Association for Corporate Growth 2018

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CRAIN CONTENT STUDIO C l eve l a n d

4

12

Cleveland businesses can build upon M&A opportunity

Market is sizzling for sellers

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22

Competitive landscape necessitates thorough due diligence

Manage risk and liabilities as global M&A grows

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S2 January 22, 2018

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Contents

PRESIDENT’S LETTER

President’s Letter

2

Indemnification in M&A Deals

3

A Wealth of M&A Opportunities

4

M&A for High-Growth Companies

5

Blockchain

6

New Revenue Recognition Standards

8

Due Diligence Homework

9

Managing the Sale Process

10

Successful Acquisition Strategies

11

Employee Considerations Momentum Benefits Sellers

12 12

Insurance Strategies

13

Private Equity’s Potential Landmines

14

Market Dynamics Favor Seller

15

Contemplating a Sale

16

Private Equity’s Evolution

17

Mitigating Risk Due Diligence Best Practices

18 18

Language of Business

20

Making Earnouts Work

21

Managing Risks and Liabilities Buy-side Advisers

22 22

Deal Maker Awards ACG Cleveland 2017-18 Officers & Board of Directors ACG Events Calendar

23 23 23

Seize Opportunities We protect your interests, so you can take advantage of business sale, acquisition, and restructuring opportunities.

ACG Cleveland is proud to be part of momentum, growth

By BRIAN KELLY

C

leveland is a city on the move and perpetually growing.

From the continued transformation of Cleveland’s neighborhoods and downtown, to the evolution of the Euclid corridor, University Circle, coupled with the impressive infrastructure initiatives, we see this growth all around us. Cleveland can again boast of two championshipcaliber sports teams, and a third ready for takeoff.

With innovation and national leadership in the medical field, world-class diversified industrial, manufacturing and specialty chemicals companies, and a vibrant hospitality and food scene, Cleveland has developed a reputation as a true destination for business and cultural events. At the start of this new year, we can Kelly reflect with pride on the successes and accomplishments of the past year and exciting plans for the future.

The Association for Corporate Growth (ACG) also has much to be proud of. Founded in 1954, our mission is to drive middle-market growth as a networking organization for professionals engaged in middle-market mergers and acquisitions and associated financial transactions. Globally, ACG is made up of 59 chapters and a community of 14,500 members from all areas of middle-market M&A. ACG serves 90,000 investors, corporate executives, lenders and advisers.

ACG’s Cleveland chapter, established in 1981, is 500 members strong, with a board and committees composed of our city’s leaders from public companies, private equity, law firms, accounting firms, investment banks and all facets of dealmaking and

supporting professionals. We are nationally recognized for providing the highest-quality educational programming and networking events, enabling our members to build value in their organizations and further their careers.

In 2017, the Cleveland chapter was again active in support of our city’s growth. We hosted more than 35 events, with speaker breakfasts, lunches and panels on trending M&A topics, East and West Side networking happy hours, the ACG Cup for college teams of aspiring leaders in M&A, and a year-end Shoreby Club social. These events provide members with powerful and creative ways to grow their professional relationships and share insights with colleagues and peers. More of this growth-oriented programming from Cleveland ACG and its Women in Transactions (WiT), Young ACG and ACG Akron groups is planned for 2018, including a special event at the Ritz Carlton on May 10, featuring a panel discussion on New Leadership in the Fortune 500.

The Deal Maker Awards, ACG’s flagship event, showcases Northeast Ohio’s top corporate dealmakers for demonstrated success in using acquisitions, divestitures and financing to fuel growth. The 22nd annual event, which we anticipate will be attended by upwards of 1,000 people from Northeast

Brian Kelly is president of ACG Cleveland and a partner with PwC, leading its Midwest Deals business.

For more information about ACG Cleveland, visit www.ACGcleveland. org and follow us on LinkedIn (www. linkedin.com/company/acg-cleveland) and Twitter (@ACG_CLE).

About ACG ACG is a global organization focused on driving middle-market growth. Its 14,500 members include professionals from private equity firms, corporations and lenders that invest in middle-market companies, as well as from law, accounting, investment banking and other firms that provide advisory services. Founded in 1954, ACG is a global organization with 59 chapters. Learn more at www.acg.org. ACG Cleveland serves professionals in Northeast Ohio and has nearly 500 members. For more information, visit www.ACGcleveland.org.

