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Innovation group provides Clinic allies nationwide Members sharing best practices, will use collective strength when applying for grants By CHUCK SODER csoder@crain.com
FOTOLIA/STEVE BENNETT ILLUSTRATION
Investment home sales surge Trend of buying single-family houses for rental ‘only going to get bigger,’ one local broker says
By STAN BULLARD sbullard@crain.com
Eric Frey moonlights from his full-time small business by operating Multiples LLC of Medina to tap what he sees as an attractive residential real estate market. Through Multiples, Mr. Frey so far in 2012 has bought three singlefamily homes to rent and plans to buy six more by year’s end. The houses — mostly small ranch homes
in Akron or its suburbs — will join a portfolio of 11 homes he’s assembled as rentals since 2010. Investor purchases such as those by Mr. Frey are a big part of a recent surge in home sales both in Northeast Ohio and nationwide. Local statistics are not available, but Northeast Ohio real estate agents say purchases here are in line with trends identified in the National Association of Realtors See SALES Page 6
WHO ARE THESE INVESTORS? The National Association of Realtors reports that single-family home sales to investors climbed to 27% of the existing and new-home market in 2011 from 17% in 2010. A profile of these investors:
50 $86,100 25 Median age
Average earnings
Mileage between primary residence and investment purchase
The Cleveland Clinic is getting into a new line of business: bridge building. The Clinic during the last 18 months has formed alliances with two large Coburn hospital systems as well as with the University of Notre Dame as part of an effort to build a national network of institutions that can help each other innovate and improve the delivery of health care. The Clinic-led Healthcare Innovation Alliance is intended to be both broad and deep. The alliance eventually could grow to include 10 to 25 member institutions nationwide, said Chris Coburn, executive director of Cleveland Clinic Innova-
tions, the business development arm of the hospital system. Almost all will be health care providers, Mr. Coburn said. Despite the physical distance between them, alliance members are meant to be more than casual acquaintances. For example, Cleveland Clinic Innovations already has employees on the ground at the other two hospital systems in the alliance, helping them amass ideas for new health care technologies and turn the best ones into products. Mr. Coburn said it plans to have one or two employees do similar work at Notre Dame, which joined the alliance last month. The relationships between alliance See CLINIC Page 12
INSIDE Gauging the effect on Ohio of Chesapeake Energy’s struggles The dominant driller in Ohio’s Utica shale region is under fire, but the state still should see plenty of benefit even if Chesapeake’s troubles continue. PAGE 3 PLUS: ■ Lobbyists on each side of the oil and gas tax issue line up in Columbus. PAGE 3
Banks rejoin leveraged transactions, and sellers are benefiting Lenders willing to extend more debt per deal in search of bigger yields By MICHELLE PARK mpark@crain.com
23
Companies and private equity firms that want to buy businesses stand to have more debt available for their deals as banks warm back up to putting more of their money behind such transactions — a devel-
opment that ultimately should result in higher purchase prices and more money for sellers. Given the economic uncertainty of recent years and the way businesses’ operating performance troughed, many banks withdrew from socalled higher leverage lending. “They were reticent to lend into
new situations at high leverage levels because no one really knew where the market was going” in 2008 and 2009, said Andrew Petryk, managing director and principal of Brown Gibbons Lang & Co., a Cleveland investment banking firm. However, Mr. Petryk said Brown Gibbons now is receiving “very
aggressive financing proposals” from banks that want to help leverage transactions. Others in the dealmaking business are seeing the same. Steven Ross, managing director and partner with MCM Capital Partners, which deals largely in middlemarket transactions, said there “clearly has been a change in terms of not only banks’ appetite to lend, but also their willingness to lend more into a transaction.”
John LeMay, a partner with Cleveland private equity firm Blue Point Capital Partners, said he, too, has noticed a “meaningful” increase in the breadth and aggressiveness of lenders in the past six months to a year, particularly toward deals at the lower end of the middle market.
Haves and have-nots Leveraged transactions tend to be See LEVERAGE Page 10
0
NEWSPAPER
74470 83781
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SPECIAL SECTION
SMALL BUSINESS Bakeries, grocers catering to growing number of customers who suffer from allergies ■ Page 13 PLUS: WINDOW WATCH ■ TAX TIPS ■ ADVISER ■ & MORE
Entire contents © 2012 by Crain Communications Inc. Vol. 33, No. 23
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COMING NEXT WEEK
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THE CUSTOMER’S ALWAYS RIGHT In addition to producing improved outcomes and increased loyalty, patient experience “matters to hospitals because it impacts their bottom line.” So says the Cleveland-based Center for Health Affairs in a new report, “The Growing Focus on Patient Experience and Why It Matters,” that cites data from The Beryl Institute. Simply put, hospitals that get better grades for patient experience are more profitable than those with low grades. Among the reasons: Patients are more likely to return to such hospitals, and malpractice costs are lower.
Helping hands Financial aid is a priority for many of the area’s private schools. We’ll look at the recession’s effect on and the motivation behind such assistance in our Prep and Parochial Education section.
Rank of profitability among U.S. hospitals Top quartile
REGULAR FEATURES Big Issue........................9 Classified.....................18 Editorial .........................8 Going Places................11
JUNE 11 - 17, 2012
Letter ............................9 List: Private companies ...17 Personal View ................8 Tax Liens .....................12
% of patients reporting satisfactory experience 84.3%
Second quartile
83.7
Third quartile
83.5
Bottom quartile
82.2
SOURCE: “RETURN ON SERVICE: THE FINANCIAL IMPACT OF EXPERIENCE,” THE BERYL INSTITUTE, 2011
700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editor: Joel Hammond (jmhammond@crain.com) Sports Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Energy, steel and automotive Tim Magaw (tmagaw@crain.com) Health care and education Michelle Park (mpark@crain.com) Finance Ginger Christ (gchrist@crain.com) Manufacturing, marketing and retailing Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing director: Lori Grim (lgrim@crain.com) Marketing/Events manager: Christian Hendricks (chendricks@crain.com) Marketing/Events coordinator: Jessica Snyder (jdsnyder@crain.com) Advertising sales manager: Nicole Mastrangelo (nmastrangelo@crain.com) Senior account executive: Adam Mandell (amandell@crain.com) Account executives: Dawn Donegan (ddonegan@crain.com) Andy Hollander (ahollander@crain.com) Lindsey Nordloh (lnordloh@crain.com) Office coordinator: Toni Coleman (tcoleman@crain.com) Digital strategy and development manager: Stephen Herron (sherron@crain.com) Web/Print production director: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Graphic designer: Lauren M. Rafferty (lrafferty@crain.com)
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Statehouse OKs flurry of job-creation bills Legislators pass series of tax credits, replace Job Ready Sites program, prepare for more By JAY MILLER jmiller@crain.com
JobsOhio, the nonprofit creation of Gov. John Kasich, was the big attention-grabber in Ohio economic development circles this past year. But as its summer recess nears, the
General Assembly is making its own contribution to revamping the state’s approach to business development with a clutch of bills that passed with considerable bipartisan support. Chris Xeil Lyons, vice president and director of legislative affairs with the Ohio Economic Develop-
ment Association and a 16-year economic development veteran, said this Legislature has paid more attention to job and business expansion and creation issues. “These past few years I’ve seen a push to be as creative as possible in creating and retaining jobs,” said Ms. Xeil Lyons, who is economic development director of Sharonville, a Cincinnati suburb. “You’re seeing support on both sides of the aisle, not a Republican-pushed agenda or
CALFEE’S NEW DIGS LIGHT UP DOWNTOWN CLEVELAND
a Democratic-pushed agenda; it’s an Ohio-pushed agenda.” The motion picture tax credit passed this month topped the tax incentive marquee, but senators and representatives have sent to Gov. Kasich a handful of other measures they believe will make the state more attractive to businesses. Those measures include tax credits for telecommuting employees and for expanding businesses that move into vacant or abandoned buildings.
Legislation also was passed to make it easier for corporate site selectors to identify Ohio sites ready for development or redevelopment. Several other job creation bills still are working their way through the General Assembly. “Some of this is just tweaking the tax code and policy around the edges,” said Rep. Mike Dovilla, a Republican from Berea. “But if you take all of this together, it has a See BILLS Page 18
Chesapeake’s troubles could slow drilling but won’t badly hurt Ohio Lease sales could help landowners, communities By DAN SHINGLER dshingler@crain.com
MARC GOLUB/PHOTO PROVIDED
Cleveland law firm Calfee’s 300 employees and staff are making themselves at home at the company’s redone 115,000-square-foot building on East Sixth Street. The building, built for the East Ohio Gas Co. and opened in 1916, features a dramatic two-story atrium and the latest in energy efficiency features. The building is on the National Register of Historic Places.
ONLINE: To view more photos of the new Calfee Building, visit www.CrainsCleveland.com/Calfee.
Ohio is about to learn a few things folks in other oil- and gas-producing states have known for some time, say industry experts — that the growth of the energy business seldom takes a straight path, and the company that leases the land isn’t necessarily the one that will drill it for resources. But those factors don’t mean the industry won’t grow here, say those in it and observing it, because the gas and oil that is the real reason for all the activity isn’t going anywhere. The present turmoil even could give some landowners leverage as they seek to change the terms of their leases, say those familiar with such transactions in Ohio. It could give the industry time to get organized, too. Ohio’s energy boom likely won’t go bust just because of the recent tribulations of Chesapeake Energy Corp., which to this point has been the biggest force in the state’s Utica shale region, where hordes of natural gas and oil are thought to reside. Still, Chesapeake’s problems may be taking a bit of steam off the red-hot business.
“While more dollars of debt are being put on, there are more covenants being placed on deals by lenders. ... Our belief is lenders have learned their lesson.” — William Watkins, group head for new business development in the Cleveland office of Harris Williams & Co. Page One
“What drives our “People with food success is commodity allergies want their prices. When the price chocolate, too.” of oil, steel and copper — Beth Cherico, owner, Amanda’s Own Confections. Page 13 is good, customers have the wherewithal and capital to invest in our products.” — Harry Allen Sr., chairman of Great Lakes Power. Page 7
STEPHEN HERRON
Chesapeake Energy’s horizontal rig in Minerva, its first in Stark County. “It seems like things have slowed a little, and I attribute some of that (to) what’s happening with Chesapeake,” said Amy Rutledge, head of the Carroll County Chamber of Commerce in Carrollton, the current epicenter of shale gas drilling in Ohio. But Ms. Rutledge said she isn’t concerned that the industry is going to fold up and go away. “We’re still sitting on top of the same product we were a month ago,” Ms. Rutledge said. Chesapeake has had its issues in recent months, ranging from criticism See LEASES Page 18
Oil, gas lobbies line up on both sides of tax debate By DAN SHINGLER dshingler@crain.com
THE WEEK IN QUOTES
INSIGHT
It’s shaping up to be a hot summer of debate for Gov. John Kasich’s proposal to increase taxes levied on the state’s shale oil and gas industry, with business communities in some of Ohio’s largest cities coming out in support of the governor while the Greater Cleveland Partnership considers its stance. Carol Caruso, CGP’s senior vice president for government advocacy, said the Cleveland business group likely will take a position later this year, before state legislators are expected to revisit the issue in the fall. “It’s a big one,” Ms. Caruso said of the decision on whether to support the tax increase. “We’re trying to be
very thorough.” Those on both sides of the issue will spend the summer and early fall lobbying legislators and their constituents. At stake, at least as proposed by Gov. Kasich, is up to $1 billion in taxes over five years. That’s roughly the amount the governor proposes to increase oil and gas severance taxes on the major drillers engaged in horizontal drilling known as “fracking,” while decreasing state income taxes by the same amount. The governor proposes raising the severance tax levied on oil and gas fracked from Ohio’s shale deposits to 4% of their market value — though drillers only would pay a tax of 1.5% until they recoup their drilling costs See LOBBIES Page 10
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Geis group sells Solon building at a premium By STAN BULLARD sbullard@crain.com
Perseverance recently had its payday for Keystone Ruby LLC, an investor group led by real estate developers Fred and Greg Geis and Jim Doyle, to the tune of $12 million. That is the price Aurora Development Center LLC, a group linked to a Savannah, Ga.-based trust, paid Keystone Ruby June 4 for the former Western Electric Co. building. The 1957-vintage building is home to multiple industrial users, including Venture Lighting Inc., Energy Focus Inc. and Signum Inc. Mr. Doyle, managing member of
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Keystone Ruby, said the structure was half empty when the developers — or in this case, redevelopers — bought the 330,000-square-foot building for $7.15 million in 2006. It already was home to Venture Lighting at the time of the sale; other tenants subsequently went into the structure, and just 33,000 square feet is still available, Mr. Doyle said. Ironically, Keystone Ruby was not pursuing a sale of the building. Mr. Doyle said an out-of-town trust about which he declined to elaborate made an unsolicited offer for the property, and they struck a deal. Bill Saltzman, a Cleveland broker who still uses his title as senior vice
president of Grubb & Ellis Co. rather than the firm’s new name of Newmark Grubb Knight Frank, confirmed he approached the building owners after he learned the trust was in the market for a big-ticket property. He said he was not authorized to discuss details about the trust or Aurora Development Center LLC, which lists a three-story building in Savannah as its address on the deed in Cuyahoga County land records. Commercial real estate insiders say the sale shows the value properties with long-term leases can produce for their owners. Peggy Weil Dorfman, Solon economic development manager, said the structure was one of the first large industrial properties built in the southeast suburb. After the building was emptied by Western Electric successor AT&T in the late 1980s, it had the advantage of not going dark again as other tenants kept the lights on over the years. ■
Spire, contractor agree; work to restart Spire Institute, a sprawling athletic complex in Ashtabula County, has reached an agreement with the general contractor on an aquatic center project at the site that will allow contractors to return to work and the project to be completed. Crain’s reported in early March of troubles at Spire that abruptly started in the fall. Mechanic’s liens totaling millions of dollars included an $8.57 million lien filed by the general contractor, Hughes-Roller Building
ON THE WEB
Story from www.CrainsCleveland.com.
