly when it comes to does not eliminate the risk of negative diligence findings. making mistakes. Errors and overPerhaps it’s simply human nature sights made during due diligence or a desire to avoid conflict, but often lead to headaches and cost waiting to disclose negative find-

ings until the end of the diligence process almost always creates undesired results. The seller may perceive an attempt by the buyer to game the system to gain some last-minute leverage. Surprises late in diligence rarely result in a win for either party.

Lack of internal coordination. Ultimately, coordination is all about living up to assigned responsibilities. Identifying a project manager with responsibility for all aspects of the transaction supported by functional team leaders can be helpful. Creating a distinct master calendar with all diligence events and holding weekly calls are effective ways to

keep the team organized and aware of deadlines. Sharing the calendar (or a slightly modified version) with the seller is recommended.

Poor internal coordination leads to frustration for both buyer and seller, lengthens the process and increases the likelihood of missing critical diligence items.

“Be quick, but don’t hurry.”

Basketball fans may recognize this as a classic quote from UCLA coaching legend John Wooden.

On the basketball court, this meant playing your best and filling your role while limiting mistakes. The concept is appropri-

ate in the context of due diligence — particularly with sellers pushing for shorter diligence periods. In the rush to complete diligence and meet deadlines, there is a tendency to lose focus and attention to detail that can come back to haunt a buyer.

So whether it’s driving for a game-winning layup on the court or wrapping up a key diligence item on an acquisition, remember to be quick, but avoid the mistake of hurrying.

■

Jeff Johnston is managing director for KeyBanc Capital Markets Inc. Contact him at (216) 689-4115 or jjohnston@keybanccm.com.

Remember the human capital side of due diligence

O

ne of the forgotten areas during due diligence is the human capital side of the deal. Most organizations do not know how to evaluate human capital, nor do they have a valid way to do so.

Why evaluate human capital? There are many reasons why you should evaluate the human capital of the organization you are considering acquiring.

RICK It allows you to SOBOTKA understand how MEADEN & the key individMOORE LTD. uals will behave once they get into your organization.

It also provides insight in terms of culture fit, management and communications styles, and how the new team is going to relate to the members of your organization.

The evaluation process also can identify trouble areas that will need to be avoided or restructured to resolve. Plus, it can help you avoid losing key players.

How do most companies evaluate human capital? Most companies use several basic tactics. They ask questions of key individuals, talk to references and use intuition (gut feeling). In the end, they can believe what they hear, or just hope for the best.

How can you objectively evaluate human capital? One objective way to evaluate the human capital is by using an industrial psychologist. While it can be effective, it is costly, time consuming and can be viewed as invasive. Another option is to use a behaviorally based system that you can directly apply. The problem is in knowing what is available.

What should you look for in a behaviorally based system?

Look for a system that is cost effective, easy to use and validated to measure work-related behavior.

The ideal system should provide in-depth, valid and reliable results and have broad applications in See HUMAN Page S-12

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Capturing the value of tax attributes in a deal

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mid the depth of want access to them for issues faced in minimal incremental tight acquisition costs. This makes early time frames, identification and valuasome less transparent deal tion of tax attributes considerations that may highly advantageous tip the deal valuation from a deal negotiation needle up or down get standpoint. deferred or somewhat Some tax attributes to SEAN KELLY neglected. One example look out for during the GRANT is the existence of imbeddeal process include tax THORNTON ded tax attributes in deals. deductions for transacTax attributes can lead to effition-related expenses and net cient tax savings when properly operating losses. managed.

Tax deductions for transSellers typically want to be action-related expenses: paid for tax attributes, and buyers Expenses triggered when an

acquisition occurs can generate significant cash tax savings. For example, target companies may have compensation plans set to be triggered when a transaction closes, such as stock options that commonly vest automatically when a company is sold. Payouts related to stock options or general transaction-related bonuses can create tax deductions when paid.

Other transaction-related tax expenses include success-based fees contingent on a deal closing, such as investment banker fees and deferred financing fees written off with the payoff of a

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target’s existing loans.

Depending on the transaction structure, these tax deductions may be available to a buyer in a post-acquisition period or the seller in the pre-acquisition period based on factors such as timing of the payment, wording in the stock purchase agreement, etc.

Each party should consider the other side’s tax position to determine where allocating the tax deduction for these expenses provides the greatest tax benefit and how such benefits are shared among the parties.

Net operating losses (NOLs): NOLs allow a taxpayer to offset taxable income with accumulated tax losses. Depending on the transaction structure, NOLs accumulated by a target may carry over to a buyer. Determining the value

to place on NOLs can be tricky.

Key considerations when valuing NOLs include properly discounting the NOLs for tax exposures identified during tax due diligence.

Additionally, a buyer must have an appreciation for statutory limitations, which may restrict the future usage of NOLs. In particular, Section 382’s NOL utilization limitation can significantly decrease the amount of NOL a buyer can use annually.

If properly valued and negotiated, tax attributes can provide tax planning opportunities without timing hiccups created by lastminute deal structure changes. ■

Sean Kelly is a tax transaction advisory services manager in Grant Thornton’s Cleveland office. Contact him at (216) 858-3717 or email Sean.Kelly@us.gt.com.

New tax credit available to Ohio equity investors

I

incurs costs for one or nvestOhio is a new more of the following in tool that Ohio will October 2010 an amount at least equal use to encourage SS&G’s TAS team provided SS&G’s TAS team provided sell SS&G’s TAS team provided financial, operational, and side due diligence and other SS&G’s TAS team provided financial and operational to the amount of the infusions of private tax due diligence and other transaction advisory services to financial and operational due due diligence and modeling Astor & Black and Western Reserve transaction advisory services to diligence assistance to Linsalata qualifying investment: investor cash into Ohio’s assistance to Recovery Partners, LLC – Astor & Black’s Linx Partners.

Capital Partners and Stanton.

Resources. investment banker.

■ Tangible personal small businesses. The property used in the busistate will award up to ness and located in Ohio. $100 million in tax credits ■ Motor vehicles operated during the current fiscal EDWARD on public roads and used biennium that ends June LOWE has been acquired by has been acquired by primarily for business 30, 2013. Eligible investors HOWARD has been acquired by who invest in an eligible has been acquired by WERSHBALE & CO. purposes.

■ Real property located small business will Halstead Investements, LLC in Ohio. receive a 10 percent Ohio income April 2011 April 2011 July 2011 ■ Intangible property including tax credit. Credits are awarded on December 2010 SS&G’s TAS team provided patents, copyrights, trademarks, a first-come, first-served basis.

SS&G’s TAS team provided financial, operational, and SS&G’s TAS team provided SS&G’s TAS team provided financial, operational, and tax due diligence and other financial and operational purchase accounting assistance service marks or licenses.

To be eligible, a business must tax due diligence and other transaction advisory services due diligence and modeling to Halstead Investments. transaction advisory services to to Kichler. assistance to Center for ■ Compensation for new meet the following qualifications: Chart Industries.

Families and Children.

■ Assets of less than $50 million employees or retained employees.

The qualifying investment to or annual sales below $10 million. acquire capital stock or other equity ■ At least 50 employees in Ohio interest in the business must be for whom the business is required To learn how our dedicated team can assist you, made after July 1, 2011. to withhold income tax, or more An eligible investor means an than one-half of the total number contact Scott McRill at SMcRill@SSandG.com individual, estate or trust subject of U.S. employees work in Ohio or call 440-248-8787. to income tax or a pass-through and are subject to that withholding entity in which such an individual, requirement.

The business, within six months estate or trust holds a direct or www.SSandG.com indirect ownership interest. after an eligible investor’s qualifying Several steps must be followed investment is made, invests in or in order to be awarded a small business investment certificate.

They include: -ERGERS !CQUISITIONS s $EBT %QUITY 0LACEMENTS s &INANCIAL 2ESTRUCTURINGS ■ Both the investor and the small business must register for InvestOhio through the Ohio Serving the global middle market for over 20 years, Brown Gibbons Lang & Company Business Gateway.

■ Either the investor or the offers a broad range of financial advisory services including: small business must complete the s M&A Advisory s Restructuring InvestOhio application through s Capital Raising s Fairness Opinions the Ohio Business Gateway.

■ The investor must make the As a leading independent investment bank advising middle market companies investment on or around the date in the U.S. and internationally, BGL provides strong negotiating skills, specialized described in the application and industry experience and a shared entrepreneurial spirit that can help you increase and provide evidence of the investment to Ohio’s Director of Development. preserve your company’s value throughout the transaction process.

■ The small business must make the allowed expenditures and provide evidence to the director.

■ Both the investor and the business must retain ownership interest and the property for two years. #,%6%,!.$ s #()#!'/ More information about the InvestOhio program can be found KEVIN H. SARGENT EFFRAM E. KAPLAN ANDREW K. PETRYK SCOTT T. BERLIN MICHAEL E. GIBBONS at development.ohio.gov/Invest Director & Principal Director & Principal Managing Director Managing Director Senior Managing Ohio/InvestOhio.htm.

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Crain’s Cleveland Business Custom Publishing

Edward C. Lowe, MAFIS, CPA, is a principal with CPA and business advisory firm Howard, Wershbale & Co. Contact him at (216) 378-7230 or lowe@hwco.com.

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In acquisitions, tax free doesn’t Evaluate corruption risk always equate to tax efficient before closing the deal

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uyers and sellers usually have conflicting goals. That is one reason it is difficult, if not impossible, to strike the perfect chord between tax efficiency and economic viability. It is important to understand that a taxable transaction is not always tax inefficient.

The characteristics of an acquisition are determined by 1) what is acquired (assets or stock) and 2) the consideration paid (e.g., cash, stock, notes, etc.). As discussions DAVE DICILLO occur between a buyer Z I N N E R & CO. and seller and due diligence is performed, the form of the transaction takes shape. Often, the tax issues are overlooked: Structure 1 — Taxable Acquisition.

Corp. B buys 100% of the ownership interests of Target, LLC (a high-growth tech business) for $25 million. The fair market value of Target’s net assets is approximately $5 million. Corp. B would have a $25 million basis in the net assets acquired and becomes the sole owner of Target, which ceases to exist for tax purposes.