Managing editor, custom and special projects: Amy Ann Stoessel, astoessel@crain.com Trusted Advisors. Respected Advocates.SM www.mccarthylebit.com

Ohio and around the country, will be held on Jan. 25 for the first time at the new Hilton Cleveland Downtown.

The awards ceremony, preceded by a special red carpet welcome, will recognize this year’s winners: Parker Hannifin, Nordson Corp., Blue Point Capital Partners and Park Place Technologies. We are also very excited that, for the first time, this event will specifically recognize impactful Women in Transactions, with Karen Tuleta of MPE Partners as the recipient of the inaugural award.

Special thanks to our 500 current members for their commitment and community leadership, and to our valued sponsors: Benesch, Friedlander, Coplan & Aronoff; Grant Thornton; Huntington Bank; KeyBanc Capital Markets; Oswald Cos.; Roop & Co.; Aon Risk Solutions; Calfee, Halter & Griswold; Citizens Commercial Banking; Deloitte; and MelCap Partners.

ACG Cleveland is the premier organization for established professionals, young professionals entering the workforce and women in business. I encourage current members to take advantage of the outstanding opportunities their membership offers, and for prospective members to attend an event to witness the benefits of ACG membership firsthand.

I am proud and honored to serve as the current president of ACG Cleveland and look forward to making 2018 our best year yet.

Project editor: Kathy Ames Carr

Graphic designer: Staci Buck

For more information about custom publishing opportunities, please contact Amy Ann Stoessel.

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Indemnification in private M&A deals Allocating liability risk imperative

By TONY KUHEL

I

n most M&A transactions involving a privately held target, the seller’s representations and warranties and its indemnification obligations are the most heavily negotiated provisions in the definitive agreement. While representation and warranty insurance has altered these negotiations when it is used, the fundamental purpose of representations and warranties and indemnification remains unchanged: allocating risk for Kuhel unknown (and in some cases known) liabilities between the buyer and seller.

All buyers and sellers, regardless of the nature of their transaction, should keep the following principles and concepts in mind during their negotiations.

SCOPE: Typically, the seller is required to indemnify the buyer for any claim (whether a direct claim by the buyer or an indirect claim against the buyer by a third party) arising from or relating to any breach of either the seller’s representations and warranties or a seller’s covenant. The buyer may attempt to take a broader view of these obligations and ask the seller to indemnify it for any liability relating to the operation or conduct of the seller’s business prior to closing. The prudent seller will, however, resist this approach because it renders the representations and warranties essentially meaningless: Why negotiate representations and warranties when the seller is responsible for anything that happened prior to closing? Sophisticated and reasonable

parties can typically negotiate and agree on a robust set of representations and warranties tailored to the business in question that fairly allocate the unknown risks inherent in owning, operating and selling a business.

If, however, through its due diligence investigation the buyer becomes aware of a pre-closing liability that is not reflected in the purchase price offered, then relying on a seller’s representation that may address the issue could be inadequate. Under these circumstances, the buyer may require a specific “lineitem” indemnity for any loss associated with the liability in question, which would not be subject to the limitations on the seller’s indemnification obligations that apply to claims for unknown liabilities. Specific indemnification for matters such as pre-closing tax liabilities, indebtedness or transaction expenses not paid at or before closing is also common.

LIMITATIONS: Without negotiated limitations on its indemnification obligations, the seller bears the entire risk of the business’s unknown liabilities. This means the seller’s potential liability could conceivably exceed the purchase price it received, while the buyer would bear virtually no risk for pre-closing operations (despite conducting extensive due diligence) yet would be entitled to the entire economic benefit of the target after closing. To more fairly allocate the risk of the unknown, the parties typically negotiate temporal and monetary limitations on a seller’s indemnification obligations.

Representations and warranties are made as of the closing date. They typically survive the closing for a

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fixed period of time, meaning after the closing date, the buyer can only bring an indemnification claim against the seller for a limited time.

For “general” (usually operational) representations, the survival period is typically between 12 and 24 months. For more “fundamental” representations — such as organization of the seller, authority to complete the transaction, capitalization, title to assets and broker expenses — the survival period is extended or, in certain instances, indefinite. For other “statutory” representations (tax, environmental and employee benefit matters), the survival period is often tied to the statute of limitations imposed by applicable laws governing those matters.