Co. of Ashtabula. The first of the liens was filed in December. Hughes-Roller eventually was sued by one of its subcontractors, aluminum contractor Corporate Glass of Erie, Pa., for $570,000. Lawyers for the subcontractors at one time considered a foreclosure action against the property as a way to recoup some of their losses but never took that action.
In a news release, Spire and attorney Stuart Cordell of law firm Warren and Young PLL said Spire delivered “a significant payment to Hughes Roller for the benefit of contractors working under them on the project.” In exchange,the contractors will return to the project and provide partial releases of the liens they filed. Spire also has made agreements with other contractors that provided services on the project that weren’t working under Hughes-Roller. ■
The generosity of our alumni and friends allowed us to mark two momentous events in recent days:
The groundbreaking for the Tinkham Veale University Center and
Our second straight all-time record year for philanthropy Today we express our profound gratitude to those in Greater Cleveland and around the globe who have demonstrated such confidence in our efforts. With your support, we advance knowledge and understanding, technological innovation and medical breakthroughs that change people’s lives. Thank you.
case.edu/universitycenter
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Italian wood wholesaler giving new home an artist’s touch Guerrini Frames works to transform former Weiss Noodle building By STAN BULLARD sbullard@crain.com
Darren Guerrini prefers to call his role at Italian wood wholesaler Guerrini Frames “orchestra conductor” rather than owner because of the artistry that goes behind selling fine finished moldings for picture frames and awards to buyers throughout North America. Perfectionist is his other selfdescription. Mr. Guerrini is putting that passion to work by transforming the former Weiss Noodle Inc. building at 31313 Aurora Road in Solon into his company’s new home. He relishes the work because of surprising finds at the 51-year-old building. Behind the whitecolumned entrance and a hedge of tall hydrangeas — scarce among newer industrial structures to start with — Mr. Guerrini lifted tiles in the drop ceiling over the reception area to discover a plaster ceiling with ornate crown molding. Another piece of plaster forms the inside of a bowl that once framed a chandelier. He plans to resurrect both. This is what happens when an importer and wholesaler of woods from Italian manufacturers in Florence, Naples and Tuscany who sells to more than 1,000 U.S. frame shops sets about a renovation. As he talks about the business, Mr. Guerrini drops names of celebs who own frames made from its wood, from Elton John — a frame finished like minuscule piano keys — to country music stars Alan Jackson and Tim McGraw. The frame shops that boast such customers won’t confirm the sales. For example, Chelsea Frames in New York’s Chelsea District has several celebrity clients, but president Jaclyn Acker will identify none. However, she is sold on Guerrini Frames, with which she has done business for five years. The Guerrini line allowed her to drop an annual trip to Italy to find such special moldings. “They offer a unique product,” Ms. Acker said. “You can’t find it in many places in the U.S. They have a
COMING UP Crain’s breakfast set for June 21 Crain’s continues its 2012 Ideas at Dawn business breakfast series on Thursday, June 21, with a panel discussion on a demographically diverse work force. The breakfast, sponsored by Kent State University, will feature panelists from KSU, FedEx International and Eaton Corp. For more information and to register, visit www.CrainsCleveland .com/breakfast.
Volume 33, Number 23 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the third week of May and fourth 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. POSTMASTER: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373. REPRINT INFORMATION: 800-290-5460 Ext. 136
lot of high gloss veneers and colors that are outstanding.” Though mum on big names who are customers, Ms. Acker said she has sold many frames with Guerriniprovided woods to producers of the TV show, “The Good Wife.” Another shop that uses Guerrinisourced wood is Stone Art, a framer on Wilshire Boulevard in Santa Monica, Calif. Jason Bentley, Stone Art’s lead designer, said he knows of no other suppliers with finished woods such as Guerrini. “They create a unique style of frame: They are hand inlaid, lac-
quered, colorful and fun,” Mr. Bentley said. On Stone Art’s Facebook page, he identifies several Guerrinisourced woods in samples, such as one with fingernail-size teddy bears inlaid on white wood.
Family affair Mr. Guerrini runs the business with his one-time roofer father, an Italian immigrant named Nazzareno, who started in 1976 with the idea of importing moldings from his homeland. As Darren Guerrini grew up in the business, his father and late brother, Barry built it into an
international concern. The building that originally housed noodle maker Weiss Noodle is his latest show of family pride. “I don’t have a budget for this. It’s whatever it takes,” Mr. Guerrini said of the building’s renovation as he showed a visitor around the property. “It will probably be several times what we paid for it.” That will be an easy bar to clear. Guerrini Frames paid American Specialty Foods Inc. just $565,000 for the 45,000-square-foot property on three grass-covered acres. It had been on the market three years. Cuyahoga County values it at $1.2 million for property tax purposes. Besides the building providing
his company with room to grow, Mr. Guerrini said he expects efficiencies from combining his staff and equipment at one site. Guerrini Frames will consolidate into the building from two rented locations in Hudson and an Oakwood Village building it already has sold and leased back for a short time. The firm’s staff numbers 11 here; nine also work as independent sales reps in far-flung cities. Guerrini Frames already has started moving into the building some high-end woods and is airing out the long-shuttered offices. Its 15 saws, shipping equipment and guillotine-bladed wood cutters will go in by summer’s end. ■
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Sales: Renting homes now more profitable “2012 Investment and Vacation Home Buyers Survey.” The Realtors group estimates sales to investors jumped to 27% of the existing and new home market in 2011 from 17% in 2010. In real numbers, investmenthome sales climbed by what the Realtors termed an “extraordinary” 64.5% to 1.23 million in 2011 from 749,000 in 2010. Dennis Steed, owner of Re/Max Crossroads Realty in Strongsville, estimates 20% of his brokerage’s sales last year were due to investors becoming landlords. Likewise, John Lynch, a broker and partner in Westlake-based Keller Williams Greater Cleveland West, said at least 10% of his firm’s 2011 sales were due to investor purchases. “It’s a big factor in the market, and it’s only going to get bigger,” Mr. Lynch said. “It will particularly get bigger as national companies” and government agencies unload more foreclosed properties in the future, he said.
or simply soured on home ownership. In short, investor sales are strong because the deals are so good on the buy side. The trend is aided by a plethora of cash deals as prices on modest bungalows have fallen below those on some new cars. The National Association of Realtors estimates 49% of investment home buyers paid cash in 2011, and 41% bought more than one property. Those who can obtain scarce loans also have the cash for down payments exceeding 27%. Anyone who reads property transfers in daily and local weekly newspapers has seen the plummeting sales prices. For example, online realty data provider LoopNet reports sales this year of comparable twofamily homes for $30,000 in Lakewood, $49,000 in Garfield Heights, $74,000 in Richfield and $90,000 in Shaker Heights. However, there is no telling how much it may take to put those homes in rent-ready condition.
Deals too good to refuse
Take it to the land bank
Investor purchases have been particularly prevalent among buyers from the ranks of bank-owned properties and short sales, where buyers receive discounts by convincing lenders to forgo some principal in order to sell a property that’s worth less than the mortgage. “A lot of people believe they get a better deal,” Mr. Lynch said. Another contributing factor to the trend is the big decline in sales prices, which made the economics of profitably renting homes easier. Rentals have flourished as droves of people lost homes to foreclosure, were not able to qualify to buy because of stringent lending requirements
Despite the bad reputation that flippers, out-of-town investors and ill-prepared landlords produced as they roiled the region’s housing market during the easy-credit housing boom, economic conditions are bringing back fundamentals that made single-family landlording a staple for generations. Consider the Cuyahoga County Land Bank, a nonprofit formed to demolish or repair foreclosed properties to break the cycle of investors buying and flipping properties for slight gains while destroying neighborhoods. It focuses on properties valued at less than $30,000 that it decides can be renovated, or it
continued from PAGE 1
demolishes them. Interest from investors has been so strong that Gus Frangos, the land bank’s president, plans by month’s end to add a fifth person to the unit that handles investor inquiries and maintains properties. He estimates 70% of the land bank’s sales in the last two years were to investors. Buyers who survived strict reviews and agreed to genuine repairs have spawned more than $4 million in private investment. “This is like back in the Great Depression,” Mr. Frangos said. “We consider it a success if they buy a house, fix it up and rent it out.”
Back in the game Insiders see more activity brewing. “We’re seeing family members and groups of investors pool their money together to buy,” said Keller Williams’ Mr. Lynch, as cash buyers are believed to get better deals. However, he has started to see some banks hold out for investors to qualify for loans in hopes of securing higher prices. With interest rates low and the gyrating stock market tough to follow, Mr. Lynch said returns on single-family home investing are strong once again. Some investors even are using part of their individual retirement accounts to pay cash for homes and to shelter hoped-for future gains. Mr. Lynch said returns tend to exceed the 10% deemed necessary to accept the risks of real estate investing. The pluses are clear to Gary Stouffer, owner of Stouffer Realty in Fairlawn, who said more acquaintances are quizzing him about singlefamily home investing. He went back into the game himself as he watched home values drop.
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Story from www.CrainsCleveland.com.
Mr. Stouffer started buying singlefamily homes in 2008 and since then has acquired 20 houses at prices ranging from $40,000 to $70,000. Typically, $10,000 goes into repairs. Then, the rents come in at $800 to $1,000 a month.For Mr. Stouffer, it is the second time around for investing in rental housing. He acquired a portfolio of comparable size in the weak 1970s housing market, but sold all but one house by 2006 because sales prices were so strong. “I’ve been in real estate all my life,” Mr. Stouffer said. “I know the markets and how they can recover.”
It beats hourly work Messrs. Stouffer and Lynch both think the addition of rental properties to Realtor.com, the website aggregator for Multiple Listing Services nationally, has made the rental market more fluid. So does Mr. Frey. He also had assembled a portfolio of rental homes he sold off in 2006. He dove in again in 2010 as he saw houses he would live in himself going for $20,000 that formerly were valued at $90,000. The biggest difference Mr. Frey sees between his previous go-around in the rental market and now is in demand. “Before, I would get a call or two a week from advertising or Craigslist,” Mr. Frey said. “Now I can get 10 calls a day. I even have a list of prospective renters for different areas.” There are lots of alarm bells in the situation, but generations have made money in single-family rents. “It’s no get-rich-quick scheme. They always get you trouble,” Mr. Stouffer said. “But it’s a way for the average guy to get money to pay for his kid’s college education without earning it at an hourly rate.” ■
Primus makes investment in Fla. tech outfit Cleveland private equity firm Primus Capital Funds said it has made a significant investment in AOD Software, a Florida-based provider of integrated software and technology systems to the long-term care field. Terms of the investment in the Fort Lauderdale company were not disclosed. AOD, founded in 1995, provides clinical, financial, operational, home health, rehabilitation and point-of-sale software services to health care providers, including continuing care retirement communities, skilled nursing, assisted living and independent living operators. “The demographic trends of an aging population, combined with growing financial constraints throughout the health care system, place incredible pressure on long-term care operators to deliver high-quality care in a cost-effective and efficient manner,” said Phil Molner, Primus managing director, in a statement. Primus director Scott Seelbach also noted that the “well run” and rapidly growing company fits Primus’ strategy of investing in high-growth, market-leading technology businesses. — Michelle Park
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Material handlers rise with tide NLRB: Some social media policies reach too broadly
They’re devising ways to keep pace with manufacturer orders
By JUDY GREENWALD Business Insurance
By GINGER CHRIST gchrist@crain.com
The material handling business is getting a lift from a propped-up economy. Local material handling companies are seeing a return in domestic business as the U.S. economy recovers. As orders rise for manufacturers, material handling companies are experiencing a trickle-down effect and also upping production. Great Lakes Power and Nacco Industries Inc. are going so far as to develop new products to meet demand. Mentor-based Great Lakes Power, which distributes and repairs offhighway axles and transmissions, marine and mechanical drive systems, electric and mechanical controls, and material handling equipment, in April began selling a new industrial straddle carrier — a vehicle used to move material onto another vehicle. The straddle carrier is the first product the company has designed and built from the ground up. Until the launch, Great Lakes Power had served the sector by remanufacturing customers’ straddle carrier equipment and inventories. The company’s road to producing the straddle carrier began three years ago when it decided it would need to introduce a new product to the market in order to perpetuate the straddle carrier business. The supply of existing straddle carriers and parts for those machines was growing scarce without a new supplier to replenish it. “It’s a pretty specialized machine. You’re not going to sell a thousand of these a year,� said Harry Allen III, vice president and chief engineer of Great Lakes Power. Great Lakes Power at that time had lost a share of its automotive business because of the recession, and decided to proceed aggressively with the new piece of equipment. Instead of re-creating the straddle carrier of the past, the company introduced a technologically enhanced machine. “It was a gamble. We put our heart and our wallets behind our team,� said Harry Allen Sr., chairman of Great Lakes Power. Prior to the launch of the new straddle carrier, known as the Yard Bully, the company’s straddle carrier sales represented 5% of Great Lakes Power’s business. Harry Allen Sr. said he would like to see that share rise to 10% because of the Yard Bully. “What drives our success is commodity prices,� he said. “When the price of oil, steel and copper is good, customers have the wherewithal and
PHOTO PROVIDED
Mentor-based Great Lakes Power’s new industrial straddle carrier, the Yard Bully capital to invest in our products.â€? Great Lakes Power’s overall sales grew 18% in 2011 over 2010 levels. Those results are in step with data that show material handling equipment orders nationwide spiked 16.3% in 2011 from 2010 levels, according to the Material Handling Industry of America. The trade group expects orders to climb 8% to 9% in 2012. “Consumers’ and investors’ confidence continues to improve, as do unemployment, industrial production activity and factory operating rates,â€? said Hal Vandiver, MHIA executive consultant, in a news release. Nacco Industries Inc., a Cleveland-based producer of coal, forklift trucks and small appliances, in 2011 experienced a 104% year-over-year increase in net income in 2011, while its Material Handling Group’s profit rose 155% from the previous year. Most of that growth occurred in the United States. While Nacco predicts growth in the forklift truck industry to slow in 2012, which it already has, it expects its newest brand of internal combustion engine (ICE) forklift trucks to help buoy sales. The utility trucks, or UTILEV trucks, are more basic versions of the company’s ICE forklifts and are expected to help grow sales in emerging markets, according to Nacco spokeswoman Christina Kmetko. The utility trucks will be introduced to the global market in 2012. The company also expects to introduce the final two models in its new electric forklift line in the second quarter of 2012. â–
