20120903-NEWS--8-NAT-CCI-CL_--
8
8/31/2012
3:42 PM
Page 1
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
Tech: VC funds flow to local companies continued from PAGE 1
Tornier N.V. of the Netherlands for $135 million. A few days later, trucking software firm TMW Systems Inc. of Beachwood said it will be sold for $335 million to Trimble Navigation Ltd. of Sunnyvale, Calif., which makes technology to manage mobile workers. On the venture investment side, Northeast Ohio companies developing medical devices, software, new materials and other high-tech products raised a total of $114 million in venture capital during the first half of 2012. That figure didn’t set a record, but it easily exceeded firsthalf totals of $83 million, $50 million and $18 million in 2011, 2010 and 2009, respectively, according to data from JumpStart Inc., a nonprofit that assists and invests in young tech companies. Money is flowing partly because of improvements in both the economy and the credit market. That’s especially true for big acquisitions, which often involve debt financing. But there’s another factor driving deals for tech companies in the region: They are reaching the point where they are ready to scale up or, in some cases, be sold, according to several people interviewed for this story.
More tech deals are on the way, according to attorney Howard Bobrow, who advises private equity funds, venture capital firms and young growth companies for the Cleveland office of law firm Taft, Stettinius & Hollister LLP. He has seen an increase in the number of tech companies ready for exits and is working with a few now. Mr. Bobrow noted that improvements in the broader market for mergers and acquisitions are helping, but he added that the region’s tech sector is in a better position to take advantage of those improvements than it would have been a few years ago. “I absolutely think it means that the industry is showing signs of maturity,” he said.
Big hairy deals The acquisition deals for OrthoHelix and TMW Systems illustrate Mr. Bobrow’s point. The sale of OrthoHelix will mark the first exit for the company, which is owned in part by Mutual Capital Partners LLC, a growth-stage venture capital firm in Cleveland. TMW founder Tom Weisz sold his stake in his business back in 2005, when the company was acquired by Peppertree
Capital Management Inc. of Pepper Pike and Wachovia Capital Partners of Charlotte, N.C., for an undisclosed amount that he previously said was less than $100 million. Other tech companies that have struck deals to be acquired for relatively large amounts so far this year include U.S. Endoscopy, which is to be sold for $270 million to medical equipment maker Steris Corp., its next-door neighbor in Mentor, and Rolls-Royce Fuel Cell Systems (U.S.) Inc. of North Canton, which for $45 million sold a 51% stake in itself to Korean conglomerate LG. Of the eight local tech companies identified by Crain’s as striking deals this year to be acquired, some — OrthoHelix, the Rolls-Royce subsidiary, marketing software firm BrandMuscle Inc., wireless equipment provider Summit Data Communications Inc. and Onosys, which provides online food ordering software for restaurants — are relatively young; all were formed since 1999. The other three — U.S. Endoscopy, TMW and electronic transaction services provider Electronic Merchant Systems — were formed in the 1980s and 1990s. Although the number of acquisitions isn’t particularly high compared
THE AIRPORT THAT MEANS BUSINESS IS CALLING ALL BUSINESSES.
SEPTEMBER 3 - 9, 2012
to previous years, the size of the deals is, according to Mr. Bobrow and others who spoke with Crain’s. Mr. Bobrow noted how some acquisitions from previous years were small or involved companies that were not performing well.
Investments add up Venture capital dollars also appear to be flowing readily into Northeast Ohio, according to JumpStart’s figures. Granted, local companies would need to raise more than $200 million in the second half of 2012 to reach the record of $317 million in venture capital raised in 2007. However, the sheer number of companies receiving any amount of money from venture capital firms or individual investors has skyrocketed, according to JumpStart’s figures. During the first half of 2012, 73 companies received investments, a number that beat annual figures from most previous years. The economy likely is a factor in the overall increase in deals, but the increasing number of quality companies in the region is another, said Lynn-Ann Gries, chief investment officer at JumpStart. Ms. Gries said another reason is the presence of the Ohio Capital Fund, a $150 million “fund of funds” that invests in venture capital firms that commit to financing companies in Ohio. The 25 venture capital firms that have received money from the fund had invested $188 million in 66 Ohio companies as of March 31. However, most of the fund’s money has been committed to venture firms, so if the state Legislature doesn’t pass a bill to renew it, the investments the underlying firms make could slow down, she said. “The work the Ohio Capital Fund did in bringing additional venture funds to the region has been pretty much the shining star in how we’ve been able to get our companies financed,” Ms. Gries said.
Entering ‘exit mode’ Among the venture firms that have received money from the fund is Draper Triangle Ventures of Pittsburgh. Draper years ago made early investments into two local companies that recently went on to raise more venture capital: heart imaging technology developer CardioInsight Technologies Inc. of Cleveland raised $7.5 million earlier this year, and appointment management software firm TOA Technologies Inc. of Beachwood raised $17 million last year. The dollar amounts of local venture deals will “continue to climb” in the future, and acquisitions of local tech companies will become more common, said Mike Stubler, managing director at Draper. “We should start to see more of those (companies) going into exit mode,” he said. Ralph Della Ratta Jr., managing partner at Western Reserve Capital Partners LLC in Cleveland, said he expects acquisitions to rise. The firm lately has been working on more deals that involve technology companies, and Mr. Della Ratta said he knows of three that will be sold or are hunting for buyers. Although the improved credit market likely is helping drive acquisitions in Northeast Ohio, companies looking for venture capital haven’t been helped by national investing trends. Venture investments have recovered somewhat from the recession but have been flat lately, according to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report. Thus, any increase in venture capital in Northeast Ohio can be attributed mainly to the achievements of people in this region, said Jonathan Murray, managing partner for Early Stage Partners of Cleveland. “Locally, we’ve gotten our act together,” Mr. Murray said. ■
The Shale Revolution: Issues and financial opportunities for landowners
Thursday, September 13, 2012
2012 BURKE CORPORATE AND AVIATION EXPO Join local business leaders for this special event as we take a first class look at the latest in corporate aviation and service. And learn how Burke Lakefront Airport can help your company take off.
BURKE LAKEFRONT AIRPORT Wednesday, September 12, 2012 4:00 p.m. – 8:00 p.m. Hors d’oeuvres by Zack Bruell Restaurants, cocktails
10:00 a.m. to 1:00 p.m. EDT
Location: McDonald Hopkins, Fifth Third Center 600 Superior Avenue, East, Suite 2100 Downtown Cleveland
RSVP: mcdonaldhopkins.com or call: 216.348.5400 to register.
RSVP
by September 10, 2012: bklcorpexpo@clevelandairport.com Kathleen Page at 216-265-3320
McDonald Hopkins LLC 600 Superior Ave., East, Suite 2100, Cleveland, OH 44114 • 216.348.5400
Carl J. Grassi
Shawn M. Riley
President
Cleveland Managing Member
Chicago • Cleveland • Columbus • Detroit • Miami • West Palm Beach
Visit www.burkeairport.com and click on events for more information
mcdonaldhopkins.com