There are three standard monetary limitations the parties may negotiate:

n A minimum claim threshold. This helps avoid disputes involving small claims. n A “basket” or threshold amount after which the seller’s indemnification obligations kick in. This may be a deductible basket, similar to an insurance policy, where the seller’s indemnification obligations only apply after the deductible is met, and then only to the extent liability exceeds the deductible, or a “first dollar” or “tipping” basket, where the seller’s indemnification obligations cover the entire amount of liability once the basket is met. n A monetary cap on the seller’s indemnification obligations.

The amount and nature of these limitations are often heavily negotiated, although an M&A professional can suggest what is customary under

the circumstances. These monetary limitations usually don’t apply to certain other representations or to breaches of the seller’s covenants, so the parties must carefully negotiate which representations or covenants are subject to, and which are exempted from, these limitations.

Risk allocation is critical in private company M&A transactions. The buyer and seller are best served by negotiating indemnification provisions that clearly and fairly allocate economic and legal risk for both known and unknown liabilities.

Tony Kuhel is a partner in the Corporate Transactions & Securities Practice Group and serves as vice chair of the practice in the Cleveland office of Thompson Hine. Contact him at tony.kuhel@thompsonhine.com.

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Cleveland businesses should heed the wealth of M&A opportunity

By BRIAN KELLY and ALEX BROWN

F

or many Cleveland-area businesses, the current business climate is positive. The equity markets have been torrid, with the S&P 500 increasing 23% over the last 12 months, to its highest level.

Seasonally adjusted unemployment rate is just 4.1%, interest rates are low and, according to PwC’s CEO Survey, 55% of U.S. CEOs are planning on acquisitions in the next 12 months.

Several factors are driving this positive outlook:

U.S. manufacturers (manufacturing is a Kelly big part of the local economy) have become more nimble operationally, enabling them to reduce earnings volatility and risk to investors as markets fluctuate. n Many manufacturers have also moved up the value chain to focus on higher value-added components and n

services, which have higher margins and more recurring revenue streams. n Regulatory reductions — and the promise of more — have made it easier to do business and increased line-ofsight for companies in many sectors. n Tax reform has given share prices a lift and could increase firms’ cash balances and ability to invest. This is on top of record cash balances for U.S. companies.

As is always the case, however, U.S. companies are also facing some distinct challenges, some of which are new and especially difficult to respond to. n With the broadbased run-up in share prices (some say frothy, see chart Brown above and to the right) there is significant expectation for profitable growth already built into equity valuations, which means that failure to deliver those expectations or any material shocks to the macro environment could result in a quick and material decline in value.

S&P 500 Trailing Price to Earnings Multiple, 2012-2017 30.0x 25.5x 25.0x 19.5x

20.0x 15.0x

24.7x

22.3x

14.4x

10.0x Jan 2012

19.5x

15.8x

Jan 2013

Jan 2014

Jan 2015

Jan 2016

Jan 2017

Dec 2017

SOURCE: S&P Capital IQ n Some companies are not seeing the run-up in their share prices. Even within the same sector, there have been winners while others have seen flat or even declining share prices, which is attracting some unwanted attention from existing investors and activists. n A likely reason for the emergence of winners and losers in equity value performance is that most sectors are experiencing some form of disruption

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— new or existing competitors are bringing new business models that are changing the basis of competition.

The most talked about is the digital transformation (often called Internet of Things), in which hardware is being linked together with sensors and controls and enabling significant performance improvement and new services. Some companies are not responding well to this disruption and are being punished by investors. n Many Cleveland-area companies — our region is strong in manufacturing, chemicals and metals, to name a few — participate in markets that are growing at or below GDP rates, which makes delivering or exceeding the high expectations in their share prices difficult to achieve without big investments to consolidate current markets or expand into adjacent sectors. n Consolidation deals, acquisitions in adjacent markets or deals to expand into digital solutions are often available, but in many cases multiples have expanded so much that companies are struggling to justify the prices (see chart below). n Absent viable deals, many companies

are returning large amounts of cash to shareholders via dividends and share repurchases. For a group of 85 U.S. industrial firms, share repurchases represent about 25% of earnings per share growth over the last five years.

While this can satisfy value investors, it is not a viable long-term approach for companies to remain competitive.