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The National Labor Relations Board has issued another report on social media policies in which it cites six cases where it contends employers’ policies and rules were overbroad and unlawful. The latest report by NLRB acting general counsel Lafe E. Solomon, which comes after previous reports issued last August 2011 and in January of this year, also includes the revised social media policy of Bentonville, Ark.-based retail giant Wal-Mart Stores Inc., which the agency says is now lawful. Mr. Solomon states in his preface that employee use of social media in the workplace continues to increase, “raising various concerns by employers and, in turn, resulting in employers drafting new and/or revising existing policies and rules to address these concerns.� In the report, Mr. Solomon cites a policy by an unidentified retailer that states employees should not “release confidential guest, team member or company information.�
“We found this section of the handbook to be unlawful,â€? Mr. Solomon said. Those provisions, he said, “would reasonably be interpreted as prohibiting employees from discussing and disclosing information regarding their own conditions of employment,â€? as well as those of others — actions that are “clearly protectedâ€? by the NLRB Act. The report was criticized by Eric B. Meyer, a partner with law firm Dilworth Paxson LLP in Philadelphia. “The distinctions that the acting general counsel makes between what violates the NLRB and what doesn’t don’t appear, at least to me, to be meaningful,â€? Mr. Meyer said. For instance, Mr. Meyer said the report states it is acceptable to share “secret, confidential or attorneyclient privileged information.â€? However, various other restrictions on sharing confidential information sprinkled throughout the NLRB are not, he said. â–
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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
We object
I
t isn’t often we comment on court rulings. However, we’re disappointed in — and baffled by — a recent decision by Timothy S. Horton, a judge in Franklin County Common Pleas Court, to toss out a lawsuit that tried to block the extension of slots-like gambling to Ohio’s seven horse race tracks. David Zanotti, whose public policy group, the Ohio Roundtable, was a plaintiff in the lawsuit, shares his own thoughts on Judge Horton’s decision in this week’s Personal View. While we agree with many of his points, we’d like to make a few of our own. In his 17-page decision, Judge Horton comes to the conclusion that the Ohio Roundtable, Mr. Zanotti and 18 other individual plaintiffs lacked the legal standing to bring the lawsuit in the first place. “The legal system we rely upon exists to try actual cases and controversies,” Judge Horton stated in his conclusion, with the italics his own. “It exists to give its citizens a voice when a wrong has occurred. However, it operates within certain boundaries and should not be used wantonly and/or for political or social gain. “Throughout their pleadings and oral arguments, Plaintiffs have offered little more than bare assertions of harm or injury,” the judge continued. “Given Plaintiffs’ dearth of support, the Court questions Plaintiffs’ real purpose in bringing these claims.” And with that, Judge Horton dismissed the case. We’re curious as to what rises to the level of an actual controversy in Judge Horton’s eyes. It appears actions by the Legislature and governor to circumvent the Ohio Constitution aren’t serious enough to justify a lawsuit by citizens who are concerned about the abuse of power by their government. In their lawsuit, the plaintiffs objected to the Legislature’s decision to include so-called video lottery terminals — which operate like slot machines — among the games of chance that are part of the Ohio Lottery. Ohio voters clearly had no intention of authorizing the operation of state-sanctioned slot machines when they approved a constitutional amendment in 1973 that created the lottery. Yet last summer, Gov. John Kasich — hungry for more revenue without raising taxes — would sign off on legislation that would allow Ohio’s race tracks to operate thousands of the video lottery terminals and share their proceeds with the state lottery commission. Judge Horton misses the point of the lawsuit when he concludes that the plaintiffs offered only “bare assertions of harm” in presenting their case against the expansion of gambling. The harm comes to democracy itself in the form of a government that exceeds the authority granted to it under the state Constitution. It’s a harm that’s insidious in nature. It puts government whim over the people’s will. And, left unchallenged, it is a threat to the principle of a government of, by and for the people. Judge Horton said the legal system exists to give citizens a voice when a wrong has occurred. That voice has been squelched in a case where it should have been heard, and a wrong won’t be righted because of it.
FROM THE PUBLISHER
An education on town-gown relations
K
relationships under Messrs. Ruller and ent is a nice small town with a Lefton, are thinking about a plan to state university that’s expanding avoid problems with houses abandoned and improving on many levels. by “customers” (aka student renters) The university has a dynamic who choose newer, better options. president who’s pushing to remake the To that, I can only say that for too long, physical campus, raise the academic in Kent and every other college town performance of its students and spread large and small, landlords have squeezed the word of Kent State’s successes. exorbitant rents out of students City manager Dave Ruller, and their families with minimal who has been in his job just BRIAN reinvestment in the properties. slightly longer than KSU presi- TUCKER It’s the ultimate validation of dent Lester Lefton, has done a that trite real estate joke about remarkable job of working with “location, location, location” private developers to reshape being the three most important his downtown into an exciting words to the profession. place to work and play. Owners of houses and apartNow, they’re both facing the ment buildings in walking dischallenges that come from tance of campuses always have success. The city, which is the had it way too good. As I have beneficiary of some $100 million driven on or around college campuses, it in new projects, has a concern that new has appeared to me that owners of the housing development on the periphery houses closest have been able to charge of campus and others planned for a spot way too much for the value they deliver. near the football stadium might leave Now, that’s about to change in Kent, some blighted houses in neighborhoods with the development of newer apartclose to the campus. ment options. Owners of some of the It’s great that the city and university, university neighborhood rental homes which have enjoyed strong, cooperative
might actually have to spruce up the places to be competitive. Simplistic, I know, but it needs to be a point of discussion when the university and town representatives plot their future. As the university works to extend its beautiful esplanade — the walking path that winds along the western edge of campus — into downtown and connect to all the wonderful redevelopment projects, it’s encouraging that continuing that redevelopment into the nearby residential neighborhoods be a priority as well. It would be great if both parties win in all this redevelopment. “Town-gown” relationships can sometimes be strained. The town gets a major employer and its residents get easy access to a higher-education option for their children — one that doesn’t involve expensive housing and meal plans. But with the presence of thousands of young people, there are bound to be problems from time to time. What counts is how the two parties agree to handle the challenges, and so far it appears Kent and the university are doing the right things. ■
PERSONAL VIEW
Good government, gambling mix poorly By DAVID ZANOTTI
B
ack in 1988, we really were not all that interested in entering a fight on casino gambling. The Ohio Roundtable had been in operation for eight years. We had many issues far more pressing than gambling expansion. Then we began doing serious research on the history of legalized gambling in America, with a particular focus on the corruption gambling interests bring to civil government. That study led to more research on rising gambling addictions and the destruction of families. Along the way we met Sandy Walgate, a schoolteacher from East Liverpool who shared her story of nearly losing her star athlete son to a gambling addiction. Through Sandy’s tears this all became very real. For almost 25 years now, we have been
Mr. Zanotti is CEO of the American Policy Roundtable, the parent company of the Ohio Roundtable, a nonprofit, independent education and research organization specializiing in public policy. presenting the evidence that gambling ruins lives and corrupts government. All the honest research is conclusive. The gambling industry thrives on addicts. When government gets into business with the gambling industry, the government partners in the addiction business. What politicians intentionally ignore is the inevitable reality that once state and local budgets are addicted to gambling revenues, the casino bosses call the shots. Thus, gambling and good government don’t ever mix. Before the first casino even opened its doors in Ohio, this inevitable reality
proved true once again. Not content with a private monopoly amendment they wrote into the Ohio Constitution, Penn National Gaming Co. and Dan Gilbert (Ohio’s current casino overlords) wanted more. They found a greedy Legislature and a willing partner in Gov. John Kasich. Together they cooked up a scheme to take a “limited” gambling proposal passed by the voters in 2009 and blow it into a full-scale plan for virtually unlimited gambling across the state. Had they chosen to take this new plan to the voters and further amend the Ohio Constitution, as the law requires, it would have been a fair fight. Instead, they decided to deny the precedents of legal construction and constitutional law dating back to before the Civil War. They just passed a law giving the government, See VIEW Page 9
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THE BIG ISSUE
LETTER
New York City Mayor Michael Bloomberg wants to ban large, sugary drinks. Other entities have made similar moves with employees. Do you support this approach to improving public health?
Quit playing to extremes
ED TOMBA
JOHN HEUTSCHE
MICHELLE ZEGLEN
DAVID BENTKOWSKI
Cleveland
Euclid
Lakewood
No, I don’t. It’s still a choice, and the choice should be left up to the consumer. I don’t think it should be regulated by a government agency.
Yes. Obesity is a problem in this country that costs everybody money.
No, it’s a personal choice. … I understand the implications for health care and making bad decisions, but people are going to get (sugary drinks) if they want to get (them).
Seven Hills (where he’s the former mayor) No. I’m for limited government. It starts with sugary drinks, then it goes to fast food, alcohol. It’s not government’s role to take responsibility for an individual’s choices.
➤➤ Watch more of these responses by visiting the Multimedia section at www.CrainsCleveland.com.
Turnaround firm joining Solon’s SS&G By MICHELLE PARK mpark@crain.com
First, Larry Goddard’s company was both a client of Solon-based accounting firm SS&G Inc., and a firm to which SS&G referred some of its clients. Now, effective July 1, Mr. Goddard’s turnaround consulting and strategic planning firm, The Parkland Group Inc., will be joining forces with SS&G to form SS&G Parkland Consulting. The combined entity will offer business valuation, management consulting and turnaround services, among others. Coming under the SS&G umbrella should allow Parkland to become more competitive, Mr. Goddard said, citing SS&G’s breadth and depth of people and services, its reputation with clients and its geographic reach. SS&G has 11 offices in eight cities in four states; Parkland has a single office in Cleveland, which it will vacate when it moves to SS&G’s Solon offices. All those benefits should enable Parkland’s professionals to chase and tackle bigger projects, said Mr. Goddard, who was president of Parkland Group and now is managing director of SS&G Parkland Consulting. As for SS&G, which employs more than 450 people, merging its business valuation and litigation consulting division with Parkland makes for a more complete array of consulting services for clients, said Mark A. Goldfarb, managing director of SS&G’s Akron office. “You’re constantly trying to come up with different ways to provide services,” Mr. Goldfarb said, citing
Goddard
Goldfarb
the trend among accounting firms to add more consulting services as a way to differentiate themselves. Officials with both companies say it’s a true merger. The combined consulting entity of 15 people — eight from Parkland and seven from SS&G — is the third limited liability company formed under the SS&G umbrella; SS&G Healthcare Services LLC was started in 1998, and SS&G Wealth Management LLC in 1999. As a client of SS&G, Mr. Goddard knows firsthand how a greater array of services can benefit clients. “I can tell you, the more services they provide, the more valuable they are to me,” he said, noting his firm receives four to five different services from SS&G, including tax and payroll. “This is another service they’re adding that will make them even more valuable to their clients.”
“I knew that SS&G was contemplating getting into the management consulting business,” Mr. Goddard said. “That was an important part of our business. When you’ve had the opportunity to work with an organization for 10 years … it’s an easy thing to think about: Maybe we could make this relationship a little more formal.” The merger fits in with SS&G’s strategy, which always has been about growth, both by merger and acquisition and otherwise, Mr. Goldfarb said. There’s a bit of merger mania occurring at present among accounting firms, he noted. ■
■ Brian Tucker’s statement in his May 14 commentary, “Yet another defeat for political reason,” that “our political leaders care only about the politics of getting there, not the hard work of doing something once they’re there” is so accurate it’s almost a fact— a very sad fact, but a fact nonetheless. I lean heavily in the Republican direction, but would vote Democrat in a heartbeat if I believed the candidate to be someone willing to work hard for the majority and com-
promise when necessary. Unfortunately, as Mr. Tucker stated, once elected, the focus of our politicians is to see “who can block the most ideas from the other side.” When will both parties realize that the national “base” is neither the far left nor right, but rather the voters (and would-be voters who are sickened by the political bickering) in the middle? Mike McManus Strongsville
View: Lawsuit thrown out continued from PAGE 8
the casino overlords and the greedy lawmakers whatever they wanted. They tried something similar about 10 years ago in Ohio. They decided to expand the Ohio Lottery, but rob the schools of the new funding. The Roundtable sued because the new law directly violated the state constitution. We gained standing in the case, won the funding argument, returned the money to the schools and the case was upheld on appeal. This time around, with a law passed that violated the state and federal constitutions in at least 17 places, the Roundtable sued again in the same Franklin County Court. To the amazement of many, Judge Timothy Horton, after eight months of deliberations, refused to hear the case stating that none of the plaintiffs, including the Roundtable, had the right to bring such a case to court. Ten years ago we had standing and
the courts upheld a significant portion of our challenge; this year, we don’t get day in court on very similar claims. How exactly does that work? So the Ohio Constitution, Article XV, has been amended to expand gambling dramatically, but you won’t find the words there. The constitution was overridden by a simple statute passed by the Legislature at the request of the governor. The people of Ohio had no say on the destruction of three constitutional provisions on gambling they passed in 1973, 1987 and 2009. The politicians got the money they wanted. Their lobbying friends and lawyers got paid. The gambling industry got everything it wanted and the citizens of Ohio had no legal say in the matter. Which all proves the point we first discovered from studying the history of gambling back in 1988: Gambling and good government don’t ever mix. ■
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Made for each other Mr. Goddard initiated the merger conversation. The two companies have worked together for more than a decade. When SS&G had clients in need of turnaround services, its people referred them to Parkland Group, and when Parkland had clients in need of accountants, it referred them to SS&G, though neither were exclusive referral arrangements.