The acquired assets (goodwill and customer list) would be Section 197 intangibles in the hands of Corp. B. Corp. B may amortize those assets over 15 years, saving federal income taxes each year at the rate of 35% of that amount. B’s resulting tax benefit may exceed the tax costs incurred by Target’s owners on the sale of their units, based on a capital gains rate of 15%.

Structure 2 — Tax-free Acquisition.

Assume that the above acquisition could be structured to qualify for non-recognition of gain (Section 351) by Target’s owners receiving B stock in exchange for their interests. If the owners received solely B stock and held such stock until death, they would incur no federal income tax on the disposition of their interests. However, Corp. B would achieve no step-up in basis of Target’s assets but would likely pay less for those assets than it would have in a transaction with a basis step-up.

The tax benefits resulting from a step-up in basis achieved through a taxable acquisition sometimes exceed the tax cost to a seller disposing of assets. Furthermore, the tax benefits at issue will be recognized by the acquirer over a period of years. When the sellers are individuals whose gain would be subject to tax at long-term capital gains rates, trading a current tax cost for a future tax benefit may be beneficial.

Because the costs and benefits of the transaction are imposed on different parties, it’s important to determine whether the acquirer is willing to compensate the seller for the tax — that is, how much of the additional benefits the acquirer is willing to share with the seller.

It is important to get the appropriate tax and legal counsel involved early in any transaction. Doing so can be the greatest money saver of all. â–

Dave DiCillo is a partner in the CPA firm, Zinner & Co., LLP, headquartered in Pepper Pike. Contact him at (216) 831-0733 or ddicillo@zinnerco.com.

W

hen doing deals outside extent to which these statutes the United States, buyers apply to each party will allow the must take great care to buyer to design a comprehensive assess and avoid the and well-documented diligence risks presented from acquiring a process to evaluate legal risk, repucompany that is in violation of tational risk and the business case global anticorruption laws. This is for the deal. particularly true in the current deal Buyers also must bear in mind environment, in which target that certain target businesses may CIPRIANO companies are increasingly likely to BEREDO present a higher risk of corruption be operating in emerging markets SQUIRE SANDERS because they operate in problematic where bribery is often part of the jurisdictions, have a large number ordinary course of business. of government customers, involve a heavily There is no international anticorruption regulated industry or involve extensive law or standard. The laws in each jurisdicdistributor or agent relationships. tion are complex, and the focus, offense In these cases, an organized, comprehenand penalties of each are different. Deal sive and documented diligence process is makers in the United States long have been critical. If the buyer identifies potential familiar with the Foreign Corrupt Practices issues during its review, it can undertake Act. The trend of increased government additional investigations, insert protections enforcement of the act has resulted in, into the purchase agreement or address among other things, the need for effective issues like successor liability and/or postanti-bribery due diligence. acquisition compliance costs. All these Such diligence is necessary even in paths may be available to mitigate risk and transactions involving jurisdictions where still complete a transaction if a buyer there are no anticorruption laws. But an focuses on these issues early in the process. ever-expanding list of anti-bribery statutes Successfully navigating global compliance presents increasing risks of potential crimiobligations and conducting the necessary nal and civil penalties for acquirers. due diligence requires a global strategy Beyond the significant statutory penalties implemented by professional advisers and financial/reputational impact of a familiar with local markets, laws and violation, a buyer that ignores these business practices. â– statutes may end up purchasing a business that was not worth buying.

Cipriano S. Beredo is a partner with Squire Sanders A first step in the diligence process and the leader of its Cleveland Corporate Practice should be to determine which antiGroup. Contact him at (216) 479-8280 or corruption statutes apply. Knowing the full cipriano.beredo@squiresanders.com.

Congratulations to the ACG Deal Maker Award Winners Uniquely suited to handle highly innovative transactions, we understand the complex issues faced by clients, and our HIIHFWLYH DQG HIÂżFLHQW WUDQVDFWLRQDO FRXQVHO VXSSRUWV QDWLRQDO and international client business objectives. The seamless collaboration of our tax, antitrust, environmental, international, real HVWDWH HPSOR\HH EHQHÂżWV HPSOR\PHQW H[HFXWLYH FRPSHQVDWLRQ intellectual property and technology attorneys provides clients with the necessary breadth and depth of representation to take their businesses to the next level.

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The global impact on transaction and financing documents

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s the world conThe aim of IFRS is to tinues to shrink have companies across through the use the world report of technology, accounting transactions doing business internain a consistent manner. tionally is increasingly Those providing becoming the norm services to investors or rather than the exception. corporations in the United Investors are weighing States will be at a disadJEREMY their options of going vantage if they turn a MICHAEL international, whether by BCG&CO. blind eye to the impact investing, conducting of IFRS and how it differs business or entering new markets from U.S. generally accepted through mergers and acquisitions. accounting principles (GAAP).

The new global marketplace is In particular, attorneys who driving the need for a universal draft or review contracts containing accounting language implemented accounting provisions need to through the international finanrecognize the possibility that cial reporting standards (IFRS).

GAAP may no longer exist in five

to 10 years. It will be increasingly important to understand that clauses based on financial measurements like net income or EBITDA will be significantly different when measured under IFRS. Such measures are frequently found in compensation agreements, earn-out calculations from business mergers or acquisitions, income-sharing arrangements, bonus plans and so on.

Currently, approximately 120 countries require or permit the use of IFRS. The SEC is expected to reach a final decision for U.S. public companies during 2012, with an effective date somewhere around 2016.

The impact already is being seen through other convergence projects — breaking the standards down and then merging them together so they are fully compatible, or the same, under both reporting models. The standards for revenue recognition and leases, for example, will change dramatically.

Business professionals can adapt to the effects of changing accounting rules by: ■ Implementing a “frozen GAAP” contractual provision, where the accounting principles employed at the inception of the contract are preserved, for measurement purposes, throughout

the term of the agreement; and ■ Reviewing existing agreements to analyze the impact of convergence with IFRS prior to the U.S. formally adopting those standards.

Attorneys and other business professionals in the United States need to take notice of IFRS, as it already has made its trek to North America, with Canada starting its adoption in 2011 and Mexico slated for 2012.

■

Jeremy M. Michael, CPA, is with BCG & Co. and is certified in International Financial Reporting Standards. Contact him at (330) 572-8011 or Jeremy.Michael @BCGCompany.com.

PIPE continued from PAGE S-7

ACG Cleveland congratulates the winners of the 16th Annual Deal Maker Awards 2012 Award Recipients CORPORATE The Lubrizol Corporation

BUYOUT FIRM Linsalata Capital Partners

OM Group, Inc. TransDigm Group, Inc.

consent rights, anti-dilution provisions and pre-emptive rights.

Frequently, however, investors agree to lock-up and standstill provisions in favor of the public company, such as prohibitions on acquiring additional securities and/or engaging in proxy contests.

While PIPE transactions declined to pre-crisis levels in 2009 and 2010, continuing tight credit conditions and volatile public equity and debt markets make the PIPE market an attractive financing alternative for public companies.

For investors, PIPE transactions offer the opportunity to invest in public companies at a discount to market prices with the potential to negotiate downside protections.

However, there are significant pitfalls, including the need for shareholder approval and/or trading on material non-public information, and such transactions need to be structured appropriately.

■

Sean T. Peppard is focused on M&A, corporate finance and emerging businesses with Ulmer & Berne LLP, a leading Midwest regional law firm with offices in Cleveland, Columbus, Cincinnati and Chicago. Contact him at (216) 5837054 or speppard@ulmer.com.

Human continued from PAGE S-9

216-696-8484 • 216-696-2582 [fax] 1120 Chester Avenue, #470 • Cleveland OH 44114 www.acg.org/cleveland • admin@acgcleveland.org

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individual and team analysis, communication differences, management styles, culture evaluation and conflict resolution. Finally, you want a system that can be self-administered by key individuals so you control the process and directly apply results.

The key in utilizing any human capital evaluation system during due diligence is communication.

Explain the benefits of the system in helping to identify how to work more effectively with the individuals and the newly created teams. Discuss the value of identifying issues at this stage rather than months later. Communication allows you to create a positive atmosphere during a challenging time.

■

Rick Sobotka is president of Management Development Group, Ltd., a Meaden & Moore Ltd. company that is a regional representative of the Predictive Index System. Contact him at (216) 241-3374 or rsobotka@meadenmoore.com.

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Understand, mitigate burdens of purchase accounting

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nsufficient attention in the acquisition is frequently paid to process. purchase accounting Purchase accounting requirements during under Accounting Stanthe financial due dilidards Codification (ASC) gence process. Verifying 805, Business Combinathe quality of earnings, tions requires all identifying pro forma acquired assets (tangible adjustments and idenand intangible) and DARIO tifying working capital assumed liabilities to be SAVRON trends are the primary recorded at fair value on MALONEY + focus (and understandthe opening balance NOVOTNY ably so) when considering sheet. Much of the inforan acquisition. mation and assumptions necesPurchase accounting, on the sary to determine fair value is other hand, is usually left to be available early in the deal process. addressed after the deal closing is Thus, buyers should timely celebrated. Current purchase consult with their accountants to accounting rules make it very address ASC 805 and begin to important for buyers to consider determine what the opening the rules and requirements early balance sheet will look like.

The globalization of M&A: Your best partner may not be U.S.-based

It is important for buyers to understand that an independent valuation expert may need to be engaged to calculate fair values and that these values then may be subject to financial statement audit scrutiny — if an audit is performed. Auditors must review and “stress-test” the valuation assumptions for reasonableness.

In addition, auditors must ensure that the derived values and opening balance sheet are presented in accordance with generally accepted accounting principles (GAAP).

Even more important than obtaining the auditor’s GAAP “sign-off,” buyers need to understand and consider the impact purchase accounting can have on

financing terms, such as debt covenant calculations. For example, ASC 805 requires that the present value of any anticipated earn-out payments be recorded on the opening balance sheet as a liability. If not properly considered when negotiating with the lender, this GAAP requirement may result in the breach of a leverage ratio covenant shortly after the deal is closed.