Given the unprecedented environment we are in — with both exciting opportunities and existential threats coexisting — how should companies respond? The following are some themes that PwC is recommending to its clients: n Invest to create or grow platforms.

We define platforms as businesses within the portfolio that (1) leverage a firm’s truly differentiating capabilities, (2) are focused on markets with large and growing profit pools and (3) are synergistic with other platforms in the portfolio. n Make the tough decisions. Simply put, if a part of the portfolio is not or cannot become a platform, exit it.

Even if financial capital is not scarce, other forms of capital are – particularly management bandwidth. It is very difficult to manage non-core parts of the portfolio and to have a clear narrative to investors as to why orphaned assets make sense and create value. They should be disposed of so management can focus on the platforms. n Change the investment mindset.

Focusing on platforms enables management to move faster and with more confidence to make the investments they need to make.

Because platforms are advantaged in their markets, companies can pay higher multiples than the competition and still create deal value. Moreover, companies can increase critical CONTINUED ON NEXT PAGE

GLOBAL M&A Transaction Multiples* 2012-2017 All

EV/EBITDA 12.0x

10.7x

10.0x 9.2x 8.1x

9.3x

Industrials 11.2x 9.9x

9.0x

10.7x 10.5x

11.3x 10.0x

8.4x

8.0x

(330) 239-1990 melcap.com

6.0x 2012

2013

2014

2015

* Based on median for all deals closed within given time period SOURCE: S&P Capital IQ

2016

2017

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M&A for high-growth companies Evaluating possibilities for acquisition or sale is a worthwhile strategy

By MICHAEL C. SHAW

A

cquisitions can elevate highgrowth companies to new levels. Often, companies that can benefit the most from acquisitions are companies that have grown significantly at the cost of structural problems (such as a significant customer concentration). Implementing a regular internal M&A review will help high-growth companies stay ahead of the growth curve and find areas to improve. M&A isn’t just Shaw for the slow-growth consolidators.

Here is a challenge for 2018: At the regular monthly or quarterly management meeting, set aside at least 30 minutes to have an M&A review.

Assign the team to identify and evaluate a few potential targets at each meeting, whether or not the targets are for sale. Starting with ideal candidates versus those that may be for sale will be more helpful in achieving a tangible outcome. The initial evaluation of each target should focus on just one or

two aspects that are most likely to add value to the combined business, such as decreasing customer concentration, adding key technology or expanding service capability. At future meetings, the team can further narrow the targets

and dive deeper on individual pros and cons of each target.

Also do the same from the position of the company as a seller. Discuss a few potential buyers of your business and how they’d evaluate your company.

This is a worthwhile exercise to consider whether you want to sell and will help identify areas to increase value.

Whether these exercises lead to acquiring a business or not, there are immediate benefits: implementing a

more critical review process of your business and being able to scan for external opportunities for growth.

Also, having the confidence and capability to execute an acquisition strategy also helps build a mindset to critically review allocation of money and resources for future growth.

Michael C. Shaw is a partner at Copper Run. Contact him at 614-888-1786 or mshaw@copperruncap.com.

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organic investments (which almost always have higher rates of return than deals) to create and expand platforms. n Move quickly. All of the three actions above make it easier to move fast. In PwC’s experience, the most fundamental difference between winners and losers is pace. Private equity firms have long recognized that their drive to do things in three months that would take a typical management team a year or more to do was one of their main levers on value. Having a clear strategy to create platforms, prune the portfolio to focus on them, and deploy capital aggressively on the remaining core enables the speed that will create a step-change in value creation.

In short, this is a time of great risk and great opportunity. Given the disruption occurring in nearly every industry, Cleveland-area companies need to move fast to seize those opportunities. By the time companies start to recognize that big change is happening around them, it may be too late to get back in the game.

500 local and 14,000 global

DEAL MAKERS

Association for Corporate Growth Driving Middle-Market Growth

In Cleveland, contact local Deals partner Brian Kelly at 216-875-3121 or brian.kelly@pwc.com or Thorne Matteson at 216-875-3441 or thorne.matteson@pwc.com.

Contact Deal Strategy principal Alex Brown at 773-255-2400 or brown.alex@pwc.com.

www.ACGcleveland.com

ACG_Crains_Dec 2015.indd 1

12/9/15 6:20 PM

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Will blockchain change the world?