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Lobbies: Tax timetable still unknown Leverage: Despite debt continued from PAGE 3
for each well, which could take up to two years. Under current Ohio law, natural gas produced in Ohio is taxed at 3 cents per thousand cubic feet (mcf) of gas; oil is taxed at a rate of 20 cents per barrel.
Choosing sides Proponents argue that a reduction in state income taxes would benefit all business activity in the state. Those opposed to the tax measure, though, claim it could stifle investment in Ohio’s newest and best prospect for strong economic growth — the drilling and production of shale gas and oil. “Updates to Ohio’s severance tax policies will keep rates competitive with other oil and gas-producing states while generating new revenue that will go directly to Ohio taxpayers, not government,” states the governor’s office in a post on the governor’s website supporting its position. In response, the Ohio Oil and Gas Association put up a statement on its own website that reads: “It will take a couple of years to determine the economic viability of this (Utica) shale formation. This investment capital is mobile. If the cost of doing business here in Ohio is too high, then companies will take their investments somewhere else.” Thus far, smaller cities in areas where drilling is taking place — and where the economic impact of shale gas is greatest — have tended to come out in opposition to the plan to raise taxes on the industry. For instance, business chambers in Cambridge and Zanesville, both at the epicenter of Ohio’s biggest shale play, the Utica, each are against increasing taxes on big drillers. Chambers in Columbus and
EMBA
“We’re also curious as to why the CEOs and business leaders that comprise Ohio’s Business Roundtable would support a tax on another business.” – Thomas Stewart, executive vice president, Ohio Oil and Gas Association Cincinnati, on the other hand, have come out in favor of the governor’s proposal, though they stress support for the income tax cut far more than they do their support for the increased oil and gas taxes. Cleveland’s chamber, the GCP, is weighing the entire issue — from whether the severance tax should be changed at all to whether the proceeds should be used for an income tax reduction if oil and gas taxes are raised. “We’re looking at all aspects of it,” Ms. Caruso said. “If we recommend an increase in the severance tax, is the income tax decrease the best or only way to use the revenue?”
How could they? The oil and gas industry so far has been surprised that the general business community has not taken its side on the issue. A May 15 study commissioned by the Ohio Business Roundtable and conducted by the accounting firm Ernst & Young concluded that Ohio “currently imposes the lowest combined state and local taxes” on the industry, compared to seven other states where oil and gas are produced. Even if the governor’s proposals are adopted, the study found, “Ohio would still rank lowest among the eight states in terms of overall effective tax rates.” That brought a blistering response from the Ohio Oil and Gas Association, which said the study did not properly take into account Ohio’s
WEATHERHEAD EXECUTIVE MBA
income tax rate or oil and gas tax abatements that are available in some other states. At the same time, the association took the rest of the business community to task. “We’re also curious as to why the CEOs and business leaders that comprise Ohio’s Business Roundtable would support a tax increase on another business, particularly when they pay a commercial activity tax rate of just 26 cents per $100 in revenue, while asking (the oil and gas) industry to pay a rate nearly 16 times higher” in the form of severance taxes, wrote the association’s executive vice president, Thomas Stewart, the day after the Roundtable report was released. Ultimately, the debate will be decided in the state Legislature, said Jim Samuel, a fellow at Cleveland State University and a Columbus-based public policy consultant for the energy industry. The tax issue was taken out of recent discussions on new laws governing how much drillers must disclose about the chemicals they inject into their Ohio wells, but it is far from dead in the water, Mr. Samuel said. “The question is, when will the Legislature take this up officially, because it’s not currently in a bill,” Mr. Samuel said. “My understanding is that in late fall they’ll take this up again.” In other words, he said, the matter will not be up for vigorous debate until after the next election. ■
levels, lenders ‘have learned their lesson’ continued from PAGE 1
characterized in terms of their ratio of debt to EBITDA, or earnings before interest, taxes, depreciation and amortization. For example, if a company’s EBITDA is $10 million and a senior lender such as a bank is willing to lend three to four times EBITDA, the bank would lend $30 million to $40 million to facilitate the company’s sale. Debt leverage levels began to rise in late 2010 and the first half of 2011, only to be hurt by economic and social volatility in Europe and U.S. debt ceiling issues last summer, industry insiders said. They’re back up, though, and steady this year. Total debt leverage, which includes senior and subordinated debt, probably was about three to 3.25 times EBITDA a year ago; it has risen to roughly four times EBITDA, advisers say. “Those are numbers that we last saw in ’07 or ’08,” Blue Point’s Mr. LeMay said of the lending multiples he’s observing. However, multiples still depend greatly on the size and quality of a given deal, advisers stressed, with smaller deals still seeing limited lending because they’re perceived as riskier. “There’s still a bit of the haves and the have-nots,” Mr. Petryk said. Jonathan Ives, managing director of Capital Strategies Group, the investment banking arm of Fifth Third Bank, said his bank’s credit standards remain stringent, but that it’s extending more credit in certain transactions. “We, as a bank, for the right situations, are taking on greater leverage positions,” Mr. Ives said. “That said, we’re smart about how we deploy capital.”
Yielding to yield
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A driver of the rise in leverage in deals is the strong appetite lenders have for higher-yielding transactions, said William Watkins, group head for new business development in the Cleveland office of Harris Williams & Co., a sell-side adviser based in Richmond, Va. “Many banks are chasing loan growth and yield,” Mr. Watkins said, and private equity transactions generate higher yields. Still, leverage levels haven’t returned to what advisers call the unsustainable level of the last cycle. “While more dollars of debt are being put on, there are more covenants being placed on deals by lenders,” Mr. Watkins said. “Many of those conditions and covenants
are going to remain around for some time. Our belief is lenders have learned their lesson.” Examples of such covenants include tighter restrictions on a company’s capital expenditures and use of cash flow, Brown Gibbons’ Mr. Petryk said. Prior to the last recession, some bank debt deals had just one or zero covenants; they were termed “covenant-light,” Mr. Watkins said. “At the time that lenders were doing that, it was an aggressive market,” he said. “It was a way for them to win.”
Pluses and minuses Sellers are the primary beneficiaries of this trend toward more bank lending in deals, because when there’s more money available to get a deal done, valuations tend to increase, industry insiders said. Given that private equity firms are both sellers and buyers, the higher leverage environment can be both favorable and unfavorable for them. When firms can invest less equity into a transaction, it makes it easier to generate higher returns because they can use more cheap money — namely, bank debt — to fund the transaction. However, as prices rise, private equity firms also must pay more for companies they’re buying. And higher leverage can add risk to transactions. An inordinate amount of leverage on a company’s books can hamstring management teams from making decisions that are best for their companies, such as hiring people and buying equipment, MCM Capital’s Mr. Ross said. “Now you not only have to worry about growing your business, you have to worry about servicing your debt,” Mr. Ross said. “It can certainly become onerous. If you can’t do what you have to do to grow the business, it’s a recipe for disaster.” Will the upward trajectory of leverage in deals continue? Brown Gibbons’ Mr. Petryk anticipates a return to pre-recessionary leverage levels, and Harris Williams’ Mr. Watkins expects at least this level of higher leverage lending to persist. “There are so many (strategic and financial buyers) flush with cash,” Mr. Watkins said. “Combine that with lenders that are very hungry to put more assets on the books, and you’re just talking about a fairly aggressive market, and that aggressiveness can manifest itself in many forms, including higher leverage.” ■
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WWW.CRAINSCLEVELAND.COM
JOB CHANGES
Deal retires Western Reserve’s TARP debt
AUTOMOTIVE MAYFIELD COLLISION CENTERS: Mike Kapis to location leader, Bedford Heights.
By MICHELLE PARK mpark@crain.com Powers
Whitling
Arth
H&D STEEL SERVICE INC.: Thomas R. Schmitt to president.
EDUCATION SAINT JOSEPH ACADEMY: Geoffrey D. Powers to director of development.
ENGINEERING
Nguyen
CED INVESTIGATIVE TECHNOLOGIES: Kurt Whitling to mechanical engineer.
Jennifer Fernandez and Jeff Davis to partners.
R.E. WARNER & ASSOCIATES INC.: Richard B. Arth and Calvin M. Nguyen to electrical engineers.
BOARDS
Krishnan
Boone
VORYS, SATER, SEYMOUR AND PEASE: Bryan H. Falk to partner.
RECOVERY RESOURCES: Maggie Weitzel (Wyse Advertising) to chair; Vic Faris to chair-elect; Renee Holcomb Hardwick to secretary; Brian Marita to treasurer. UCP OF GREATER CLEVELAND: Matthew R. Cox (Cox Consulting Group LLC) to chair; Sean D. Wenger to vice chair; Ethan Hendrickx to secretary.
MANUFACTURING
AWARDS
FINANCIAL SERVICE KPMG LLP: Sundar Krishnan to managing director.
LEGAL
SPECTRUM SURGICAL INSTRUMENTS CORP.: Candice Muth and Lisa Zelinski to endoscopy division repair coordinators.
MARKETING STEVENS STRATEGIC COMMUNICATIONS: Faith Boone to account executive and social media strategist.
REAL ESTATE NAI CUMMINS REAL ESTATE INC.:
AMERICAN COLLEGE OF TRUST AND ESTATE COUNSEL: Erica McGregor (Tucker Ellis LLP) was named a Fellow. OHIO HEALTHCARE ASSOCIATION: Tom Hlavin (Real Street Marketing), a long-time volunteer at New Avenues of Independence, received the Adult Volunteer of the Year Award.
Send information for Going Places to dhillyer@crain.com.
Congratulations to newly elected President, Officers and Board Members Geoff Eng Geoff Geo Engel, ngel, el, Pr el el, P President esiiden d t ((Br (Brewer-Garrett B ewe ewer-G rr-G Garrett Garr arr rrett Co.) Co.) Mi hae Mic Michael hael B hael Brandt, randt, ran dt,, V dt dt, ViceVi Vice-President ce-Pre cePresid Pre sid dent ent Anna Sterle, Ster Ster terle, le, le e, Tr Treas easure eas urerr ure Anna Treasurer Ste Stephen ephe p nC Comunale, omunal omu nal ale e, Board e, Bo rd Chairman Boa Chaiirm Cha irman irman n Rick B Rick Bukovec, uk vec uko vec, B Board oard oar dM Member ember emb ber er Charle Cha Charles rles rle sC Caye Caye, aye,, B aye Board oard oar dM Member embe emb err e Michae Mi Mic hael J G hael hae Ga Gall alla llagh llaghe gherr, ghe r, Bo B Boa oard d Mem Membe Me ber be b err Michael Gallagher, Board Member David Kat atz, z Boa z, Bo rd Mem Member b r be ber David Katz, Board Rick M o r, oha r Boa B Bo oard d Mem Me berr be ber Rick Mohar, Board Member James Jam James ames e Primozic, Primoz Pri mozic, moz i Board ic ic, Board d member membe me mbe b r David Wil David W Willia Williams, illi liams, lia m B ms ms, Bo Board ard Me Member mbe b r
11
Westfield Bancorp buys Medina neighbor
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Medina-based Western Reserve Bancorp Inc., the parent company of Western Reserve Bank, has signed a definitive agreement to merge into Westfield Bancorp Inc. in a transaction that will pay off the nearly $5 million that U.S. Department of the Treasury infused into Western Reserve back in May 2009. The combination of the two community banks based in Medina County will take publicly held Western Reserve private and will give Westfield a toehold in Cuyahoga County. It will create a combined bank of roughly $800 million in assets and six branches. Common shareholders of Western Reserve Bancorp are to receive $29 a share under the agreement, or double the price of the stock before the deal was announced last week, for total consideration of $18 million. In addition, Westfield will retire $4.95 million in preferred stock that the Treasury retains in Western
Reserve as a result of that company’s participation in the government’s Troubled Asset Relief Program, otherwise known as TARP. This is the first acquisition for Westfield Bank, which is based in Westfield Center and was founded in 2001, said Jon Park, chairman and bank leader of Westfield Bank. “We thought this was a good opportunity that was too good to pass by,” Mr. Park said. Westfield Bank employs 86 and counts more than $600 million in assets and five branches in Medina, Canton, Wooster, Fairlawn and Westfield Center. Western Reserve employs 38, has $190 million in assets and runs two branches, one of which was particularly attractive to Westfield because it’s in Brecksville and Westfield has wanted to expand into southern Cuyahoga County, Mr. Park said. The two banks actually have locations across the street from each other in Medina, so those will be consolidated, probably into Western Reserve’s larger branch, Mr. Park said. Asked whether the millions his company accepted from the Treasury three years ago was a primary motivator in merging, Ed McKeon, president and CEO of Western
Reserve, replied no. Instead, what motivated the merger was his and the board’s fiduciary responsibility to their shareholders, Mr. McKeon said. “When your stock is selling at $14 and the offer is $29, I don’t know about you, but I think that’s significant,” he said. Western Reserve’s stock closed at $14.27 on June 5, before the deal was announced. Mr. McKeon, 66, does not anticipate being a participant in the ongoing institution. “It wouldn’t surprise me if I was on a beach somewhere within the year, and anybody who wants to be there — I’m buying the margaritas that day,” Mr. McKeon said. Westfield Bank is owned by Westfield Bancorp, which is owned by Ohio Farmers Insurance. The bank was formed 11 years ago to grow and diversify the business of the company, which up until 2001 was exclusively a property and casualty insurance business, Mr. Park said. “Our vision is to continue to grow and invest in both our insurance and our banking businesses,” Mr. Park said. “We anticipate that we would like to see our bank get a fair amount bigger.” ■
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TAX LIENS The Internal Revenue Service filed tax liens against the following businesses in the Cuyahoga County Recorder’s Office. The IRS files a tax lien to protect the interests of the federal government. The lien is a public notice to creditors that the government has a claim against a company’s property. Liens reported here are $5,000 and higher. Dates listed are the dates the documents were filed in the Recorder’s Office.