Similarly, since ASC 805 requires all deal costs to be expensed when incurred, buyers planning future “bolt-on” acquisitions should try to negotiate terms that exclude future deal costs from debt covenant calculations. The above are just two examples of several purchase

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cquisition activity buyers are on the lookout has rebounded for U.S. assets that may from steep debe cheaper to acquire. clines in 2008-09, Not a hassle. On with 2012 forecasted to many levels, selling your be the best year since the company to an internadownturn. One major tional buyer is no different reason for this turnaround than selling to a U.S.is the increasing presence SEAN based one. With advances of international buyers in DORSEY in communications, the U.S. marketplace. technology and the clear LEAGUE PARK How does this global emergence of English as ADVISORS dynamic affect you? the universal language of Buyer universe is business, there is no need larger. It’s simple. The potential to hire advisers with international buyer universe has expanded offices. The transaction can be rapidly in the past 10 years. The handled right here in your rise of private equity buyers has backyard, in your own language, received most of the attention. without incurring high internaBut an increasing source of buyer tional fees. candidates are Asian, European Cash is king. Global corporate and South American companies cash balances are at record highs, seeking to establish a U.S. presence. and private equity firms are Foreign corporations often being pressured to invest capital struggle to start new operations amassed in pre-recession fundfrom scratch in our country. It is raising. In short, buyers across less painful for them to make the globe have cash to spend and strategic acquisitions. More are competing fiercely for U.S. potential buyers mean more acquisitions right now.

■ competition for attractive U.S. companies. This year, our firm Sean Dorsey, former head of saw international interest in just investment banking at National City, about every sell-side transaction is the founder and managing director we managed. of League Park Advisors, a boutique Weak dollar. In 2011, the investment banking firm. Contact U.S. dollar fell to historic lows him at (216) 455-9990 or e-mail against foreign currencies. Motisdorsey@leaguepark.com. Learn vated by the purchasing power of more about League Park at their currencies, international www.leaguepark.com.

Growth doesn’t come to those who wait.

Now is the moment to take advantage of emerging

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Dario Savron is shareholder in the audit and advisory practice at Maloney + Novotny LLC. Contact him at (216) 344-5256 or dsavron@maloney novotny.com.

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accounting-related issues that buyers need to timely consider.

Obtaining the necessary information and working through purchase accounting can be time consuming and complex, and can cause significant issues for buyers and their lenders if not addressed early enough.

Being cognizant of ASC 805 and being timely and properly advised by a team of seasoned professionals will help buyers mitigate the burdens of purchase accounting.

■

markets, or pull the trigger on an M&A deal. Because to grow tomorrow, you have to act today. Dynamic companies work with us because we know what succeeds for growth. See what wins at growthwins.com.

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M&A isn’t all glitz and glamour; it’s risky business

T

he process of mergers and acquisitions can be exciting and even glamorous at times, but it is also fraught with risk. A business owner’s decision to sell his or her business should not be taken lightly.

Most business owners are only going to sell their business once.

They have spent many years building up the business, carving out a niche in the market, serving their customers and creating jobs that provide the livelihood for their employees. We like to say, “We are creating the most significant liquidity event in the history of our clients’ lives ‌ and we take that responsibility very seriously.â€?

The deal process has many deal-killer land mines that need to be avoided for a transaction to be completed: Confidentiality. The decision to sell doesn’t necessarily mean that the business is going to be sold today. As a result, confidentiality is one of the first risks of the process.

A common question from a business owner is: “When should I tell my employees, customers or suppliers?� Be honest and never lie, but some things need to remain confidential. Selling the business is one of them, until you are further along in the process.

Identifying buyers. When

marketing a business for the offering memo, the sale, deciding who would agreement is only as be the most logical buyer good as the integrity of has risk. Private equity the individual signing it. groups are professional You need to distinguish buyers and treat the between serious buyers M&A process professionand the “tire kickers.� ally, with a view toward Negotiation terms. honoring the confidenOnce the most logical ALBERT tial nature of the process. MELCHIORRE buyer has been identiStrategic buyers can be MELCAP fied, the challenging a little trickier. Many process of negotiating P A R T N E R S LLC times the most logical the terms and conditions buyer may be a competitor. of the purchase agreement Disclosing highly confidential begins. The purchase agreement information to a competitor can not only sets the purchase price, be terrifying and is a major risk. it also outlines the sharing of Although you will have each risks through the “reps & potential buyer sign a confidenwarranties,� “caps & baskets� and tiality agreement prior to receiving survival periods for these indem-

Maximize next-generation benefits of a future sale Act now before potential changes for gift and estate taxes take effect

W

ith capital year you simply watch gains rates others reap rewards? likely to rise, Don’t let that happen; historically 2012 should be the year low borrowing rates and to implement plans to businesses showing signs maximize value for your of health in their finanfamily’s next generation, cial statements, 2012 is your favorite charities or poised for a boom in the other worthy causes, in a JOHN mergers and acquisitions sale still two or three MCGUIRE CALFEE arena. But what if your years away. company is not quite Fail to act now and ready for sale? What if its the utility of several current results are modest, but its powerful planning tools may be future is bright? Will 2012 be the significantly curtailed in the

federal government’s budgetary process.

The simple gift remains the best tool for transferring wealth, but its current power is in jeopardy. Bush-era tax cuts raised the per-individual estate, gift and generation-skipping transfer tax exemption from $1 million to $5 million, an increase scheduled to expire on Dec. 31. Speculation as to the fate of this exemption varies. It may be reduced to $3.5 million or $1 million and the reduction may take effect at year’s end or earlier — but no one believes it will survive at current levels.

Grantor retained annuity trusts (GRATs) are a wonderful way to

NEED ASSISTANCE NAVIGATING THE ACQUISITION TAX MAZE?

transfer value tax-free or at reduced cost. GRATs are designed to transfer wealth using assets anticipated to appreciate within a short time, such as equity of a company soon to be sold, because in order to be effective, the grantor must outlive the term of the GRAT. Budget proposals being considered include a 10-year minimum term for GRATs to discourage their use.

In appraising transferred privately held equity for reporting purposes, the value is typically discounted to reflect its lack of control or marketability.

However, for some time the Obama administration has been

nifications.

To manage the risks of the M&A process, it is very important that the business owner assemble a strong deal team, which would include their law firm and accounting firm, and of course their investment banker, who will manage and lead the entire process.

It may be exciting and at times glamorous, but even Tom Cruise would admit that M&A can be risky business, too. â–

Albert D. Melchiorre is president and founder of MelCap Partners LLC, a middle market investment banking firm.

Contact him at (330) 239-1990, email him at al@melcap.co, or visit www.melcap.co.

seeking to limit the full application of such discounts to intrafamily transfers, thereby increasing the transferred equity’s taxable value.

This is likely the last year we will see such a beneficial alignment of a $5 million transfer exemption, useful GRATs and robust valuation discounts. If 2012 is not the year to sell, it nevertheless should be the year to restructure your company’s ownership and stay ahead of the federal budget process. â–

John J. McGuire is a partner in Calfee’s corporate practice. He advises clients on general corporate law matters, including mergers and acquisitions, securities, finance, succession planning, venture capital and private equity investments.

Contact him at jmcguire@calfee.com or at (216) 622-8892.

OUR CENTRAL FOCUS IS ENTIRELY ON YOU We are Glenmede — we rally around a single line of business: investment and wealth management. Founded as a trust company in 1956 by the Pew Family to manage the assets of their charitable interests, we still follow our initial mission — to grow and protect our clients’ assets.

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JANUARY 23 - 29, 2012

S-15

When a guest sits down Five tips for successfully at the family dinner table selling your business

T

here comes a time when every family business owner contemplates a significant strategic or liquidity event — be it a sale, merger, joint venture, strategic partnership or a financial recapitalization. And while the prospect of taking their business “to the next level” or “taking some chips off the table” may be enticing, owners need to remember that these also are opportunities for outside parties with considerable transaction experience to conduct very thorough due diligence into their CHARLES company.

AQUINO Where exactly the WESTERN outcome falls on the RESERVE risk-reward spectrum P A R T N E R S LLC varies in every situation, but one thing is certain in all cases: entering this process in an unprepared manner can be costly — either in terms of valuation, proceeds received and/or ownership dilution.

Listed below are five tenets that every family business owner should consider regularly as matters of best practice, particularly when interacting with outside parties: Management/Infrastructure.

Thoroughly evaluate the management team, facilities, equipment and marketing collateral to ensure that all-important great first impression.

Legal. Review and resolve matters such as threatened or pending litigation; customer, vendor and employee contracts; potential IP infringements; and any environmental issues.

Board of Advisers. Establish a board of advisers that brings complementary expertise and an independent perspective in such areas as strategic direction and financial reporting.

Growth Story. In dealing with potential buyers, investors or partners, always have ready a compelling, yet credible, three- to five-year growth strategy — and update it every year!

Professional Advisers. Engage wellcredentialed advisers with extensive transaction backgrounds in such disciplines as legal, accounting, tax, estate planning and investment banking.

Family owners spend years (and sometimes generations) building, growing and protecting their business. While enticing, the prospect of inviting “strangers” into the house can be daunting.

Though there is no guarantee of success, ingraining the above precautions into the regimen of running the business will at least give the owner peace of mind that he or she has left no resource untapped in protecting a lifetime’s worth of work.

■

T

he process of selling a busiincome-producing assets. ness can prove to be just as Have a map of your challenging as building personal goals. What was the one. Whether or not you “dream” all about to begin with? are in the market, following are Thinking of your reasons for some important considerations: starting the business and what it Plan early. Proper tax planning was going to enable you to do is is imperative and needs to begin helpful in determining what might early in the process to maximize be next. What will you do after the LINDA the benefits to an owner. Even if sale? What would you like to OLEJKO you aren’t quite ready to exit your communicate to key staff? How GLENMEDE business, unanticipated circumwould you like to transition your stances may prompt an early sale. employees?