Technology that improves security flow of transactions is gaining momentum

By SEAN T. PEPPARD

WHAT IS BLOCKCHAIN?

T

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

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This City Inspires Us And that’s why we call Cleveland our home To learn more about Riverside’s strategies to grow companies with up to $400 million in Enterprise Value, contact:

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In a global and digital world, businesses and individuals engage in transactions with strangers every day, directly or indirectly. The traditional way to solve the inherent lack of trust between widely separated and often anonymous parties is by the use of intermediaries, such as Visa or Mastercard, for the purchase of goods; stockbrokers for the purchase of stocks; money transmitters for transferring cash overseas; and freight brokers for the shipment of goods.

Many of these intermediaries (and the intermediaries of the intermediaries) use highly manual processes and all charge fees for their services. While we can execute a stock purchase with the click of a mouse, it takes two to three days for such a sale to settle. Similarly, an international money transfer can take up to a week to accomplish and cost 7% or more of the amount of the transferred funds.

The time and costs associated with intermediaries create friction in the global financial system. Perhaps more importantly, sensitive information often is placed in the hands of such intermediaries and is subject to the risk of data breach.

Enter blockchain. Blockchain is a database for recording transactions in “blocks” that are distributed to a group of users, which could be public or private. The participants in the network then authenticate the transaction using an agreed-upon protocol, which can be different based on the situation. Once authenticated, each block is linked to a previous block in the chain.

Blockchain transactions have several potential advantages over traditional transactions, some of which include:

Transparency:

Blockchain is transparent and auditable since it contains a list of every transaction of the underlying asset.

SO, WILL BLOCKCHAIN CHANGE THE WORLD? There are some that argue that the advent of double-entry accounting made capitalism possible. And while that statement is debated in academic circles, there is no doubt that doubleentry accounting allowed for a more

accurate and transparent recordation of transactions within a single organization.

Blockchain can take that benefit and extend it to apply between contracting parties, and therefore eliminate the time, cost and risk of using intermediaries. Depending on the type of use, blockchain could be transformational (eliminating intermediaries altogether) or incremental (increasing speed and accuracy while reducing costs). While it may be an

exaggeration to say it will change the world, it will make transacting business faster, cheaper and safer.

Sean T. Peppard is a partner in Benesch’s Corporate & Securities Practice Group. Contact him at 216-363-4688 or speppard@beneschlaw.com.

No guessing games.

Thompson Hine transparency provides you with complete clarity into our planning, workflow and costs. Coupled with our deep legal experience, you’re afforded the insight to make the best possible legal decisions for your business.

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Decentralized: There is no central

repository of data, and therefore no centralized risk of failure or data theft. By transacting directly, the time and cost of using intermediaries is minimized or avoided.

Security:

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

Authenticity: The security and immutability of the blockchain creates comfort among users because transactions contained therein are authentic and can be relied upon.

For this reason, companies are using blockchain to verify the authenticity of works of art and to curb the flow of blood diamonds.

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New revenue recognition standard could impact quality of earnings Evaluate private equity valuation models to avoid unexpected results

By ANDREA SLABINSKI and JOSEPH ADAMS

W

hether buying or selling a portfolio company or planning a future exit, it is critical that private equity groups understand the new revenue recognition standard. The new model can affect the timing of when revenue is recorded, which could have surprising impacts on quality of earnings. Here’s what it means for your valuation models during due diligence.

WHAT DO I NEED TO CONSIDER?

The new revenue recognition standard could impact EBITDA and other performance metrics that are inputs to private equity groups’ current valuation models. The changes are due to a shift in an accounting standard; however, the cash flows and operations of the business will not have changed. Since the business model isn’t changing, in theory, the value shouldn’t differ. But, if private equity groups

don’t update their valuation models, the models could indicate changes in value. As a result, you need to ask, “What adjustments should I be making to my valuation models to incorporate the effects of the new standard?”

While the standard goes into effect in 2018 for public business entities and 2019 for all other organizations, com- Slabinski panies could have adopted the standard in 2017. This means, as a buyer, you could be looking both at target companies that have adopted the new standards and those that haven’t even thought about them at the same point in time. That’s why it’s important to understand where in the process a company is.