LIENS FILED Green Road Auto Body Shop Inc. 650 S. Green Road, South Euclid ID: 34-1137363 Date filed: April 26, 2012 Type: Unemployment, failure to file complete return Amount: $9,773 Matteo Gutter Systems Inc. 1335 E. 171st St., Cleveland ID: 34-1762611 Date filed: April 26, 2012 Type: Employer’s withholding Amount: $8,658 Fatica Hardware Inc. 215 Richmond Road, Richmond Heights ID: 34-1290029 Date filed: April 10, 2012 Type: Employer’s withholding Amount: $7,695
Cleveland Officers Protective Services Inc. 1303 W. 58th St., Cleveland ID: 20-8717875 Date filed: April 10, 2012 Type: Unemployment, failure to file complete return Amount: $7,554 Little Hand Daycare II Inc. 763 E. 152nd St., Cleveland ID: 20-3576872 Date filed: April 6, 2012 Type: Employer’s withholding Amount: $7,219 Avancini Inc. Maids Perfect 3363 W. 30th St., Cleveland ID: 65-1308769 Date filed: April 10, 2012 Type: Employer’s withholding, unemployment, corporate income Amount: $6,980 Legal Structures Inc. 17126 Catsden Road, Chagrin Falls ID: 34-1924752 Date filed: April 10, 2012 Type: Employer’s withholding Amount: $6,146 Dale Serene Architects Inc. 6602 Detroit Ave., Cleveland ID: 34-1324242 Date filed: April 10, 2012 Type: Employer’s withholding Amount: $5,566
WWW.CRAINSCLEVELAND.COM
JUNE 11 - 17, 2012
Clinic: Innovation expertise helps continued from PAGE 1
members over time will go deeper still, Mr. Coburn said. Alliance members already are starting to apply for grants together, which should increase their chances of winning them, he said. Besides working together on research and other grant-financed projects, alliance members plan to share expertise related to health care information technology and other processes that deal with running a health system. They also might work together to attract clinical trials and to build relationships with companies and investors that could help commercialize the products that group members develop. Deep collaboration among health care institutions is becoming more important, given the cost and regulatory challenges the medical field faces, Mr. Coburn said. “This alliance program is really the front end of a new trend,� he said.
An invention explosion The effort is producing early signs of success, according to Dr. Mark Smith, director of the MedStar Institute for Innovation at MedStar Health, which serves the Washington, D.C., and Baltimore regions.
INTRODUCING
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SO FAR, SO GOOD One of the Cleveland Clinic’s Healthcare Innovation Alliance’s early partnerships already is bearing fruit: Employees at MedStar Health’s MedStar Institute for Innovation subThe MedStar Institute was formed in 2009 but didn’t really get going until last year, when the Clinic and MedStar announced the creation of the Healthcare Innovation Alliance, Dr. Smith said. Thanks to help from Cleveland Clinic Innovations, which has 75 employees, MedStar employees submitted about 130 invention disclosures, which are forms describing invention ideas, during the 12 months that ended on June 1, Dr. Smith said. The year before, MedStar employees submitted “basically none,� he said, adding that some ideas submitted over the past year look promising. Building a relationship with the Cleveland Clinic, which is paid by alliance members to help them develop innovation programs, has other benefits, too, Dr. Smith said. He described how, at a recent conference, he learned that the Clinic has both a chief wellness officer and a chief patient experience officer. “They’ve got some interesting ideas on how to think about the delivery of care,� Dr. Smith said. So do other alliance members. MedStar, which is the biggest health care system in the mid-Atlantic, has expertise in health care information technology, Mr. Coburn said. The second partner to sign up, the North Shore-Long Island Jewish Health System, which operates 15 hospitals on Long Island in New York state, has strengths in therapeutics, he said. “There are plenty of opportunities for us to learn from the partners,� Mr. Coburn said. The startup companies that alliance members create also could benefit from easy access to institutions that could help them develop products, test them and maybe even buy them, he said. If companies that spin off from alliance members develop relationships with the Clinic, they could end up opening offices in Northeast Ohio, said Baiju Shah, president of
mitted 130 invention disclosures in the 12 months that ended June 1, up from “basically none,� according to Dr. Mark Smith, director of the MedStar Institute for Innovation. BioEnterprise Corp., a Cleveland nonprofit that assists health care companies in the region. “There’s a chance that some of those technologies may end up coming to Cleveland for commercialization,� Mr. Shah said.
Kasich enters the picture Hospitals in Ohio have been collaborating more in recent years, often with partners inside the state, said John Palmer, director of media and public relations for the Ohio Hospital Association. One example is BioEnterprise, which was founded in 2002 by several health care institutions in Northeast Ohio as well as by Case Western Reserve University. More recent examples include Austen BioInnovation Institute in Akron, a nonprofit through which three hospitals and two universities in the Akron area aim to promote health care-related innovation, and Ohio Children’s Hospitals’ Solutions for Patient Safety, an effort by the state’s eight children’s hospitals designed to prevent hospital-acquired infections and other hospital-related issues that harm children. Gov. John Kasich is trying to get Ohio health care institutions to work together more, Mr. Palmer said. A group of organizations Gov. Kasich helped assemble is thinking about sharing IT resources, establishing a forum that would give medical companies in Ohio a chance to pitch their products to in-state health care providers, and creating a single point of entry for companies that want to run clinical trials in the state. “A lot of hospitals and organizations are really putting more resources into collaboration,â€? Mr. Palmer said. Dr. Smith, of MedStar, sees the same trend. “Collaboration is the future,â€? he said. â–
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INSIDE
16 TAX TIPS: NEW SURTAX TAKES EFFECT JAN. 1.
13
SMALL BUSINESS Regency’s new owners see window for growth With shuttered firm’s client list, Window Nation hiring locally By GINGER CHRIST gchrist@crain.com
W
JASON MILLER
Amanda’s Own Confections owner Beth Cherico, who developed her chocolate recipes after discovering her daughter’s food allergy, says, “People with food allergies want their chocolates, too.” BELOW: The finished product.
FOOD CHAIN REACTION Bakeries, grocers cater to customers previously hamstrung by allergies to delicious dishes By KATHY AMES CARR clbfreelancer@crain.com
F
or a small but growing percentage of the population, the best things in life are free of gluten, dairy and nuts. These seemingly innocuous foods can be irritating, even fatal, to those who suffer from food intolerances or allergies, and businesses increasingly are reacting to those individuals’ dietary needs. From bakeries to grocers, businesses in the food sector are carefully crafting menus and selling products that include vegan ice cream, gluten-free pizza crust, and peanut-free and dairy-free chocolate to serve consumers with food allergies.
Amanda’s Own Confections are dairy-free, tree nut-free, peanut-free, gluten-free and egg-free. Beth Cherico developed the Westlake-based operation’s chocolate recipes as a result of her daughter’s lifethreatening food allergy to dairy products. “People with food allergies want their chocolate, too,” Ms. Cherico said. Increasing demand for its gluten-free and vegan pasta See REACTION Page 15
NOTHING AT WHICH TO SNEEZE Food allergies occur when the immune system mistakenly attacks a food protein. Ingesting the food may trigger a release of chemicals, including histamine, which results in mild to severe allergic reaction symptoms. Scientists estimate as many as 15 million Americans suffer from food allergies. The eight foods included in food allergy labeling account for an estimated 90% of allergic reactions. Those foods are: ■ Milk ■ Eggs ■ Peanuts ■ Tree nuts (almonds, cashews, walnuts) ■ Fish (such as bass, cod, flounder) ■ Shellfish (such as crab, lobster, shrimp) ■ Soy ■ Wheat SOURCES: MAYO CLINIC, THE FOOD ALLERGY & ANAPHYLAXIS NETWORK
PHOTO PROVIDED
Even nonallergic eaters are leaning on diets that exclude common allergy-causing ingredients. Mentor-based Great Harvest Bread Co. offers gluten-free bread.
hen “Regency Window” is queried on Google, the first advertisement result is a link to Window Nation’s website. That’s no mistake. Aaron and Harley Magden, founders of Window Nation, hope the shuttered company will help them open a window to success. The Magden brothers in May bought the remaining assets of Regency Window Co. in Twinsburg, which abruptly closed in January, in order to grow their business in Northeast Ohio. Until it defaulted on millions of dollars of loans and closed, Regency Window was one of the biggest names in window installation in the area. Now, equipped with Regency Window’s customer lists, Window Nation is looking to fill the void created by its former rival’s untimely departure. While the purchase of Regency Window primarily was a “business decision,” according to Harley Magden, the brothers do have greater ties to the company. The Magdens’ grandfather started Regency Window more than 40 years ago, with the company serving as the family business until their father sold it in 2005. Both Aaron and Harley Magden worked at Regency Window before launching Window Nation in 2006. “Obviously there was history there, but if it was another window company, we would still have purchased it and be doing the same thing,” Harley Magden said. Baltimore, Md.-based Window Nation operates in five markets, including Cleveland, and has about 100 employees. In its purchase of Regency Window’s assets, the Magdens acquired the company’s website, which they have turned into an informational site for former customers. The site provides details about Regency Window’s warranties, news stories about the company’s closure and links to Window Nation services. The company hopes its marketing and customer service efforts will pay off in the form of new customers. Lisa Zone, senior vice president See WINDOWS Page 15
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14 CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
JUNE 11 - 17, 2012
SMALL BUSINESS
Business credit lines often misused
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a business line he business line of DEBORAH sidering must scrutinize trading credit, which can CALLEN assets very closely and be a useful tool for commit to being discismall business plined about paying down owners seeking additional With an eye toward helping small and the business line. capital to finance short-term medium-sized nonprofits re-energize Business owners also operating costs, might be their fundraising, friend-building and must take care that the the most misunderstood lead generation initiatives, public business line is not used and misused commercial relations executive Rob Felber and 330-573-2134 inappropriately. credit facility ever created. nonprofit veteran Laura Whay Klein info@ksetstudios.com For example, using a Business owners considhave launched NEXT For Nonprofits business line to buy ering this line of credit will LLC. The new venture aims to help GAMETRUCK OF equipment, real estate or another need to exercise great discipline to nonprofits learn how to clearly identify NORTHEAST OHIO business is a very common misuse effectively manage the line and and tell their stories in order to better of a business line. In these circumavoid costly errors. Hudson engage internally and externally with stances, business owners would Confusion about business lines www.gametruckneo.com stakeholders. have been better served by seeking stem from business owners’ belief GameTruck of North330-963-3664 a term facility to fund those needs. that a business line functions like east Ohio is a mobile In addition, business lines should its consumer cousin, the home RobFelber@nextfor video game theater not be used to finance businesses’ equity line of credit, or HELOC. nonprofits.com that replicates inongoing losses. Traditionally, the HELOC is a LauraKlein@nextfor home gaming with Business owners need to be long-term facility secured by a resinonprofits.com specialized lighting mindful that if the Internal Revenue dential mortgage and carries no and seating and an Service does not deem the expenstipulations as to its use, apart from open area to play the latest game SPEEDPRO IMAGING diture to be an allowable business a requirement that the line must be consoles, such as Xbox 360 and Wii. CLEVELAND WEST paid in full in 15 years. Even at expi- expense, the business line should A game coach helps facilitate the not be used to fund that particular ration, the HELOC may be renewed 31011 Viking Parkway, Suite Z video game party and is trained to cost. For example, business lines if all conditions are favorable. Westlake 44145 move the party in the direction of have been used for nonbusiness The business line is a much www.speedproclevelandwest.com social video game play. GameTruck personal needs of the owners of the different tool that is far more of Northeast Ohio serves Summit and Jeff and Lori Kolenich, both formerly business, such as paying a divorce restrictive than a HELOC. The busiCuyahoga counties. of American Greetings, have opened settlement or paying a child’s ness line is intended strictly for the a franchise of Speedpro Imaging in 440-344-3077 college tuition. financing of operating costs — Westlake. Speedpro Imaging specializes northeastohio@gametruckparty Assuming the business owner short-term needs such as meeting in high-quality, extreme-resolution .com has weighed all aspects of using a payroll, financing the costs of a printed graphics, producing items business line and wants to proceed, contract or purchasing inventory. such as vehicle wraps and trade what should he or she do to prepare Business owners also should take To submit a new business, send the show banners. for a discussion with a lender into account that a business line is following by email to Amy Ann regarding ways to finance shortcyclical in nature. Phone 440-617-6461 Stoessel at astoessel@crain.com: term working capital needs? Lenders provide business lines Fax 440-617-6462 business name; address; city and The conversation will hinge with the expectation that the line ZIP; website; brief description of upon the proper size of the facility will continuously revolve by being business; business phone number; KSET STUDIOS LLC and the proposed use. Lenders paid down and advanced according business fax number; business tend to be more lenient with small to the business’ cash cycle. This 1865 Arndale Road, Suite D email address; and date that business lines, including small means that business owners conStow 44224 business opened. unsecured lines. Banks will not monitor an unsecured line of credit in the same manner that it would a $250,000 secured line. A small business line is comparable to a business credit card. But lenders’ leniency is driven by the business’ overall health and whether they have reasonable assurance that the line will ultimately pay in full. For larger lines secured by inventory and receivables, the analysis will be more complex. The business owner will be called on to explain the business’ cash requirements in detail. He or she should come prepared to present a need for the business line by representing the cash cycle of the Reminger means business. Think of us an extension of your management business and answering the folteam, providing strategic guidance and counsel to help your organization lowing questions: avoid legal pitfalls and capitalize on promising opportunities. ■ How long does it take for inventory/receivables to convert to cash? We serve a diverse local, national and international client base, including ■ Is there an element of seasonality to the business? both privately and publicly held corporations. Our full service representation ■ Are there large inventory purincludes corporate, tax, real estate, financing, and intellectual property chases during the holiday season, practice areas. or the need to hire temporary employees? RESULTS. PERIOD. It’s more than just our motto, it’s our passion. To learn ■ What’s the highest cash need Stephen E. Walters more, contact Managing Partner Stephen E. Walters in our Cleveland office. 8963 Darrow Road Twinsburg 44087-2109 www.nextfornonprofits.com
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at season peak? The highest cash need at season peak must be determined early on. A lender will require a current aging of receivables and payables and will evaluate the quality of these trading assets. Generally, the lender will not consider a receivable older than 90 days as collectible. If the receivables are deemed uncollectible, the bank may question why they have not been written off. The lender also will evaluate the inventory quality and raise questions whether any inventory is obsolete or should be written off. The lender will compare collection of receivables, payment of trade payables and turn of inventory to other businesses in the same industry of like size to assess overall quality. If collection periods are longer than the industry standard, that is a red flag for lenders. Business owners should understand that a short-term facility should never be used to fund longterm growth when the real need is a permanent investment in the business infrastructure, such as adding permanent personnel or investing in systems or facilities. In these cases, a term permanent working capital loan may be needed in addition to the business line. Business owners also should know that business lines generally are demand loans; the bank may require payment in full with short notice. Large business lines are reviewed annually by the credit department. The consequence of failing to properly revolve the business line is that the business owner will be required to pay the entire line amount. That might prove impossible for a business that has not been successful in revolving the business line, especially if the business line is maxed. In those circumstances, an alternative might be to term out the line, using a plan to make periodic payments until the balance is paid in full. The lender generally will impose a higher rate of interest and may require a pledge of additional collateral as part of terming out the line. In short, a business line can be a very useful way to obtain capital as long as the business owner uses the business line judiciously and sparingly, and diligently pays down and advances the business line. Failing to pay down the business line can put the business owners’ precious working capital at risk as a result of an onerous term out or even the crushing contingency of payment in full. ■ Ms. Callen is vice president and portfolio manager of the National SBA Group at KeyBank.