Get your house in order. Buyers will Assemble a good advisory team. conduct a due diligence review. Make Look for individuals with proven experience certain your corporate books are current; in working with comparable companies. It patents or trademarks are complete; confiis important you engage advisers who will dentiality agreements are in place; and listen to and focus on your objectives and contracts with key employees, customers priorities. Your team should include a and vendors are up to date. business accountant, business attorney, tax Define success. It is critical to be clear professional, M&A adviser and a personal on financial and non-financial needs. Your financial planner. financial independence, family legacy and Develop a short list of potential philanthropic objectives are all important buyers. Potential buyers may include a components of a solid financial plan. partner, competitor, customer, supplier, Other factors to consider should be life employee, investor, etc. Narrow the pool to expectancy, cash flow needs, capital your three top choices by weighing your markets assumptions, inflation and other definition for success. Keep in mind the buyer’s motivation and define what would create the best situation for both parties.

■

Charles V. Aquino is a director with the investment banking firm Western Reserve Partners LLC. Contact him at (216) 589-9534 or caquino@ wesrespartners.com.

Linda M. Olejko is a certified financial planner and a business development manager in the Greater Cleveland office of Glenmede, an investment and wealth management firm. Contact her at (216) 514-7876 or linda.olejko@glenmede.com.

is proud to join AGC in recognizing our longstanding client

as a 2012 Deal Maker Award Winner We are honored to have been legal counsel to LinCap for decades of deal-making, including these recent, selected acquisitions and divestitures.

LINSALATA CAPITAL PARTNERS announces the sale of

a leading designer, manufacturer and marketer of branded automotive aftermarket accessories.

Calfee, Halter & Griswold LLP www.calfee.com

Crain’s Cleveland Business Custom Publishing

Cleveland | Columbus | Cincinnati

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Creating Value.

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Advertisement

Barberton company has the Wright stuff Tool manufacturer plans to build on its legacy through the acquisition of new product lines

By CHERYL HIGLEY

W

right Tool, the Barberton-based manufacturer of heavy-duty tools, is handcrafting a strategic plan to expand its product line and manufacturing capabilities. That move is the next piece of a growth strategy put in place after Terry and Pat Taylor and Tom Futey purchased the company from second-generation owner Dick Wright in 2007.

“In the ’90s, the company spent a lot of time developing its product line but eventually had expanded the tool line as much as we could,” says Futey, who was hired as the company’s chief financial officer in 1993. “We knew that if we were going to take Wright Tool into the next 30 years, we needed to offer more product to our distribution base.”

Wright Tool sells primarily to the refinery power generation, distribution and transmission, mining and wind turbine industries. With a 150,000-square-foot manufacturing facility, producing complementary products for its current customer base was part of the vision. The other was to leverage its vast global sales and distribution network and expand its reach with products from companies that may not have the same capabilities.

With a vision for growth in place, the new ownership team looked excitedly to the future — only to have “the debacle of 2008” derail its plans, Futey says.

The team had just completed the purchase of the company when the economy nosedived — and took 40 percent of Wright Tool’s sales with it. Instead of growing, the new ownership team found itself having to make difficult cuts in order to sustain the business.

Austerity programs were put in place that resulted in difficult layoffs, payroll reductions and a shortened work schedule. For five months, the Taylors and Futey took no salary.

“We have third generations working at Wright Tool, and we hadn’t had layoffs in years. Those decisions were very hard, especially for Pat Taylor, who saw friends and people she had hired (being let go),” Futey says.

The cutbacks, however, allowed the company to remain profitable, and it has experienced doubledigit growth the past two years.

“We acted quickly and I think that helped brunt the impact,” Futey says, adding that while the company doesn’t anticipate returning to its pre-recession employment level, it currently employs about 140 people and is looking to add five to 10 more.

With the business stabilized,

So, you think you’re ready to sell?

Proper planning, control of the process are keys

A

lthough none of us can know what deal activity will look like in 2012, signals point to a potential increase in activity for the lower end of the middle market.

The private equity community is flush with cash, many larger companies have accumulated cash and improved balance sheets, and the lending environment has thawed. In addition, many smaller companies are growing again, with earnings improving nearly every month.

While uncertainty in Washington seems to be the only certainty, the looming increase in the capital gains tax rate at the end of 2012 could spur companies to sell. To boot, estimates reveal many of the

Crain’s Cleveland Business Custom Publishing

more than 250,000 privately held companies with revenues up to $250 million are controlled by some of the estimated 75 million baby SCOTT boomers set to MCRILL retire in the SS&G next decade.

Just as one wouldn’t show a house to a prospective buyer without getting it in order, a business owner shouldn’t try to sell a company without proper preparation.

Consider the following: ■ Get ready for a difficult and time-consuming process. Turn to a trusted business adviser, often an accountant or attorney, to help guide you through.

■ Clean up your books and records. Consider upgrading from a compilation to a review or a review to an audit, and spend

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JANUARY 23 - 29, 2012

S-17

Planned transition gives new ownership head start

T Wright Tool headquarters the company refocused its growth efforts and in late 2010 began talking with its bank about pursuing acquisition opportunities.

As Futey began exploring options, he found that despite having a supply chain of 4,400 brick-andmortar distributors,100 salespeople and a reputation among its clients for manufacturing the highest quality tools, few people in Northeast Ohio even knew the company existed. That all changed, he says, when he attended an ACG Cleveland holiday event. Since then, Futey says he has seen opportunities cross his desk that may not have otherwise.

Wright Tool has attracted the interest of entrepreneurs who have good products but can’t get the attention of independent sales or can’t get it through the distribution channel. Wright can — and that has been the difference maker.

“We were able to educate people on Wright Tool and the opportunities we were seeking. People I met told me to be patient and that it may take awhile,” he says. “I’ve been presented with about 20 opportunities this year. We’re in conversations with four of them and are excited to see where it takes us.”

■

om Futey, chief financial officer for Wright Tool, along with President Terry Taylor and Vice President Pat Taylor, came together to purchase the company from Dick Wright, whose father started the business in 1927.

Wright’s vision plan for the eventual succession made a tremendous difference in the new team’s ability to hit the ground running.

His goal was to keep the company in Barberton and to continue to provide good-paying jobs. His sons, who had been gifted ownership in the company by their grandfather, were not

TOM FUTEY

TERRY TAYLOR

interested in taking over the business, so Wright knew it was imperative to have a plan in place.

“In a privately held business, the owners have to be engaged in the business for it to be successful,” Futey says. “Dick knew

he needed to build a management team to succeed him.”

In the 1980s, the company purchased the PAT sons’ shares TAYLOR and created a legacy ESOP. Wright sold 25 percent of the company to the group in 1998.

In January 2007, they bought the remainder of Dick Wright’s shares and in 2008 redeemed the ESOP and purchased those shares, completing the sale.

That the transition ran as smoothly as it did is a testament to Dick Wright, Futey believes.

“The fact that he was still in good health and active in the business but could make that decision that he was ready to entrust the business to us made all the difference,” he says, adding that Wright still sits on the Board of Directors. “I’m sure it wasn’t easy for him to let go, but the reason it was so successful was that he maintained control of the process. We respect him tremendously. We listen when he talks, and he appreciates that.”

— Cheryl Higley

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time understanding the recurring earnings before interest, tax, depreciation and amortization (EBITDA).

This will help in determining the true potential value of the business.

■ Evaluate your emotions. Are you ready to let go? For many owners, selling is a difficult decision. Alternative transition strategies over a period of time rather than an outright sale should be considered.

■ Work with a wealth planning professional to understand what you need to achieve the remaining financial goals in your life (retirement income, education needs, etc.). What you need may be very different than what you want for the business.

■ Once the decision is made, control the process. Preparation is key. Fix what you can before entertaining potential buyers. Set and manage expectations along the way. Appropriate sell-side diligence will prepare you to best respond to buyer diligence inquiries.

Don’t take your eye off the ball.

Continue to run the business in the normal course.

■

Scott McRill, CPA, is director of the transaction advisory services group with SS&G. Contact him at (440) 248-8787 or SMcRill@SSandG.com.

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Advertisement

New: Young generation can continue connections continued from PAGE S-4

“I chose to get involved because I could see ACG Cleveland was willing to put leadership behind the programs. That formal, deliberate approach to integrate younger professionals is really unique.”

Current ACG Cleveland President Randy Markey, managing director of global X, a strategic tax consulting firm, is proud of how the program has come together and says the need for the methodical approach is two-fold.

First, it is important that the programs bring value to the younger members; but just as important is the value the program brings to the veteran leaders and to the region as a whole.

“ACG Cleveland Connections is connecting the generations — we have as much to learn from them as they do from us. But from a macro level, we believe the establishment of Young ACG can continue the development of this really strong deal-making community,” Markey said. “The more we can do to ensure our best and brightest feel they can have long and prosperous careers here,

they’ll stay and continue to build on the deal-making legacy that has been established.”

ACG Cleveland is viewed across ACG Global as a strong, innovative chapter, and Markey is hopeful that other chapters will take note of and implement similar programs. Akers said that while becoming a national model would be great, he’s hopeful that those closer to home will take notice and use it as a regional model in other industries: “This is the kind of thing a region needs to stay strong and grow stronger.”

Keeping the intellectual capital in Cleveland is essential, he said, given that as baby boomers retire, the work force will shrink by 40% — creating an intense competition for talent.

“This is a great tool for young professionals to get access to the local firms, but it’s also incumbent on veteran leaders to participate in these programs to ensure they can retain the talent to ensure their firms survive,” says Akers. “Whoever participates, whether mentor or mentee, my hope is they will pay it forward

and share their experiences with the generation coming up behind.”

Connecting with MBAs Creating that interaction between generations is beginning even earlier than Young ACG with graduate students who participate in the ACG Cup, a national ACG program. This case study competition gives students real-world experience and invaluable insights from the top dealmakers in the country (see sidebar).

In the past three years, connections made during the Cup and subsequent invitations to events like the Deal Makers Awards ceremony have proven beneficial for local MBA graduates who have turned those networking opportunities into jobs at local firms.

Markey and Bader both are excited for the future — 2012 will bring more networking with senior members, and diverse and innovative educational programming. Buzz surrounding Young ACG is building, which means good things for ACG Cleveland and Northeast Ohio.