When performing due diligence, private equity groups should begin to consider the following: Prior to implementation: Understand how the business’s revenue and EBITDA will change under the new

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rules. Will this impact the value of the target? Should it? Additionally, a company’s readiness to test, implement and operate under the new standard may have significant implications for its appeal as a target. It will be important to understand the prospect’s progress toward implementation during due diligence and the Adams costs associated with implementation if the target isn’t far along in that process.

Closer to implementation: Understand how forecasts are being built — whether under the old rules or the new rules — to determine what adjustments to the valuation model are necessary and in what periods the adjustments should be applied.

After implementation: Be aware of historical numbers used in analyses and how those will need to be recalibrated to be consistent with revenue under the new rules. For some companies, the bottom line won’t change much.

Others may see a major shift, for better or worse, and in unexpected ways.

Additionally, the new standard is principles-based, rather than rulesbased. This means there are plenty of judgment calls and estimates on the part of management. It’s key for sellers to provide and for buyers to consider the rationale and assumptions behind decisions and projections, and to understand how those assumptions impact the bottom line.

We’ve seen many examples of unexpected changes through our work with clients who have begun planning for adoption. The following is a sampling of some of the changes we’ve observed:

CAPITALIZE OR EXPENSE SALES COMMISSIONS?

Current state: Companies can make a policy election to capitalize sales commissions and recognize them as expense over the long-term contract period or to expense them as incurred.

New standard: Sales commissions related to long-term contracts meeting

certain criteria will be required to be capitalized. Capitalizing commissions on these contracts will likely result in a more favorable bottom line for many businesses that were previously expensing them when incurred.

VENDOR SPECIFIC OBJECTIVE EVIDENCE FOR SOFTWARE COMPANIES

Current state: When a software license has been bundled with other services, such as maintenance and support, VSOE has been difficult for many software companies to establish, track and prove. Companies that couldn’t consistently do so were required to recognize revenue over the full contract term, rather than recognizing license revenue when the software was delivered.

New standard: VSOE is no longer a requirement. In instances where the license is a separate performance obligation from the other promises in the contract, companies could recognize the license revenue upon software delivery by using an estimate of that software’s standalone value.

This could result in some software providers significantly accelerating the timing of their revenue recognition.

MANUFACTURING CUSTOM PARTS

Current state: Manufacturers that produce custom parts for a client recognize revenue for those parts when CONTINUED ON NEXT PAGE

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Key questions to answer during due diligence

By MARK B. BOBER

T

he M&A market remains extremely competitive, and buyer due diligence is more critical than ever. Sellers often seek valuations based upon projected forward earnings and pro-forma adjustments that may not reflect the actual results of operations, which require thorough diligence.

While each situation is unique in terms of assessing fundamental risk areas to focus due diligence scrutiny around, below are a few of the areas that are critical Bober to the success of an investment: n Revenue and margin trends. Assess customer concentrations, customer trends and margin trends. What are the attrition/retention trends? What are the customer acquisition costs? What are fixed and variable costs to support revenues? What is history of price increases? Is there an ability to pass along increases in costs to support sales, such as raw materials and subcontractor costs? Are revenues and projected revenue growth sustainable? Are there

one-time and/or non-recurring revenues that need to be adjusted on a pro-forma basis to the extent they will not repeat in the future? n Normalization adjustments.

Can underlying contemporaneous documentation support the seller’s proforma normalization adjustments?

Are they truly non-recurring or owner

discretionary? It’s vital to assess the probability of realizing such benefits if the seller suggests they are “proforma” because they are achievable but have not been realized. n Operational matters. Does the level of operating costs (selling, general and administrative expenses) shown in the historical financial

Andrea Slabinski is a senior manager with Plante Moran’s professional standards team. Contact her at andrea.slabinski@plantemoran. com. Joseph Adams is a partner with Plante Moran’s private equity team. Contact him at joseph.adams@ plantemoran.com.

acquisition, both from a valuation standpoint as well as establishing strategy going forward.

Mark B. Bober is a partner and practice leader in Transaction Advisory Services at Bober Markey Fedorovich.

Contact him at 330-255-2425 or mbober@bmfcpa.com.

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the title transfers, which is usually when the parts ship.

New standard: If certain criteria are met (for example, if the part has no alternative use to the company producing it) and the company has the right to payment for work completed to date in the event of contract termination, revenue would be recognized sooner — as the parts are produced rather than when shipped. We don’t see this in all contracts for manufacturers, but contracts with these terms are common.