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are in Elyria and Mayfield Heights. The firm recruits primarily for the manufacturing industry, but can cover all aspects of hiring needs. It is experienced in recruiting for positions ranging from entry level and light assembly to management and office professionals. The positions filled by the firm are full-time permanent jobs.
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SMALL BUSINESS
Reaction: Number of those affected by food allergies grows continued from PAGE 13
products prompted Canton-based Trenipoti to expand within the same city beyond its small commercial kitchen to a 3,000-square-foot retail and production facility, which is set to open in July. The business, founded in 2009, supplies its products to Whole Foods, Earth Fare and Mustard Seed Market, as well as some surrounding restaurants. “Eighty percent of our business is gluten-free, and it’s definitely growing,” co-owner Chris Chalfant said. Raisin Rack, a natural food grocer, recently doubled its Canton store space to 18,000 square feet to accommodate more produce and refrigeration for vegan and glutenfree products. “About 12% of our business is related to vegetarian, vegan and gluten-free, and it’s growing every month,” said founder and owner Don Caster. “I probably have 100 letters on my desk from cities who are interested in having a store like mine,” which also offers a wide variety of organic groceries, vitamins and herbs.
Go figure About one out of every 25 children has a food allergy, an increase of about 20% between 1997 and 2007, according to the National Center for Health Statistics division of the Centers for Disease Control
and Prevention. Christine Spiroch, a physician assistant at the Cleveland Clinic’s Center for Integrative Medicine, attributes the increase to early and more accurate patient diagnoses, along with the quantity of processed foods consumed. “Larger portion sizes, along with stress and pollution, lower our immune systems,” she said. It’s hard to say whether the number of children being diagnosed with a food allergy will continue to increase, but Ms. Spiroch said she expects doctors’ recommendations for the elimination of certain foods to escalate. Meanwhile, consumers who don’t have those allergies are turning to diets that exclude some of the most common allergycausing foods because of the inherent health benefits. Wheat doesn’t whet the appetites of many a health nut, so Mentorbased Great Harvest Bread Co. about a year-and-a-half ago began offering gluten-free bread on Wednesdays as a healthier and food allergy-friendly product alternative. A gluten-free diet excludes the gluten protein, which is found in grains such as wheat, barley and rye. “We’ve found a really big market,” said owner and manager Kris Lariccia. Maintaining an allergen-free environment comes at a different
cost for small business owners such as Mr. Lariccia, who say ingredients are expensive and sometimes hard to find, and sterilizing stores and equipment is laborious. “But it’s worth it for a couple reasons,” he said. “Satisfaction in customers is pretty awesome, and our Wednesday sales have grown.” Gluten-free bread and bakery items account for roughly 40% of that day’s total sales, and Wednesday business about matches weekend numbers. “The first six months we did eight to 10 loaves a week, and now we do 30 to 40,” Mr. Lariccia said. “I think it will continue to grow because the allergy seems to be growing, unfortunately.” Some pizza joints such as Tommy’s Pizza say the gluten-free business delivers a boost to the bottom line. Tommy’s, which has locations in Strongsville and Lakewood, dishes up gluten-free pizza crust and wings and recently expanded its offerings to include gluten-free fried chicken and chicken tenders. The niche comprises just 2% of its overall business, but the items help differentiate the pizza shops from competitors and pads overall sales, owner Rick Tompot said.
In good taste Ice cream purveyors are treating allergy-sensitive consumers to dairy alternatives. Pierre’s Ice Cream Co.
Windows: New owner is in five markets continued from PAGE 13
at Dix & Eaton, a Cleveland-based integrated communications consultancy firm, said brand is an important aspect to consider during any acquisition. “Brand is often acknowledged as a company’s most important — and valuable — intangible asset,” Ms. Zone said. “Companies should evaluate the brand equity of a potential acquisition target, both at the corporate level and the product level. Understanding whether there are brand issues present and figuring out how to address them if they do exist can help ensure a swift and smooth brand integration process before an acquisition is even made.” Thus far, Window Nation’s efforts seem to be paying off.
Window Nation recently hired a dozen local installers and sales representatives, some of whom worked for Regency Window. And the Magdens are about to move their Cleveland operation into a new office in Twinsburg. The new office — the former Regency Window site — is about three times larger than Window Nation’s existing office and showroom in Cleveland, which is the company’s largest sales office. Window Nation will move into the 2288 E. Aurora Road site within two weeks. The new building will allow the company to have a design center where it can put up displays rather than rely on handheld samples. The local growth is representative of company-wide growth by Window Nation. Since its founding,
Did you know the Tonle Sap River runs north half the year and south the other half?
sales have increased each year. In 2011, the company had sales of $20 million, up 12% from 2010. The Magdens are looking to expand into Pennsylvania, Florida and Georgia and likely will open an office in one of those states in 2013. “Our long-term goal is to be a national brand. Right now, we’re very regional,” Harley Magden said. The company currently operates in Cleveland, Baltimore, Washington, D.C., northern Virginia and Charlotte, N.C. “We want to continue to expand and do it in a way that we can manage the growth,” Harley Magden said. The Magdens plan to open a new office every 18 months. Their last office opened two years ago. ■
in January introduced both vanilla and chocolate lactose-free ice cream, and the Cleveland company may churn out additional flavors. Serving each customer’s dietary needs is a balancing act, as some people have an intolerance or allergy beyond lactose, said Marianne Ludwig, owner of Tremont Scoops. Individuals who are allergic to soy or milk protein still can enjoy the ice cream parlor’s frozen delights, thanks to a comprehensive dairy-free program Ms. Ludwig initiated in 2006. Ms. Ludwig has noticed “a huge increase” in business since she more carefully tailored her menu to vegans, those with gluten sensitivity and others with food allergies. “I made a gluten-free ice cream
cake for a customer one time, and she told me it was the first time in 10 years in which her birthday didn’t hurt,” Ms. Ludwig said. Although nuts are a common allergy offender, most small businesses that cater to those with food sensitivities are not nut-free. It’s an arduous task finding suppliers whose ingredients, such as chocolate, are produced in nut-free facilities, and the risk of being liable for a life-threatening reaction is too much to bear, proprietors say. Plus, they do not want to isolate the larger consumer base who enjoys nuts. “Nuts are a source of protein,” Ms. Ludwig said. “My vegans would be very upset if they couldn’t have tree nuts on their ice cream.” ■
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16 CRAIN’S CLEVELAND BUSINESS
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JUNE 11 - 17, 2012
SMALL BUSINESS
Additional surtax to increase burden
GETTINGAHEAD
A
Quitting time: Certain steps can ease process
mid all the focus on rising income tax rates beginning Jan. 1, 2013, a new tax is set to go into effect at the same time for many taxpayers. Like the expiration of the current lower tax rates on most types of income, this tax will become law on Jan. 1 of next year unless there is specific legislative or judicial action. This new tax — the surtax — is essentially an additional Medicare tax and was part of the 2010 health care act. The surtax is a 3.8% tax on the investment income of people whose income exceeds certain thresholds described below. While a 3.8% additional tax may not seem like a particularly onerous amount, add this to the significant increases in ordinary income, dividends and capital gains tax rates, and the total tax burden quickly rises to more than 50% for many types of investment income. The surtax is imposed on the investment income of a taxpayer, but only to the extent that the taxpayer’s adjusted gross income (with some modifications) exceeds $250,000 (for married couples filing jointly). In addition to typical investment income such as interest, dividends and capital gains, the surtax also is imposed on many other types of income familiar to business owners. The term “investment income” for purposes of the surtax includes almost any income derived from passive business activities. For instance, allocations of business income from an S corporation, LLC or partnership will be subject to the tax unless the taxpayer is active in the business. This determination must
CARLGRASSI
TAX TIPS be made with reference to a complex set of rules. Although active owners of partnerships and LLCs will not be subject to the surtax, they still will be subject to a higher Medicare tax under another provision of the health care act. In general, allocations of partnership and LLC income to those who are active in the business are subject to self-employment taxes. Although the Medicare tax on wages and self-employment earnings is currently 2.9%, the health care act added a 0.9% increase for taxpayers with income above the thresholds noted above, bringing the rate in line with the surtax rate. LLC and partnership owners, therefore, in most cases will pay the 3.8% surtax if they are inactive in the business or the 3.8% self-employment tax rate if they are active. Although there are many considerations in making a choice of entity decision, one option for active business owners would be to convert their partnership or LLC to an S corporation. An LLC owner will in most cases be subject to the surtax whether they are active or inactive. If the business is operated as an S corporation, salary payments to the
owner still would be subject to the higher Medicare tax, but allocations of business income to an owner who is active in the business generally would not be subject to the surtax. For active C corporation business owners, the surtax provides one more reason to consider making an S election if it is possible, since the gain from the sale of stock of a C corporation will be subject to the surtax; the sale of LLC, partnership or S corporation equity interests usually will not be subject to the tax if the owner is active in the business. One important exception to the imposition of the surtax is that distributions from most pension and retirement plans, including IRAs, are not subject to this surtax. This should be another incentive to maximize contributions to these types of plans. Roth IRAs would be especially useful, because distributions are free from the surtax and do not increase adjusted gross income. Since a Roth conversion is generally taxable and would increase adjusted gross income in the year of conversion, consideration should be given to making such conversion in 2012 to reduce the exposure to the surtax. Decisions about choosing or changing the type of legal entity for a business or whether to convert a retirement benefit to a Roth account should not be made on the basis of minimizing exposure to the surtax without thorough consideration of other business and personal factors, but the surtax should factor into those decisions starting now. ■ Mr. Grassi is president of McDonald Hopkins LLC.
By AMY ANN STOESSEL astoessel@crain.com
M
ike Milby is no stranger to advising people on ways to leave a job — but first he makes sure that leaving is the right thing to do. Looking for a new position while employed and leaving a job can be tricky business, but there are steps a person can take to ease the process, said Mr. Milby, president and CEO at Ratliff & Taylor, an Independence human resources consulting firm. Mr. Milby said often the best place for a person to advance is within the company for which they already are working. Make sure to be open with an employer about career aspirations and have a full — and informed — understanding of what is happening around you. “Go validate your assumptions,” Mr. Milby said. “Make sure taking the step to move on is the right step.” Plan to commit five to 10 hours a week to a job hunt, he said. Be willing to invest in a career coach and focus on networking (discreetly, of course) over and above job boards,
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recruiters and targeted searches. Be prepared, too, for the consequences that could come along with key people finding out. “Don’t pretend that you can run a stealth job search campaign,” Mr. Milby said. Sometimes it’s the right thing for an employee to tell a boss that they are looking for new work. Mark Stornes, for one, would rather an employee be up front when looking for another job. That way he can either see if he can accommodate the employee’s goals or prepare for a transition. The former CEO, chief operating officer and chief financial officer of the Cleveland Cavaliers and Quicken Loans Arena currently is a partner in Cleveland-based Studiothink and serves as the marketing and branding firm’s CFO. He said it’s important how an employer treats employees on the way out: “The people who stay are going to be watching. … Don’t burn the bridge sort of works both ways.” The same is true for the departing employee. “There are people in that company you will want to rely on as a reference,” Mr. Milby said. ■
FOLLOW THE LEADER: A Q&A Chief of sustainability City of Cleveland
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Your monthly guide to getting to the next level in your career.
s Cleveland’s chief of sustainability, Jenita McGowan is responsible for advising the city of Cleveland on policies related to sustainability. She’s also behind the coordination of Sustainable Cleveland 2019, a 10-year initiative to transform the Cleveland economy into one that’s sustainable. It includes an annual event, which this year will in part focus on local foods Sept. 20 and 21 at Public Auditorium. Roughly 600 people from a cross section of the community are expected to attend. “We can’t continue to do things the way we’ve always done (them),” she said. ■ Favorite TV show? I don’t own a TV and prefer doing to watching, but sometimes I watch “Fringe” online. I like it because it is about innovation and problem solving while at the same time, it is ridiculously entertaining. ■ Who do you admire and why? I admire all of the participants of the Sustainable Cleveland 2019
Initiative. Those individuals and organizations are true champions of sustainability in Cleveland. They give so much of their time and expertise to transform Cleveland into a green city on a blue lake. ■ What most surprises you about the path your career has taken? Everything surprises me. In high school, I wanted to be a reporter for National Geographic. Then after undergrad I had a sevenyear career in the arts. Now, I am in the sustainability field. I always wanted to have a meaningful career that allowed me to be a life-long learner and to make a positive impact. I think that I have met those goals in my career path so far. I feel very fortunate. ■ Best part of your job? When people who I don’t expect to become champions of sustainability become engaged and involved and become leaders of change. ■ Career advice you wish someone would have given you? Don’t try to figure out your career too far ahead of time. Just learn about what piques your curiosity. Then, be open to opportunity, take calculated risks and listen to your intuition.