“Young ACG is bringing a lot

We think the grass is greener

of energy and creativity to ACG Cleveland, which inspires innovative thinking and brings value to our organization,” Markey said.

They’re bringing a whole new perspective to our vision and it’s

exciting.”

For more information or to get involved with Young ACG, contact Kevin Bader at (330) 2391990 or contact ACG Cleveland at (216) 696-8484.

ACG Cup gets students up close to the real world

M

ake your pitch and make it good … that’s the goal for teams who compete in the ACG Cup each year. The competition gives the MBA students one week to prepare analyses of a realworld merger case developed by Houlihan Lokey, a boutique investment banking firm based in Chicago and Los Angeles.

Each team makes a 20-minute presentation to a panel of judges, who play the role of the owners and board of directors of the company. The panel for the Cleveland competition includes senior professionals from Northeast Ohio’s premier investment banking, consulting and private equity firms.

Graduate students from the Case Weatherhead School of Management, University of Akron, Baldwin-Wallace, Cleveland State University, John Carroll University, Kent State University and the Ohio State University participated in the 2011 competition. Weatherhead teams finished in first and second place. First place winners received an invitation to the ACG Cleveland Deal Maker Awards, a cash prize and an all-expenses paid trip to San Diego for InterGrowth, the

national ACG conference in May. The second-place team was invited to the Deal Maker Awards and received a cash prize.

Banking and Finance Professor Scott Fine is the faculty adviser for the Weatherhead teams and is impressed with how dedicated ACG Cleveland is to providing a top-notch educational and networking experience for the students.

“The teams get a great networking opportunity and have the chance to be evaluated by people who do this for a living.

ACG has done an excellent job of getting committed professionals to take part,” Fine says. “Unlike any assignment I can give, the competition exposes the teams to how a pitch works in a real setting. They learn how difficult it is to succinctly convey complex thoughts in a short time.”

While Fine is obviously pleased with the Weatherhead teams’ success, he is hopeful that other schools see how valuable the opportunity is and encourage teams to participate: “I would love to see other faculty get behind this.

One of the key factors in moving the competition to the next level is to get deeper faculty support.”

— Cheryl Higley

right here And that’s why we’ve called Cleveland home for over 20 years. To learn more about Riverside’s strategies to grow companies with $1 million - $30 million in EBITDA, visit riversidecompany.com or contact Scott Gilbertson, Principal, Origination at sgilbertson@riversidecompany.com. riversidecompany.com | phone: +1 216 344 1040

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JANUARY 23 - 29, 2012

S-19

ACG CLEVELAND CALENDAR OF UPCOMING EVENTS

Attendees network at the Rock and Roll Hall of Fame during the 2009 Great Lakes ACG Capital Connection in Cleveland. In 2011, the event rotated to Indianapolis, where the opening-night reception was held at the NCAA Hall of Champions.

FEBRUARY 9

APRIL 19

Young ACG panel discussion

FEBRUARY 21 Dinner — Union Club Speaker: Mark Clark, executive vice president & CFO, FirstEnergy

FEBRUARY 27 Evening — Ohio Theater, PlayhouseSquare Speaker: Erskine Bowles, former co-chair, National Commission on Fiscal Responsibility & Reform

Breakfast — Union Club Speaker: TBD

SEPTEMBER 26

MAY 3

Breakfast — Union Club Speaker: Richard Weber, president & CEO, PennEnergy

APRIL 5

Firestone Country Club

JANUARY 31, 2013 17th Annual Deal Maker Awards

Young ACG event

DECEMBER 13

OCTOBER 1

networking event

Young ACG Holiday Social/

For more information contact M. Joan McCarthy at admin@acgcleveland.org or (216) 696-8484 or visit www.acg.org/cleveland.

MAY 17 Breakfast — Union Club Speaker: Richard J. Hipple, chairman & CEO, Materion Corp.

JUNE 12

JUNE 25 Young ACG summer social event

SEPTEMBER 19-20

Young ACG Event

Eighth annual ACG Cleveland Golf Outing

OCTOBER 25

Young ACG event

Afternoon — Ritz-Carlton Cleveland Special event

Evening — Shoreby Club Summer social event with TMA

MARCH 15

Great Lakes ACG Capital Connection

Marriott Renaissance Center, Detroit

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JANUARY 23 - 29, 2012

NORTHEAST OHIO REAL ESTATE INVESTMENT TRUSTS RANKED BY TOTAL SQUARE FOOTAGE OWNED IN NORTHEAST OHIO(1) Name of firm/Ticker symbol

2010 funds from Change in funds 2010 NE Ohio square operations from operation revenue feet owned(2) (millions)(3) from 2009 (%) (millions)(4)

Change in revenue Equity NE Ohio from 2009 market cap properties (%) (millions)(5) owned(6) Property focus

Phone Website

CEO

1

Simon Property Group Inc./SPG 225 W. Washington St. Indianapolis, Ind. 46204

(317) 636-1600 www.simon.com

David E. Simon

4,680,572

1,762.3

0.8

4,028.2

6.1

37,420.0

6

Regional mall

2

DDR Corp./DDR 3300 Enterprise Parkway Beachwood, Ohio 44122

(216) 755-5500 www.ddr.com

Daniel B. Hurwitz

2,990,867

31.0

(130.3)

816.5

(16.0)

3,312.5

12

Shopping centers

3

Stag Industrial Inc./STAG 99 High St., 28th floor Boston, Mass. 02110

(617) 574-4777 www.stagindustrial.com

Benjamin S. Butcher

1,988,798

NA

NA

NA

NA

177.1

9

Industrial

4

Lexington Realty Trust/LXP One Penn Plaza, Suite 4015 New York, N.Y. 10119

(212) 692-7200 www.lxp.com

T. Wilson Eglin

1,346,793

110.6

(295.0)

376.7

6.6

1,169.8

4

Diversified

5

First Industrial Realty Trust Inc./FR 311 S. Wacker, Suite 3900 Chicago, Ill. 60606

(312) 344-4300 www.firstindustrial.com

Bruce W. Duncan

1,317,799

(117.1)

NM

293.6

(29.4)

858.4

8

Industrial

6

CubeSmart(7)/CUBE 460 E. Swedesford Road, Suite 300 Wayne, Pa. 19087

(610) 293-5700 www.cubesmart.com

Dean Jernigan

1,193,768

51.1

(8.6)

217.4

(0.2)

1,285.7

22

Self-storage

7

Associated Estates Realty Corp./AEC 1 AEC Parkway Richmond Heights, Ohio 44143

(216) 261-5000 www.associatedestates.com

Jeffrey I. Friedman

1,172,700

25.9

30.6

154.5

17.4

681.0

7

Multi-family

8

Kimco Realty Corp./KIM 3333 New Hyde Park Road, Suite 100 New Hyde Park, N.Y. 11042

(516) 869-9000 www.kimcorealty.com

David B. Henry

1,074,301

460.5

60.4

1,010.2

10.8

6,743.0

10

Shopping centers

9

Duke Realty Corp./DRE 800 E. Ninth St., Suite 100 Indianapolis, Ind. 46240

(317) 808-6000 www.dukerealty.com

Dennis D. Oklak

1,052,485

305.4

2,201.4

896.6

(5.4)

3,037.6

11

Office

(212) 894-7000 www.vno.com

Michael D. Fascitelli

1,000,000

1,174.9

83.4

3,222.5

11.5

14,115.8

1

Diversified

(423) 855-0001 www.cblproperties.com

Stephen D. Lebovitz

981,190

354.6

25.7

1,076.2

(2.0)

2,360.5

2

Regional mall

Rank Headquarters address

10

Vornado Realty Trust/VNO 888 Seventh Ave. New York, N.Y. 10019

11

CBL & Associates Properties Inc./CBL 2030 Hamilton Place Blvd., Suite 500 Chattanooga, Tenn. 37421

12

General Growth Properties Inc./GGP 110 N. Wacker Drive, Suite 3900 Chicago, Ill. 60606

(312) 960-5000 www.ggp.com

Sandeep Mathrani

913,681

600.5

(242.5)

2,868.2

(1.6)

13,927.3

1

Regional mall

13

Gladstone Commercial Corp./GOOD 1521 Westbranch Drive, Suite 200 McLean, Va. 22102

(703) 287-5800 www.gladstonecommercial.com

David J. Gladstone

783,427

14.1

4.1

45.4

6.0

190.9

5

Diversified

14

Sovran Self Storage Inc./SSS 6467 Main St. Buffalo, N.Y. 14221

(716) 633-1850 www.unclebobs.com

Robert J. Attea

778,938

67.3

23.6

192.4

(1.5)

1,171.9

13

Self-storage

15

CommonWealth REIT/CWH 255 Washington St. Newton, Mass. 02458-1634

(617) 332-3990 www.cwhreit.com

NA

645,000

292.4

(2.8)

859.4

(2.1)

1,393.1

17

Office

16

Monmouth Real Estate Investment Corp./MNR 3499 Route 9 North, Suite 3-C Freehold, N.J. 07728

(732) 577-9996 www.mreic.com

Eugene W. Landy

532,145

19.1

109.2

50.3

16.5

359.2

3

Industrial

17

Apartment Investment and Management Co./AIV 4582 S. Ulster St., Suite 1100 Denver, Colo. 80237

(303) 757-8101 wwww.aimco.com

Terry Considine

504,900

215.2

21.4

1,118.5

(4.8)

2,721.8

5

Multi-family

18

Regency Centers Corp./REG One Independent Drive, Suite 114 Jacksonville, Fla. 32202

(904) 598-7000 www.regencycenters.com

Martin E. Stein Jr.

474,886

151.3

76.5

496.6

1.3

3,331.3

1

Shopping centers

19

Extra Space Storage Inc./EXR 2795 E. Cottonwood Parkway, Suite 400 Salt Lake City, Utah 84121

(801) 562-5556 www.extraspace.com

Spencer F. Kirk

332,589

83.7

(7.3)

294.1

(8.7)

2,246.1

5

Self-storage

20

Public Storage/PSA 701 Western Ave. Glendale, Calif. 91201

(818) 244-8080 www.publicstorage.com

Ronald L. Havner Jr.