In all three examples, revenue was advanced or expense deferred. In the year of adoption, it will be critical to adjust private equity valuation models to take into account the effects of the known changes and of the adoption if you want to avoid unexpected results from your models.

Portfolio companies should assess the impact now. Start reviewing contracts to understand the accounting changes the business will need to make to comply with the standard. Be prepared to discuss progress during due diligence. Understanding what the new standard means with respect to a company’s quality of earnings and your valuation models isn’t going to be business as usual.

statements reflect an adequate level of cost to support the future growth of the business? Is there adequate infrastructure in place to provide a platform for growth? Has adequate investment in capital expenditures and research and development been made?

Due diligence is critical to the ultimate success of a contemplated

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Be wary of tempting offers Enlist a qualified team of M&A advisers to manage sale process

By CHARLES AQUINO

P

erhaps you’ve spent a lifetime building your business, sacrificing personally for the betterment of your employees and company. Or maybe you are the caretaker of four generations of growth and sacrifice, and it’s your turn to preserve the family legacy.

You look back many years with pride at the challenges you’ve hurdled, the value you’ve built and the expectation that when the time finally comes to sell Aquino the business, you and your family will be justly rewarded. No doubt hungry buyers will be chomping at the bit.

In a market this frothy, however, it’s not uncommon for a potential buyer to seek you out first. They may tell you yours is just the business they’ve been looking for, as they have a unique perspective and resource set to vastly ex-

pand your company’s horizons. In addition, your employees will be protected, your legacy preserved and, most importantly, their valuation will be fair and compelling. Sounds great, doesn’t it?

But how do you really know if their offer is fair? And how do you judge whether or not it’s compelling?

Before you can find answers to your questions, the buyer wants an answer to theirs. They know they’re not the only party calling, and that the sooner they lock you into exclusivity, the better their chances of avoiding a costly, competitive process. They assure you that their offer is consistent with other deals in the market.

If it’s a financial buyer, they’ll illustrate how the real value lies in a subsequent sale after several years of imparting their strategic wisdom and capital. In the end, they will tell you why it’s in your best interest to save yourself the time, distraction and fees of a formal process and move forward with them exclusively. It will sound

both flattering and convincing.

Beware, however, because once you grant a party exclusive rights to negotiate a deal, any leverage you had previously quickly goes away. You no longer have any tangible “market check” by which to judge, counter or improve their offer. It’s just you and the buyer, and the courtship is over.

Now is a good time to ask yourself: who will have your back in the myriad legal, business and financial negotiations? Who will be in your corner helping you stand up to the buyer’s horde of advisers who would like nothing more than to impress their client by finding or justifying a price reduction?

Like anything critical in life, selling your business really should be handled by a complementary team of specialists.

A good M&A attorney will protect you on important deal terms and conditions without exposing you to above-market risk. An accounting firm with extensive transaction services

and quality of earnings experience will help you get through an exhaustive due diligence process. An investment banking firm with relevant industry experience can apply competitive pressure on the buyer, even in a one-off situation, with a compelling marketing package that’s ready to share with others once the window of exclusivity closes.

Throughout the process, this team can serve as that elusive market check on matters involving valuation multiples, credible EBITDA adjustments, working capital mechanisms and other key deal terms. This can give you peace of mind when competing bidders cannot.

Perhaps the greatest benefit of having a full team of advisers in your corner is their collective ability to shoulder the heavy lifting throughout the process. As a seller, you may not fully appreciate the considerable time and energy involved in gathering information, answering questions, populating the data room and adhering to an extensive diligence schedule.

And, by the way, you don’t get a break from your day job. If performance slips because you or your management team were distracted by a needy buyer, you can bet that same buyer will endeavor to amend the terms of the deal in their favor. Not only will your advisers take much of this burden off your shoulders so you can continue to run your company, they will advocate aggressively on your behalf should there be an unexpected hiccup.

So, should you ever be tempted by a buyer who wants you all to themself, remember a little sage advice. Is it generally better to have more than one buyer competing for your company?

Yes. Do private sellers regret not talking to other parties before committing to the first one who knocks at the door? All the time.

And is it worth having a complementary team of M&A specialists in your corner should you find yourself mano-a-mano with a sophisticated buyer who’s dialed down that pre-exclusivity charm? Only if you want to assuage any doubts as to whether you’re getting proper value for a lifetime’s worth of work.