BUILDING YOUR NETWORK Get involved and stay informed by building your network online and in person. ■ FUEL (Future Emerging Leaders of Lake County) is a nonprofit organization for 20- to 40-year-olds in Lake County. The organization offers the
ability to meet, network and socialize with other young professionals who live or work in Lake County and the opportunity to hear speakers from a variety of backgrounds. Contact: fuel.lakecounty@gmail .com. 440-255-1616 Web: http://lakecountyfuel.com/
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CRAIN’S CLEVELAND BUSINESS
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17
LARGEST PRIVATELY HELD COMPANIES RANKED BY ESTIMATED 2011 REVENUES
Company Address Rank Phone/Website
Estimated revenue (millions) 2011
2010
Number of local employees
Year founded
Type of business
Top executive
1
Aleris 25825 Science Park Drive, Suite 400, Cleveland 44122 (216) 910-3400/www.aleris.com
$4,826.4
$4,117.0
330
2004
Aluminum rolled products and extrusions, aluminum recycling and specification alloy production
Steven J. Demetriou chairman, CEO
2
Medical Mutual of Ohio 2060 E. Ninth St., Cleveland 44115 (216) 687-7000/www.medmutual.com
$2,100.0
$2,000.0
1,800
1934
Health insurance
Rick A. Chiricosta president, CEO
3
Jones Day(1) North Point, 901 Lakeside Ave., Cleveland 44114-1190 (216) 586-3939/www.jonesday.com
$1,651.0
$1,616.0
677
1893
Legal services
Stephen J. Brogan, managing partner; Christopher M. Kelly, Cleveland partner-in-charge
4
Westfield Insurance One Park Circle, Westfield Center 44251 (330) 887-0101/www.westfieldgrp.com
$1,507.0
$1,475.0
1,474
1848
Insurance, banking and related financial services
James Clay chairman, CEO
5
Swagelok Co. 29500 Solon Road, Solon 44139 (440) 248-4600/www.swagelok.com
$1,500.0
$1,300.0
3,600
1947
Designer and manufacturer of advanced fluid system products
Arthur F. Anton president, CEO
6
Fairmount Minerals 11833 Ravenna Road, Chardon 44024 (440) 285-3132/www.fairmountminerals.com
$909.0
$667.1
94
1986
One of the largest industrial sand producers in the United States
Charles D. Fowler, CEO William E. Conway, founder, chairman emeritus
7
Bendix Commercial Vehicle Systems LLC 901 Cleveland St., Elyria 44035 (440) 329-9000/www.bendix.com
$842.0
$655.0
450
1930
Leading developer of active-vehicle safety technologies, air brake charging and control systems and components
Joseph J. McAleese president, CEO
8
Squire Sanders (US) LLP 127 Public Square, Suite 4900, Cleveland 44114 (216) 479-8500/www.squiresanders.com
$740.0
$560.0
338
1890
Global legal service provider
Frederick R. Nance, regional managing partner; David S. Goodman, Cleveland managing partner
9
Edgepark Medical Supplies 1810 Summit Commerce Park, Twinsburg 44087 (330) 963-6996/www.edgepark.com
$687.0
$595.0
947
1928
Home delivery of specialty medical supplies
Michael B. Petras Jr. CEO
10
The Carter Lumber Co. 601 Tallmadge Road, Kent 44240 (330) 673-6100/www.carterlumber.com
$671.4
$652.0
500
1932
Building materials retailer
Neil Sackett president, CEO
11
The Davey Tree Expert Co. 1500 N. Mantua St., Kent 44240 (330) 673-9511/www.davey.com
$646.1
$591.7
601
1880
Tree services, grounds maintenance, and consulting services for the residential, utility, commercial and government markets
Karl J. Warnke chairman, president, CEO
12
Safeguard Properties LLC 7887 Safeguard Circle, Valley View 44125 (216) 739-2900/www.safeguardproperties.com
$639.7
$662.3
995
1990
Mortage field services company
Alan Jaffa CEO
13
BDI Worldwide 8000 Hub Parkway, Cleveland 44125 (216) 642-9100/www.bdi-usa.com
$590.0
$501.7
151
1935
Global distribution of industrial products and supply chain services
Carl G. James chairman, CEO
14
Discount Drug Mart Inc. 211 Commerce Drive, Medina 44256 (330) 725-2340/www.discount-drugmart.com
$558.0
$534.6
1,673
1968
Retail drugstore
Parviz Boodjeh chairman
15
Ohio CAT 3993 E. Royalton Road, Broadview Heights 44147 (440) 526-6200/www.ohiocat.com
$530.0
$428.0
345
1945
Caterpillar engine and equipment distributor, Ohio, Northern Kentucky and Southeastern Indiana
Kenneth E. Taylor president
16
Baker Hostetler 1900 E. Ninth St., Suite 3200, Cleveland 44114 (216) 621-0200/www.bakerlaw.com
$442.0
$386.0
400
1916
Legal services
R. Steven Kestner, national executive partner; Hewitt B. Shaw, Cleveland office managing partner
17
Majestic Steel USA Inc. 31099 Chagrin Blvd., Suite 150, Cleveland 44124 (440) 786-2666/www.majesticsteel.com
$436.0
$425.0
215
1979
National distributor of prime galvanized steel coils and sheets.
Todd Leebow president
18
Fred W. Albrecht Grocery Co. 2700 Gilchrist Road, Akron 44305 (330) 733-2263/www.acmestores.com
$410.0
$400.0
1,391
1891
Retail grocery and pharmacy stores
Steve Albrecht president
19
Shearer's Foods Inc. 692 Wabash Ave. N., Brewster 44613 (330) 767-3426/www.shearers.com
$405.8
$288.7
950
1974
Manufacturer of snack foods
Bob Shearer CEO
20
Reserve Management Group 1831 E. Highland Road, Twinsburg 44087 (440) 519-1768/www.reserve-group.com
$400.0
$285.0
218
1991
Scrap metal processor specializing in ferrous and non ferrous metals and scrap electronics
Steve Joseph president, CEO
21
Anderson-DuBose Co. 5300 Tod Ave., Lordstown 44481 (440) 248-8800/www.anderson-dubose.com
$372.0
$338.0
165
1991
Distribution of food, paper and beverage products
Warren E. Anderson president
22
Cleveland Construction Inc. 8620 Tyler Blvd., Mentor 44060 (440) 255-8000/www.clevelandconstruction.com
$297.3
$299.0
55
1980
Commercial building contractor
Jon D. Small president
23
Advanced Lighting Technologies Inc. 32000 Aurora Road, Solon 44139 (440) 519-0500/www.adlt.com
$260.0
$250.0
130
1984
Energy-efficient lighting
Wayne R. Hellman CEO
24
Garland Industries Inc. 3800 E. 91st St., Cleveland 44105 (216) 641-7500/www.garlandco.com
$259.8
$242.0
511
1895
Manufactures roofing, flooring, coatings, David Sokol sealants and maintenance systems for commercial, industrial and institutional buildings president, COO
25
Dave's Supermarkets 5300 Richmond Road, Bedford Heights 44146 (216) 763-3200/www.davesmarkets.com
$247.7
$240.2
1,010
1935
Supermarkets
Daniel Saltzman president
26
Donley's Inc. 5430 Warner Road, Cleveland 44125 (216) 524-6800/www.donleyinc.com
$247.2
$203.4
227
1892
Design/builder, construction manager and general contractor, self-performs concrete construction
Malcolm M. Donley president, CEO
27
Cleveland Browns(2) 76 Lou Groza Blvd., Berea 44017 (440) 891-5000/www.clevelandbrowns.com
$247.0
$242.0
170
1946
Professional football team
Randolph P. Lerner owner
28
MCPc Inc. 21555 Drake Road, Cleveland 44149 (440) 268-4000/www.mcpc.com
$240.0
$205.0
203
2002
A customer-focused technology solutions integrator experienced in solving complex business and IT challenges
Michael Trebilcock chairman, CEO
29
Famous Enterprises Inc. 109 N. Union St., Akron 44304 (330) 762-9621/www.famous-supply.com
$209.0
$185.0
300
1933
Distributor of HVAC, plumbing, PVF, industrial, building products and training
Marc Blaushild president, CEO
30
Family Heritage Life Insurance Co. of America 6001 E. Royalton Road, Suite 200, Broadview Heights 44147 (440) 922-5200/www.familyheritagelife.com
$185.2
$166.8
104
1989
Provider of life and supplemental health insurance
Howard L. Lewis president, CEO
Source: Information is supplied by the companies unless footnoted. 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. Individual lists and The Book of Lists are available to purchase at www.crainscleveland.com. (1) Revenue number from the AM Law 100, May 1, 2012. (2) Revenue number from Forbes, NFL Team Values, The Business of Football, Sept. 7, 2011.
RESEARCHED BY Deborah W. Hillyer
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Bills: More credits on way continued from PAGE 3
positive impact.” Gov. Kasich in the waning days of the session signed the following bills: ■ HB 18, which would give an expanding business a tax credit for new jobs created when the business moves to a vacant or abandoned building. A small business would get a $500 tax credit per new employee if it increases its work force by 50% after the move. The largest businesses would need to add at least 50 jobs to be eligible for the credit. “(HB18) is not something I would have thought of as a way to incentivize business expansion and job creation,” said Martin McGann, vice president of state and local govern-
ment advocacy for the Greater Cleveland Partnership, the region’s chamber of commerce. “But (legislators) are finding ways to get bipartisan support for stuff like this and I think that’s meaningful.” ■ HB 327, which adds a job creation tax credit for companies that hire telecommuting employees if the employees are paid at least 131% of the federal minimum wage. That bill is considered experimental and is being given a six-year trial. ■ HB 436, which creates the SiteOhio certification program. It is considered a replacement for the Job Ready Sites program that expired in April. That legislation offered state grants to private-sector projects sponsored by local communities
JUNE 11 - 17, 2012
that made a vacant building or contaminated property ready for reuse. The program was valued by business site selectors because it gave them the confidence that a property has had the necessary environmental evaluation and remediation and has sufficient utility infrastructure for quick occupancy. The new legislation creates a state certification process for privately redeveloped properties. Some developers had objected to the Job Ready Sites program because it only helped properties that won the limited number of state grants through a competitive process. ■ HB 521, which is the motion picture tax credit bill. The tax credit quickly ran out of money — $10 million was the authorized cap — before its two-year authorization ran out. HB 521 doubles the credit to $20 million. Ivan Schwarz, director of the
Greater Cleveland Film Commission, told Crain’s this month that a number of movie production companies were eager to return to film in Ohio once the tax credit was reauthorized.
But wait, there’s more In addition to the already-passed legislation, other job creation or business expansion bills are moving through the Legislature. Each house has a bill that would expand the state New Markets Tax Credit program. SB 327, sponsored by Sens. Bill Beagle, R-Tipp City, and Charleta Tavares, D-Columbus, would raise the program’s annual cap from $10 million to $50 million. The New Markets program allows investors to receive a tax credit in return for making equity investments in designated community development groups. These programs, which exist at
Leases: Transfers could help owners continued from PAGE 3
of the company’s favorable loan deals with chairman and CEO Aubrey McClendon to questions over its ability to meet creditors’ demands for huge amounts of cash. The cash crunch has forced the company to sell more leases. Industry followers say the pressure has been intensified by low natural gas prices in the United States — a phenomenon many attribute, ironically, to Chesapeake’s success as a driller. In the past, Chesapeake could raise cash by selling its future production. However, that strategy falters when gas prices are at historic lows of about $2 per thousand cubic feet (MCF) like they are now. Chesapeake ran up a tab of more than $12 billion in debt in recent years, and now that gas prices have fallen, its ability to service that debt has come into question. As a result, Chesapeake has been selling assets, which are primarily lease holdings that give it mineral rights to hundreds of thousands of acres of land. It sold more than $2.6 billion in assets early this year and has promised investors it would sell as much as $11 billion more.
As for this market, Chesapeake announced June 4 that it would try to sell leases for 337,000 acres in the Utica Shale, nearly all of which it has bought from Ohio landowners over the last two years. Chesapeake previously reported that it paid at least $2.3 billion for leases on 1.35 million acres in the Utica region.