279,100

1,101.3

(4.6)

1,683.4

(0.1)

22,384.8

4

Self-storage

21

UMH Properties Inc./UMH 3499 Route 9 North, Suite 3-C Freehold, N.J. 07728

(732) 577-9997 www.umh.com

Samuel A. Landy

214,200

11.2

42.9

42.6

15.8

136.2

1

Manufactured homes

22

Inland Real Estate Corp./IRC 2901 Butterfield Road Oak Brook, Ill. 60523

(630) 218-8000 www.inlandrealestate.com

Mark E. Zalatoris

211,986

51.6

(24.3)

174.7

(2.9)

685.7

2

Shopping centers

23

Piedmont Office Realty Trust Inc./PDM 11695 Johns Creek Parkway, Suite 350 Johns Creek, Ga. 30097

(770) 418-8800 www.piedmontreit.com

Donald A. Miller

187,000

271.6

13.5

595.0

(2.8)

2,960.5

2

Office

24

Cedar Realty Trust Inc./CDR 44 S. Bayles Ave., Suite 304 Port Washington, N.Y. 11050

(516) 767-6492 www.cedarrealtytrust.com

Bruce J. Schanzer

182,698

(10.3)

NM

157.7

(13.7)

300.1

7

Shopping centers

25

National Retail Properties Inc./NNN 450 S. Orange Ave., Suite 900 Orlando, Fla. 32801

(407) 265-7348 www.nnnreit.com

Craig Macnab

135,443

108.3

21.0

264.0

8.3

2,712.6

12

Retail; Other

Source: SNL Financial, Charlottesville, Va., (434) 977-1600, www.snl.com/real_estate. To qualify for this list, a company must be a publicly traded U.S. REIT that owns commercial property in the Northeast Ohio area. Mortgage REITs are not included. Property count and square footage reported include properties with both majority- and minority-owned equity interest. Square footage has been reported by total building size and not adjusted for minority ownership interest. Revenue figures are for calendar year.

Executives may have additional titles. NA=Not available. Getty Realty Corp. (GTY), HCP Inc. (HCP), Health Care REIT Inc. (HCN), Hospitality Properties Trust (HPT), LTC Properties Inc. (LTC), Omega Healthcare Investors, Inc. (OHI), ProLogis (PLD), Ventas Inc. (VTR) reported exposure to the Northeast Ohio area but did not report square footage data.

Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all responses to our lists and will include omitted information or clarifications in coming issues. Business lists and The Book of Lists are available to purchase at www.crainscleveland.com.

(1) Includes the following counties: Ashland, Ashtabula, Cuyahoga, Erie, Geauga, Huron, Lake, Lorain, Mahoning, Medina, Portage, Stark, Summit, Trumbull, and Wayne.

(2) Based on most recently reported square footage figures for properties owned as of Dec. 19, 2011. Average size for multifamily units has been estimated at 900 square feet.

(3) As of Dec. 31.

(4) Figures have not been adjusted for discontinued operations in 2009.

(5) As of market close on Dec. 19, 2011.

(6) As of Dec. 19, 2011. Includes properties under development.

(7) Formerly U-Store-It Trust.

RESEARCHED BY Deborah W. Hillyer

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JANUARY 23 - 29, 2012

CRAIN’S CLEVELAND BUSINESS

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Fee: Per-trip charges normal across country continued from PAGE 1

scheduled for hearings by Cleveland City Council, so implementation could be months off.

Mr. Smith, whose department manages city-owned Cleveland Hopkins and Burke Lakefront airports, said he expects the fee will be $3.50 per vehicle per trip. The increase would bring Cleveland more in line with the fees charged at other airports around the country, he said.

The plan to raise the fee comes as a year-end, after-budgets-werecompleted jolt to some who would pay the fee.

“We were given no advance notice for budgeting the increase,” said Kathy Jennings, general manager of the Crowne Plaza Cleveland Airport hotel.

Ms. Jennings said her hotel’s vans make 40 to 50 trips daily to the airport, turning a $550 annual cost to a $50,000 one.

The fee increase would be part of Cleveland’s effort to reduce costs at Cleveland Hopkins for the commercial airlines that use the airport.

The air carriers’ agreements with Cleveland Hopkins and most airports obligate the airlines to pick up any airport operating costs not

covered by their rental of terminal and concourse space and the revenue from non-airline income the airport generates from businesses that provide services such as food, car rentals and parking. Each airline’s portion is determined by the weight of aircraft it lands at the airport in a given year. This charge is called a landing fee.

Because of the cutthroat nature of commercial air service, an airport becomes a target for service cuts by air carriers if its landing fees are high.

Bad timing?

George Shima, owner of Shima Limousine Service of Mentor, understands the airport’s need to be competitive on landing fees but isn’t happy about the potential increase.

“I think they are doing it at the wrong time, with the business atmosphere the way it is,” he said.

Mr. Shima said he now spends more than $16,000 to buy permits for 30 vehicles that make between 60 and 110 trips a day to the airport.

At $3.50 a trip, his firm’s cost for airport trips could approach $100,000 a year.

Mr. Smith said it was too early to estimate how much the increased

ground transportation fee would bring in because his department hasn’t yet surveyed the service providers to tally the number of trips they currently make.

In recent years, the city has taken various steps to boost non-airline revenue, including revamping concession operations and adding valet parking.

“Ultimately, we’re trying to do everything we can to minimize the airlines’ operating costs at the airport,” Mr. Smith said. “What we know is that airports across the country have a per-trip fee.”

Pricier fees elsewhere The city of Chicago charges as much as $54 per trip for buses with a capacity of more than 25 passengers that pick up passengers at its O’Hare International and Midway airports; that figure falls to $4 a trip for a taxi or limousine.

A spokeswoman for the Airports Council International-North America said the fee for these vehicles varies widely across the country.

When the Washington, D.C.-based nonprofit association of airports sampled its members last May, it found per-trip fees ranging from under $1 a vehicle to $7.84 a vehicle, depending on the type of vehicle.

For example, one California airport — the organization didn’t identify the survey respondents by name — charged $3.65 per limo, $2.75 for a hotel shuttle and $2.80 for an off-site parking shuttle per trip. An Arizona airport charged $6.64 for a limo and $7.84 for any shuttle per trip.

Mr. Smith said Hopkins would use an existing automatic license plate recognition system to track vehicle trips and would bill the owner monthly.

Martin Keane, chairman of Cleveland City Council’s aviation and transportation committee, said he’s talked to some of the operators and is hearing their concerns about an increase. He plans to schedule a hearing soon to open the issue to public discussion.

But Mr. Keane said he also understands the city’s position.

“I know other airports are doing similar things to manage landing fees,” he said. Reducing landing fees, he said, “would make us more competitive in a very competitive market.”

Mr. Keane said he’s asking the operators to whom he’s spoken to find ways to be more efficient and reduce their number of trips to the airport.

■

And on WTAM-AM, 1100, the Cavaliers’ radio home.

Anywhere the Cavs are, so are the Monsters.

It’s a blueprint Mr. Gilbert and his Cavs team plan to duplicate with the Cleveland Gladiators, the Arena Football League franchise he officially bought last week from highprofile attorney Jim Ferraro; the promotions will extend to Monsters games, too.

Look soon for Gladiators logos and gear around The Q, though Cavs spokesman Tad Carper said last week he wasn’t sure if those preparations would be ready for the Cavs’ game last Friday against the Chicago Bulls.

“We have the infrastructure and platforms in place dedicated to these operations,” said Cavaliers president Len Komoroski, after last Tuesday’s news conference announcing the Gladiators purchase.

“It’s appropriate. The Gladiators are in our building. They fold greatly into existing assets we have internally to build off of.”

Mr. Ferraro is a wealthy man. But what the partner at the high-profile Kelley & Ferraro law firm in Cleveland and The Ferraro Law Firm in Miami — each known for its asbestos litigation — lacked with the Gladiators was the operational structure Mr. Komoroski touted.

Mr. Carper said last week the Cavaliers Operating Co. has a combined 90 people in sales and marketing.

Mr. Ferraro acknowledged multiple times in last week’s news conference that past front-office mistakes relegated the Gladiators to critical condition, and that he was unable to devote the necessary time to right the ship.

Plus, while the Gladiators played in the same building as the Cavaliers and Monsters, the football team earned little benefit because it

CLEVELAND CAVALIERS PHOTO

Cavaliers in-game emcee Ahmaad Crump and the Cavaliers Girls dress in Lake Erie Monsters gear during “Monsters Night” at Quicken Loans Arena during select Cavaliers games. The teams, each owned by Dan Gilbert, are promoted at each other’s events, something that now will extend to the Cleveland Gladiators. was owned separately. No crosspromotional efforts, no in-game contests featuring the Gladiators at basketball or hockey games, no TV and radio presence.

Mr. Ferraro said after the news conference last week the synergies that can be gained via sole ownership of all three franchises “are huge.”

Lee Esckilsen, founder of ESVenues, a venue development and management consultancy in Providence, R.I., agrees.

“Other than owning the building, owning all the tenants is the next best thing,” said Mr. Esckilsen, who formerly ran arenas such as the Providence Civic Center.

Like-minded people Mr. Gilbert’s ownership of the three teams — plus the Canton Charge, the NBA Development League team the Cavaliers bought in July and moved to Canton from New Mexico — is unique in pro

sports, with few comparisons.

One similarity, though, exists in Denver: Kroenke Sports & Entertainment, a conglomerate run by Stan Kroenke, owns the NBA’s Denver Nuggets, the NHL’s Colorado Avalanche — the Monsters’ parent club — the Colorado Mammoth of the National Lacrosse League and Major League Soccer’s Colorado Rapids. (Like the Charge, the Rapids play at another venue.)

Despite its low profile, the lacrosse league is quite popular, with the Mammoth drawing 14,106 to their home opener Jan. 14 at the Pepsi Center in Denver. The night before, with about the most captive audience an NBA team can get — the Miami Heat were in town — the Nuggets honored former Mammoth player Brian Langtry during the game, conducting a Q&A on the scoreboard during a timeout.

“There are so many advantages,” said Kurt Schwartzkopf, director of

TARP: Coming election spurs collection effort continued from PAGE 3

marketing for Kroenke Sports and Entertainment. “We leverage our assets back and forth throughout the company.”

The Mammoth and Rapids, like the Monsters, Charge and Gladiators on Fox Sports Ohio, are present in promotions on Kroenke’s Altitude Sports Network. Mr. Schwartzkopf said his office also tests marketing ideas with the Nuggets and Avalanche and, if they succeed, implements them with the company’s other properties — and vice versa.

As for Central Federal — the parent company of CFBank — banks must have regulatory approval to repay TARP, and because Central Federal is operating under a consent order with its regulator — the Office of Thrift Supervision — it is unlikely it would receive approval to repay the $7.2 million it received in December 2008. It has paid $612,118 in quarterly dividend payments, but has missed five payments totaling $451,563.

Central Federal is awaiting final regulatory approval to raise up to $30 million in capital. If the effort to raise capital is successful, a group of standby purchasers would replace current bank leadership.

Western Reserve Bancorp, which received $4.7 million in TARP money in May 2009, plans to repay the government’s investment, but not immediately, president and CEO Ed McKeon said.

A repayment now probably would result in the institution’s capital being less than regulators would prefer, Mr. McKeon said. Plus, if it does issue stock to repay the investment, “it makes good management sense for this bank to not do anything to repay it when our stock isn’t at the level we want it to be,” Mr. McKeon said.

The company’s stock as of Jan. 12 was $14 a share, which is up about $4 over the year-ago price, but still less than book value, he said.

Western Reserve has more than two years to go before the dividend rate it pays on the Treasury’s investment increases, Mr. McKeon said.

Institutions owe a dividend of 5% per year until the sixth year, when the coupon steps up to 9% per year.

Mr. McKeon said the institution probably will wait until late 2012 to plan its repayment strategy “since this is an inexpensive source of capital.”

In the meantime, Western Reserve has paid $640,375 in dividends to the Treasury — payments that “haven’t strained the bank at all,” he said.

Blueprint for growth

Lingering clouds

The Cavaliers operate similarly with the Monsters and Charge, and soon will add the Gladiators to the roll.

Monsters Night at The Q will be held Feb. 22 during a Cavs game against the New Orleans Hornets; in similar joint promotions in the past, the Cavaliers Girls and Cavs in-game emcee Ahmaad Crump have dressed in Monsters gear, and contests during the game have featured Monsters mascot Sullivan C. Goal and Cavs mascot Moondog.

The Cavs will play host to Charge Night at The Q on Feb. 28 in a game with the Boston Celtics, where similar cross promotions will occur with the Canton team.

Attendance at Monsters games has grown from 5,974 per game in the team’s inaugural season, in 2007-08, to 6,777 per game through 18 games this season, an increase of 13%. The Cavaliers hope for a similar change with the Gladiators, who averaged more than 14,000 per game in their first season, 2008, but since have fallen to 8,828 in 2010 and 6,507 last season, fifthlowest in the 18-team Arena Football League.

Mr. Ferraro said a number of times last week that there “are plenty of seats available” for this season’s Gladiators games.

■

Generally, banks view retaining TARP funds as a negative because the government has more say in what they do, said Kevin T. Jacques, who for 14 years worked for the Treasury and is the Boynton D. Murch Chair in Finance at Baldwin-Wallace College. So, still holding TARP money is a signal to financial markets and investors that something must be wrong, Dr. Jacques said. It could mean a bank has too much risk or not enough capital, he said.

Dr. Jacques isn’t surprised the Treasury is spending time and money to focus on the recovery of TARP funds, particularly in this election year. The Treasury will pay Houlihan Lokey a monthly fee of $375,000, according to its contract.

“While the TARP program did help stabilize (the financial system) …

TARP continues to carry very negative connotations, and in that sense it is a potential political liability to the Obama re-election,” Dr. Jacques said. “Treasury would like to be able to recover as much of that TARP money as they possibly can.”

That said, Dr. Jacques noted, the government also instituted TARP to stabilize the financial system, so the last thing it wants is for banks to repay the investments before they’re ready and then fail.

■

Family: Monsters benefited from Cavs presence continued from PAGE 3

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JANUARY 23 - 29, 2012

REAL ESTATE CLASSIFIED Phone: (216) 522-1383 Fax: (216) 694-4264 Contact: Toni Coleman E-mail: tcoleman@crain.com AUCTIONS

Copy Deadline: Wednesdays @ 2:00 p.m.

All Ads Pre-Paid: Check or Credit Card BUSINESS SERVICES

REAL ESTATE AUCTION / FEB 9

Two Prime Industrial Buildings

INVESTMENT OPPORTUNITY

FLYNN ENVIRONMENTAL For Assessments

(800) 690-9409 www.flynnenvironmental.com

2811 Carquest Dr., Brunswick, OH 44212

2906 Nationwide Pkwy, Brunswick, OH 44212

SHERIFF SALE! TO BE SOLD BY ORDER OF THE MEDINA COUNTY COURT OF COMMON PLEAS, CASE NO. 10CIV1994 PUBLISHED RESERVE PRICES (2/3 OF SHERIFF’S APRS. VALUE):

Carquest: $2,400,000 2811 Carquest Dr., Brunswick, OH Built in late 2006, the property consists of 125,400 S.F. (9,500 SF office) on 15+ acres. High-quality construction, 25’clear ceiling, 4-10’docks w/ levelers, 1-16’ drive-in door, 2500 amp, 3-phase main supply, ample parking, LEED Certified Silver. Move-in ready.

2906 Nationwide Pkwy, Brunswick, OH Built in 1993 with additions in 1998 & 2002, the property consists of 87,000 SF (10,000 SF office) on 5.27 acres. High-quality construction, 4-10’docks, 2 drive-in doors, 18-20’clear ceilings, 600 amp, 3-phase main supply. Great opportunity for user or investor.

Nationwide: $1,389,350 Both Properties to be sold free and clear of all liens. Both have immediate access to I-71 @ SR 303, minutes from I-80 (Ohio Turnpike), I-480, I-271 & I-77.

20-miles from downtown Cleveland and downtown Akron, and 10-miles from Cleveland Hopkins Intl Airport.Tax abatements and economic incentives available. Located in Brunswick’s Premier Industrial Park.

On-Site Inspections: Both properties will be open for inspections 1:00 - 3:00 pm on Wednesdays Jan 18, 25, Feb 1 and Tuesday Feb 7.

Auction: 11:00 am, Thursday, Feb 9th, 2012 at 2811 Carquest Dr., Brunswick, OH 44212

For Brochure & Terms of Sale call Mark Abood 216-360-0009 Chartwell Group, LLC/Chartwell Auctions, LLC Michael Berland, Court Appointed Auctioneer

www.chartwellauctions.com INVESTMENT PROPERTY FOR SALE

Shopping Plaza Fully rented with a strong anchor in a growing area.

Priced at 10+ Cap Rate.

440-899-7887 PRUDENTIAL LUCIEN & ASSOC.

List your Industrial, commercial or Retail Space Here!

Crain’s Cleveland Business’ classifieds will help you fill that space.

Contact Toni Coleman at 216.522-1383 TColeman@Crain.com

BUSINESS SERVICE OWNERS! Submit your business card to promote your service and receive a SUBSTANTIAL DISCOUNT off your ad price.

The Mars Racing Team/Mars Trucking Inc. based out of Brooklyn,Ohio is currently looking for Corporate sponsor or sponsors for the 2012 racing season,Mars Racing is a professional asphalt stock car team with a winning driver and history competing in the Arca,Main Event Late Model, and CRA Super Series,Many marketing and partnership options are available.

Be part of the team and get noticed in the racing world ,call Frank at 216-509-2519

SPORTS & ENTERTAINMENT The Cleveland Grays

To find out more, contact Toni Coleman at 216.522.1383

Founders’ Day Dinner 20 FEB 2012

FOR SALE “Modern Business is pure chaos but those who adapt will succeed”

It’s Stys Since 1962 USED-NEW Metal Machinery - Fork Lifts Warehouse Rack, etc. www.StysInc.com 216-641-7897

Corporate Sponsor Table (8) $400; Individual $35

You are invited to ring in our 175th year on Presidents Day, also the 50th Anniv.

Of John Glenn’s flight with Dr. Michael Heil, President, Ohio Aerospace Inst., discussing Unmanned Aerial Vehicle (Drone) development, technology and operations Full details at www.graysarmory.com.

RESERVATIONS to eventsatgrays@yahoo.com or 216-621-5938

5:30 PM reception & dinner.

7:30 PM program Cleveland Grays Armory Museum • 1234 Bolivar Road, Cleveland

Crain’s Executive Recruiter EMPLOYERS: Reach the most qualified workforce.

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SPECIAL RATES AVAILABLE Call Toni Coleman at 216-522-1383

Director, Alumni & Annual Fund The University of Akron The School of Law seeks qualified and enthusiastic candidates for its Director of Alumni and Annual Fund. The successful candidate will be responsible for cultivating alumni and soliciting private financial support from alumni and other individuals through special programs.

Requirements include a law degree, Akron Law JD preferred (candidates who are in their final semester of law school and anticipate spring 2012 graduation are eligible to apply). Also required are: Two years of experience of successfully managing, directing, and initiating fund raising, and/or related activities; superior interpersonal skills; and demonstrated ability to successfully organize, manage and prioritize completing tasks simultaneously.

For complete details & to apply for this position, visit: http://www.uakron.edu/jobs/.

Requisition number: 006479.

EEO/AA

JOB SEEKERS: We now post POSITIONS WANTED in the Classified section of CrainsCleveland.com at

NO CHARGE (Up to 150 words)

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CRAIN’S CLEVELAND BUSINESS

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39

THEINSIDER

THEWEEK JANUARY 16 - 22 The big story: Members of United Steelworkers Local 1123 in Canton rejected a new labor agreement with Timken Co. — and possibly at least delayed a major investment in Timken’s Canton works in the process. The contract is a necessary step for Timken to commit to invest $225 million in local steel operations, the company said. Representatives of the local had reached a tentative agreement with Timken on Dec. 15 and recommended that members approve the deal. But the rank and file voted it down Jan. 15 by a tally of 917-608.