Unfavorable analysis Though Chesapeake has said it intends to sell enough leases and other assets to cover its debt, some observers are skeptical about whether it is going far enough. “Our model indicates that Chesapeake will have to sell a lot more assets than it has indicated currently,” wrote J.P. Morgan analyst Joseph Allman in a June 4 reaction to Chesapeake’s announcement that it was selling some Utica leases. “Our model has a funding gap of more than $6 billion for 2013,” Mr. Allman stated. That scenario was based on natural gas hitting $4.25 per MCF and domestic oil reaching $100 a barrel, he said. Natural gas recently has sold for less than $2.50 per MCF. Domestic oil has been selling for less than $90 a barrel.
One reason Mr. Allman is skeptical is that he does not believe Chesapeake will get as much as it hopes for its Utica leases. Though the company paid more than $1,500 an acre for many of its Utica leases — and far more for some of them — Mr. Allman predicts it will get only about $500 an acre if it sells them, netting it about $169 million for the 337,000 acres it would sell. Limited well data and other factors likely will keep prices low for the leases the company most wants to sell, Mr. Allman wrote in his report.
Read that contract! The company’s sales plans might create an opportunity for landowners who have leased their gas and oil rights to Chesapeake but no longer like the terms of their leases, said Mike Primrose, an attorney who works on leasing issues for Cleveland law firm Benesch, Friedlander, Coplan and Aronoff. Some, but not all, leases say the landowner must approve the transfer of the lease to a third party, Mr. Primrose said. Depending on the wording, the landowner might not be able to object at all to a sale of
lease rights, might only be able to object over pre-determined issues, or might be able to withhold necessary approvals for any reason. “Read your contract,” Mr. Primrose advises landowners. “My advice to most people in cases like this is to pull out your agreement and see what it says. It may provide you the ability or the right to consent to the transfer … and it could give you an opportunity, especially if you have a strong consent right, to negotiate new terms.” On the other side of the coin, say Mr. Primrose and other attorneys familiar with such leases, landowners won’t lose any rights in a transfer. The amount of royalties they’ve been promised from the proceeds of drilling on their land would not change, nor would any deadlines regarding how much time the lessee has to develop a well on the property before it forfeits its lease rights. That’s one reason why folks such as Ms. Rutledge, head of the Carroll County chamber, aren’t too worried — no matter who ends up with the leases for any affected property, they’ll still need to drill on it. Tom Stewart, executive vice president of the Ohio Oil and Gas Association, agrees. “A play is a play and the reservoir (of oil and gas) is still the reservoir,” Mr. Stewart said. “I don’t see this as troubling, nec-
both the state and federal levels, are highly competitive, with requests in some cases 12 times the dollar amount of available credits, according to a blog by David Lindner of the Cleveland office of the Buckingham Doolittle & Burroughs law firm. The House, too, is working on a revision of the New Markets Tax Credit law. Its version, HB 558, is sponsored by Peter Beck, R-Mason. The House also is considering HB 511, a bill that would increase the amount of investment, New Markets and venture capital loan-loss tax credits available. Sponsored by Reps. Beck and Anne Gonzales, RWesterville, HB 511 also would eliminate several small advisory councils that now administer these loan programs and would move oversight of them to the Development Services Agency and the Third Frontier Commission. ■
essarily, for the Utica in Ohio,” he said of the possibility Chesapeake might sell some of its leases here.
Catching their breath Mr. Stewart said he expects to see not only Chesapeake but other drillers re-evaluate their positions as they decide where in the Utica region they want to concentrate their efforts. The rush to sign leases first was a frenzy, he said, but the actual drilling and production that follows will be more methodical. Drillers will stake out core areas in which they will keep and develop their leases, while selling leases off in other areas, Mr. Stewart predicts. In the end, things might slow down a bit, but they won’t stop, Mr. Stewart assures. Ms. Rutledge said she shares Mr. Stewart’s faith. Chesapeake so far has not said it will sell any leases in Carroll County, but if it does, whatever party buys them still will want to drill for gas and oil, she reasons. Besides, she said, a little slowdown might not be a bad thing in a state where small communities and even state regulators are not used to dealing with so much oil and gas activity at once. “Honestly, I think there is a silver lining in that it’s giving us a chance to breathe,” Ms. Rutledge said. ■
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THEWEEK JUNE 4 - 10 The big story: American Greetings Corp., through a subsidiary in the United Kingdom, acquired assets of financially troubled Clinton Cards, which is one of American Greetings’ largest customers. Clinton Cards had about 750 stores and annual revenues of $600 million before it was placed into administration — comparable to Chapter 11 bankruptcy proceedings in the United States — on May 9. The acquisition includes about 400 stores and related overhead as well as the Clinton Cards and related brands, representing approximately $315 million in annual revenues, or about $265 million excluding revenues generated from its sale of American Greetings products. End of the line:
The Taylor Cos., a nearly 200-year-old company that bills itself as the oldest furniture manufacturer in the United States, announced that it plans to go out of business. Jeff Baldassari, Taylor’s president and CEO, blamed the planned cessation of its business on the recession that began in 2008 and a failure to receive from the state of Ohio an expected property tax abatement of more than $850,000 related to the company’s remediation of an environmentally contaminated property in Bedford where it built a manufacturing plant in the middle of last decade.
Old meets new: The natural gas car business stands to get some fuel, literally, from a deal struck between Shell Oil Products U.S. and Westlake-based TravelCenters of America to install compressed natural gas filling stations at a minimum of 100 locations. TravelCenters entered into an agreement with Shell to build and operate a network of at least 200 compressed natural gas (CNG) fueling stations at 100 or more TravelCenters locations on U.S. interstate highways. TravelCenters said it also will train “a significant number” of its approximately 3,000 repair technicians to work on CNG vehicles.
Bigger in Japan: Goodyear Tire & Rubber Co. is increasing its commitment to its global off-the-road tire business by announcing a big expansion in Japan. Goodyear said it has acquired 100% ownership of its Nippon Giant Tire unit in Japan. Goodyear has been the majority shareholder of Nippon Giant Tire since 1985. Goodyear also said it will invest $250 million to upgrade and expand Nippon Giant Tire’s manufacturing plant to increase its global supply of off-the-road tires for key customers. The expanded plant is expected to be fully operational in early 2014, Goodyear said, and should increase employment there to 400 workers. Back in the game: Scott Wolstein, former CEO of what now is DDR Corp., is returning to the world of multimillion-dollar real estate ventures. Mr. Wolstein was named CEO of Starwood Retail Properties, a new Chicago-based unit of Starwood Capital Group, a global investment fund with more than $19 billion under management. Mr. Wolstein said he will build an organization that will invest private equity in retail-oriented transactions. His first task will be forming a company to operate the eight malls, including SouthPark Mall in Strongsville, that Starwood announced in April it will acquire from Westfield Group. A Superior deal: Nordson Corp. agreed to acquire for $200 million Xaloy Superior Holdings Inc., a company in New Castle, Pa., that makes components to process melted plastic resin in plastic injection and extrusion machinery. The purchase will be financed with available credit facilities. The maker of automated spraying and dispensing equipment said Xaloy has operations in the United States, Germany and Thailand.
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
Ravenna’s Beck Energy finds Independence a gas ■ Beck Energy, a natural gas exploration and drilling firm based in Ravenna, has sunk $5.6 million into the office building at 6400 Rockside Road in Independence to become owner of the structure that houses the Cleveland Academy of Court Reporting & Technology. Raymond Beck, Beck owner and founder, said the company bought the building as an investment but refused to discuss the purchase in detail. The seller was Omni Rockside II LLC, a company affiliated with Pepper Pikebased Omni Property Co., which bought the empty building for $2.3 million last year and converted it to a school for the Miami Jacobs College affiliate. Pat Finley, Omni president, Cohen said the building “was a solid project for us.” He noted it required big investments of money and time to reposition the structure, but “now has cars in the parking lot again instead of remaining empty.” — Stan Bullard
Trip to the Promised Land holds promise for this group
Coordinated by the Jewish Federation of Cleveland, the trip is the first to take a group of Cleveland female professionals to Israel, according to Nan Cohen, CEO of Creekside Financial Advisors LLC in Pepper Pike and co-chairwoman of the trip. It involves women from KeyBank, SS&G Inc., Cleveland Clinic, Thompson Hine LLP and Calfee, Halter & Griswold LLP. The trip’s itinerary includes visits with Ester Levanon, CEO of the Tel-Aviv Stock Exchange, and Ruth Sinai, an Israeli journalist and commentator on social affairs, among others. It also includes cultural excursions, such as a visit to a famous painter’s home-turnedmuseum, and to Nachalat Binyamin, a pedestrian mall lined with outdoor cafés, shops and a bustling arts and crafts fair. “We’re meeting with our like professions overseas,” Ms. Cohen said. “I think all of us hope that we learn some new best practices.” It will be an opportunity, she noted, to learn “what’s working in their business that could be working in ours,” and could lay the groundwork for future collaboration. The trip, which begins June 17 and concludes June 24, is paid for by the individual participants. — Michelle Park
■ A group of 12 professional Jewish women plan to depart late this week for Israel, where they hope to learn from their counterparts overseas and bring home to Cleveland new best practices for their own businesses.
Pietrocola puts Boston in the rearview mirror
WHAT’S NEW
BEST OF THE BLOGS
■ So why is Tony Pietrocola back in Northeast
Excerpts from recent blog entries on CrainsCleveland.com.
Numbers don’t get much uglier than this
THE COMPANY: Polycase, Avon THE PRODUCT: XR Series ABS plastic electronics enclosure Polycase, which has been making enclosure products in the United States for the electronics industry since 1951, says the XR Series has been designed with a contemporary look and is “ideal for a multitude of electronics applications.” The XR Series boxes also are available without surface-mounting flanges. The flanges feature round holes for permanent mounting and keyholes for temporary mounting. A screw-on cover hosts a recessed center, accommodating membrane keypads or graphic overlays, with a user’s choice of a textured or smooth finish. The XR Series boxes are molded from black flame-retardant ABS plastic. They are available in two sizes: 4” x 4” x 1.85” and 6” x 4” x 1.97”. They are priced from $3.25 each for quantities of 1,000 and can be purchased online directly from Polycase. To aid engineers in the development of projects and applications, Polycase provides 2-D drawings and 3-D models of the XR Series for instant download directly from its website. Polycase offers CNC machining and custom printing on all enclosures. For information, visit www.Polycase.com /xr-series.
■ Real estate website Zillow.com put together a helpful interactive map that enables users to track, by county and by ZIP code, the percentage of homeowners who are under water on their mortgages. In Cuyahoga County, for instance, 39% of homeowners owe more on their houses than the houses are worth. That earns the county a “Highest 20% in U.S.” logo on the map — probably not a designation we’ll be touting anytime soon. Zillow.com noted that U.S. home values have fallen by nearly 25% since their peak in 2007, so underwater homeowners are likely to stay that way for quite a while.
This must have been an on-the-record conversation ■ Who better to turn to than Terry Stewart, CEO of the Rock and Roll Hall of Fame and Museum, if you’re writing a story that offers advice on various aspects of buying vinyl records? “Buying a record now is different from when record shops were ubiquitous,” wrote The New York Times. “Despite the continued six-year growth in sales of LPs — that’s long-playing records, for the uninitiated — practically all vinyl records today are smallbatch boutique pressings. There are limited editions, collector editions, audiophile editions and more.” In a section of the story devoted to issues faced by collectors, The Times noted that if you’re buying records as an investment, you may be disappointed. “Collectibles in general, you can’t antici-
Ohio? One reason: The people in Boston are a little more arrogant than they are here, he said with a smile. “I’m not a Boston guy,” Mr. Pietrocola said. Another reason: The founder of Tenth Floor Inc. sees a lot going on in the region’s technology community. Mr. Pietrocola sold the interactive marketing and web content management software company for $4 million to Bridgeline Software Inc. of Boston in 2008. So for the past four years, he has been executive vice president of global business development for Bridgeline. It was a great experience, Mr. Pietrocola said, but he could have done without the heavy travel, the focus on quarterly results and Boston’s aforementioned attitude. In Medina, however, a friend of his, Chad Wilson, had started an e-commerce company called Rapid Marketplace. He bought a stake in the company and now is its executive vice president of sales and marketing. Mr. Pietrocola — who was named Best Tech Leader at the Northeast Ohio Software Association’s Best of Tech Awards in 2007 — is glad to be back, especially now. The region’s information technology companies still face challenges, especially when it comes to finding qualified technical talent, but the local IT industry seems to be doing well overall, he said. As evidence, he noted how daily deals company LivingSocial of Washington, D.C., recently acquired Onosys, a Cleveland company that develops online ordering systems for restaurants. “We’ve got a lot of stuff going on,” he said. — Chuck Soder
pate what will be valuable,” said Mr. Stewart, who told the paper he owns “hundreds of thousands of records.” To be valuable, he said, a record must be rare and in demand, which is hard to know in advance. The best bet, The Times said, “is to give what someone enjoys, regardless of investment value. At worst, he is stuck with a record he loves.” The paper noted that not everybody collects records for the sound quality, often described as warmer and richer than CDs or digital tracks. Of visitors to the Hall of Fame’s gift shop who buy vinyl, Mr. Stewart said: “Half the kids are buying them to listen to; half are buying them as artifacts.”
Objeti is the object of their affections ■ Design blog Core77 lavished praise on the work of a Northeast Ohio company, Objeti, that was displayed at the recent International Contemporary Furniture Fair in New York. Objeti founder Joseph Ribic “takes pride in the hands-on crafting process for his furniture,” the blog noted. The company’s Windsor chair “is a subtle take on that American classic and the Shaker tradition of woodworking. The spindles that make up the back of the chair gently slope into a comfortable seat.” Core77 added that Mr. Ribic “demonstrates the opening action of his new side table. It has a multi-tiered hinge opening that was inspired by old school sewing boxes and fishing tackle boxes.” “Objeti” is a Slovenian word meaning embrace. Core77 said “there’s nothing more American than a family-run business — the design/build company is a family affair with Joseph designing, his brother John Jr. as production manager and dad John Sr. as production engineer.”
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