Setting their sights high: The University of Akron’s board of trustees approved a new strategic plan that sets a number of lofty benchmarks. The plan, dubbed Vision 2020, outlines a series of benchmarks in terms of boosting enrollment, graduation rates and research expenditures over the next eight years — all of which have seen marked increases since Luis Proenza took the helm as Proenza president of the university in 1999. “Relevance, productivity, connectivity — that’s what this is all about,” Dr. Proenza said.

And then there were three: Dan Gilbert and the Cavaliers Operating Co. bought the Cleveland Gladiators, an Arena Football League team, from Jim Ferraro. The deal came two months before the Gladiators open the 2012 season at Quicken Loans Arena, where Mr. Gilbert’s Cavaliers and Lake Erie Monsters play.

Mr. Ferraro and Cavaliers president Len Komoroski wouldn’t disclose the price the Cavaliers paid for the Gladiators. (For more on the move, See Page 3.)

Down to the core: Cleveland branding agency Liggett Stashower downsized its staff and is “reorganizing around a core team” of employees, according to its president, David Moore. He would not comment on how many employees were let go or how many remain at Liggett. Mr. Moore also declined to define what, and who, constitutes the “core team” at Liggett. He said that team is “focused on serving existing clients.”

Looking up: Though anxiety about the national economy lingers, Northeast Ohio executives are confident about business prospects in 2012 and expect to increase hiring, a KPMG LLP survey of 100 local executives reveals. Results of the first “pulse” survey KPMG has conducted in this market indicate 15% of executives expect much better company performance in the year ahead, and 45% expect somewhat better performance.

Only 7% anticipate a decline in performance.

Change at the top: Leadership in Jones Day’s Cleveland office is changing hands as Christopher M. Kelly becomes partner-in-charge, succeeding Lyle G. Ganske, who has been named to a newly created Midwest regional role for the law firm. Mr. Kelly has led the global law firm’s capital markets practice worldwide since 2002, and he will continue to lead the firm’s capital markets practice in North America. As partner-in-charge, Mr. Kelly said he aims to grow the Cleveland office, both in terms of revenue and lawyer headcount.

Truckin’ into Cleveland: The Rock and Roll Hall of Fame and Museum plans to open this spring a major exhibition devoted to one of rock’s iconic bands, the Grateful Dead. The Rock Hall said the exhibition, “Grateful Dead: The Long, Strange Trip,” will open to the public on Thursday, April 12, as part of the 2012 Rock and Roll Hall of Fame Induction Week events. The Mickey Hart Band, featuring the Grateful Dead’s drummer, will perform on the Rock Hall’s Main Stage for an exhibit opening event on Wednesday, April 11.

REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS

Our football stinks, but at least we’ve got steel

■ A select group of Ohio State University students are taking notes, literally, from KeyBank executives this winter quarter.

Several of the Cleveland bank’s senior leaders, including the presidents of its corporate and community banks, are taking turns teaching on campus in what Codi Keenan, who attends every class, says is a first for the bank.

Ms. Keenan manages Key’s Community Bank Management Associate program, which teaches college graduates the ropes of retail, business and middle-market banking.

Initiated by Ohio State, the course — Introduction to the Financial Services Industry — is scheduled every Thursday night and is open to juniors in the school’s Fisher College of Business who have at least a 3.4 grade point average.

“As we started talking to executives, their eyes started to light up one by one,” Ms. Keenan said of the decision to have them teach. They are not paid to do so.

Though KeyCorp chairman and CEO Beth E. Mooney isn’t teaching (she wasn’t asked to, for the record), several people who report directly to her are. Among them are William R. Koehler, president of Key Community Bank; Christopher M. Gorman, president of Key Corporate Bank; and Jeffrey B. Weeden, chief financial officer.

According to the syllabus, one class involves KeyBank executives presenting to the students as if they were investors or potential investors. Another is a lesson about how KeyBank defines the needs of particular markets and staffs itself accordingly.

Ms. Keenan said she believes the executives are engaging the students successfully,

MILESTONE

BEST OF THE BLOGS

■ Cleveland doesn’t seem to be able to maintain much of a football rivalry with Pittsburgh anymore, but at least it can compete with its old nemesis, the so-called Steel City, on the economic front. It even can steal a page from a football coach’s playbook and hit Pittsburgh where it hurts the most, right in that city’s supposed area of strength.

Cleveland economic development director Tracey Nichols did just that earlier this month, when steelmaker ArcelorMittal announced it was going to reopen more of its Cleveland works. It obviously was good news to Ms. Nichols, who used the opportunity for some friendly trash talk.

“We’re proud to have (ArcelorMittal) here — and we’re proud that, unlike Pittsburgh, we still make steel in Cleveland, Ohio,” Ms. Nichols said.

Some fact checking shows she’s correct, too. While they still make some steel within relatively close proximity to Pittsburgh, the Steel City itself no longer has any operating mills — though it does have a bunch of football trophies. — Dan Shingler

KeyBank execs unlock keys to banking success

Excerpts from recent blog entries on CrainsCleveland.com.

Now’s a good time to follow up on New Year’s resolutions THE COMPANY: Alson Jewelers, Woodmere THE OCCASION: Its 80th anniversary

Chad and David Schreibman

A new generation of the Schreibman family is leading the jewelry store as it celebrates eight decades in business.

The company dates to 1931, when Alvin O. Schreibman opened a store, Alvin’s Jewelers, on East 55th Street and Broadway Avenue in Cleveland. (Though in a way, the company’s roots date to 1890, when Alvin’s parents, Samuel and Ida Schreibman established a jewelry manufacturing company in Kubrin, Poland, a small village near Warsaw.)

In 1934, Alvin married Edith, and within five years had three children — Larry, Richard and Marcia — who grew up in the business.

It was their decision to combine Alvin’s name and the word “son” to create a new name for their store — “Alson” — which remains the company’s name today.

Now Richard’s sons, Chad and David, run the business, which has been in its current location on Chagrin Boulevard since June 2002.

For the 80th anniversary year, the company has launched an advertising campaign featuring Chad and David Schreibman as “your guys” in the jewelry business.

For information, visit www.AlsonJewelers.com.

Send information for Milestones to managing editor Scott Suttell at ssuttell@crain.com.

■ Cleveland men and women aren’t taking particularly good care of themselves, according to new rankings of the country’s healthiest (and unhealthiest) cities.

Reuters reports that rankings from Men’s Health and Women’s Health find Burlington, Vt., is the healthiest city for men, and Raleigh, N.C., is best for women.

The rankings looked at 100 of the largest U.S. cities in 30 categories ranging from obesity and the amount of time they spent working out to how often they saw their doctor.

(The story said the full rankings are available at the magazines’ websites, but they’re awfully hard to find. But from checking www.mens health.com, you will learn a lot about abs, workout tips, sculpted chests, abs, healthy eating and, umm, abs.)

Both Cleveland and Toledo were in the bottom 10 for men and women.

The fiery pits of Venus are brought to life in Cleveland ■ The Wall Street Journal’s “Week in Ideas” section featured an item about work being done at NASA Glenn Research Center that’s designed to re-create the ferocious atmosphere of Venus.

“No probe built today could survive on Venus for more than a couple of hours, which is precisely the problem that the Extreme Environment Test Chamber at the Glenn Research Center is designed to solve,” The Journal said.

A cylindrical chamber, 4 feet long and 3 feet in diameter, “will simulate the Venusian

judging by the questions the students are posing.

“They’re very curious about their careerpathing, how (the executives) got to where they are,” she said.

The course is an industry cluster program; a fall segment on insurance was taught by Nationwide and the spring segment on investments will be taught by Morgan Stanley and UBS. — Michelle Park

Food by the Bay, the Cleveland way ■ He left his heart in Cleveland, but he took its corned beef and mustard to San Francisco.

Newspapers and foodie websites in the California city are fawning over former Clevelander Adam Mesnick and his new “Cleveland-style” delicatessen that opened recently in the trendy South of Market neighborhood.

His restaurant, the Deli Board, “has quickly become home to some of the best corned beef and pastrami in the city,” the San Francisco Chronicle wrote on Jan. 19.

“Adam Mesnick’s childhood was filled with Jewish delis like Corky & Lenny’s (in Beachwood), killer falafel from Tommy’s Restaurant (in Cleveland Heights), and bottle after bottle of stadium mustard.”

Said Mr. Mesnick of his hometown’s food: “Cleveland is a very generic city that really nobody pays too much bother about, but it’s really ethnic. You have your Greek food, your pierogies, Little Italy. It’s all heavily influenced my food.” — Jay Miller

atmosphere, complete with 1,300 pounds per square inch of pressure, temperatures of 900 degrees Fahrenheit and hydrofluoric acid,” according to the newspaper.

The chamber will have a stainless-steel shell, up to 10 inches thick, “and its acidic atmosphere will require the regular replacement of its lining, which is made from a nickel-chromium alloy,” The Journal reported. “A peephole made of processed sapphire will allow sensors to take spectrographic readings.”

Huge impact seen from small change in immigration policy ■ Cleveland immigration lawyer David Leopold was quoted in a Washington Post story about an Obama administration proposal that would “significantly shorten the time that illegal immigrants would have to spend away from their U.S. citizen spouses or parents while seeking legal status.”

At present, illegal immigrants “must leave the United States for three to 10 years before applying for legal entry, depending on how long they have been in the country illegally,” The Post reported. The procedural change “would allow spouses and children of U.S. citizens to stay in the United States while the government decides whether to issue a waiver, significantly shortening the time families are separated.”

The rule change could encourage more illegal immigrants to pursue legal status, said Mr. Leopold, a past president of the American Immigration Lawyers Association.

When the rule change goes through, Mr. Leopold said, “I think those folks are going to come forward to legalize because they can do their waiver time sitting at home with their family, and that’s why this little processing change is huge.”

20120123-NEWS--40-NAT-CCI-CL_--

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