Charles Aquino is a managing director at Western Reserve Partners. Contact him at charles.aquino@citizensbank.com.

We Understand the Language of Business At Tucker Ellis, we appreciate that legal issues are not resolved in a vacuum—almost all require a customized solution. In collaboration with our clients, we strategically analyze how the issue at hand relates to and affects their business, and we help them solve it from that perspective. In short, Tucker Ellis attorneys understand the language of business. visit our blog: tuckerellis.com/lingua-negoti-blog @linguanegoti

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Early preparation and team-building is essential for successful acquisitions

By JOHN MCGUIRE

P

ractitioners of transactional work generally agree that we are in a persistent sellers’ market. Pricing multiples remain high, sometimes breathtakingly so. Middle-market sellers are demanding that most, if not all, of their indemnity exposure be offloaded to representation and warranty insurance policies. What should potential buyers who do not regu- McGuire larly engage in acquisitions and dispositions do to be credible and competitive?

EVALUATE YOUR TEAM AND GET THEM INVOLVED

A successful acquisition begins with having the right team around you who is engaged from the beginning. However, this may mean that your current team of professionals is not the one with whom

you should be heading into battle.

Every professional has his or her strengths, but the general practitioner you have been using all these years, while incredibly good at what he or she does, may not be the right one to negotiate your multimillion-dollar acquisition. Take a moment for a cleareyed evaluation of your team and make an honest determination as to whether their skill set is appropriate for this specific engagement. If not, take the time to find an attorney or accountant who has deep experience in transactions and then put them to work.

Flying solo in the early stages of a transaction, hoping to streamline costs, rarely accomplishes anything other than delays later, as issues are belatedly uncovered, misunderstandings revealed and differing expectations exposed.

A well-seasoned team will ensure that you are asking the right questions upfront, spotting red flags early and, if necessary, taking that exit ramp

before too much time and money are wasted (and acquisition transactions can quickly consume both). Staging or otherwise managing team members’ involvement is fine, but being penny wise and pound foolish is not.

SET THE BASIC TRANSACTION TERMS EARLY

After engaging a well-qualified transaction team, a buyer’s next objective should be ensuring that it and the seller are on the same page regarding what the transaction will look like (and what it will not). Eagerness on both sides of the table often leads the parties to dive right into document drafting, heavy due diligence and negotiations.

However, most advisers find that spending a little time on a term sheet or letter of intent that fleshes out the seminal transaction terms is worthwhile. Again, this is all about surfacing issues and mismatched expectations before time and money are lost by all concerned.

ASSUME THAT A REPRESENTATIONS AND WARRANTY POLICY WILL BE NEEDED

Thanks to the continuing sellers’ market, as well as the maturing representation and warranty insurance industry, sellers are requiring that most (if not all) of their purchase agreement indemnity exposure be handled by a representation and warranty insurance policy purchased by the buyer. Financial buyers have been quick to adopt the use of representation and warranty policies, and strategic buyers will need to as well to keep pace and remain competitive in auctions.

Upon embarking on a sale (particularly if the process is an auction, but even a non-auction purchase of a savvy seller), buyers should assume they will need to purchase such a policy.

Buyers should engage early with their insurance brokers, who can price (at a high level) coverage at different levels

and for different lengths of time. When the process is in full swing, buyers also should anticipate that they will be negotiating the coverage of the policy as much as (and, in some cases, more than) they negotiate with the seller the particular representations and warranties in the definitive documentation.

Indeed, in this brave new world of middle-market transactions, there is now a third chair at the negotiating table: progress!

In transactional practice, as with so many aspects of life, preparation is the key to success. While it is tempting to keep costs low early on, too lean-andmean of a strategy can send inexperienced buyers down rabbit holes from which they may never emerge. Make sure you have the right team, ask the right questions early, prepare for the inevitable side negotiation with your representation and warranty policy insurer, and you will find yourself in a much better position to win the deal and bring it to a successful conclusion.

John McGuire is a partner at Calfee, Halter & Griswold LLP. Contact him at 216-622-8892 or jmcguire@calfee.com.

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Employee considerations in a transaction

By MICHAEL D. MAKOFSKY and JACK E. MORAN

W

hile there are many issues to prepare for in any deal, both sellers and buyers should be cognizant of certain employee-specific issues as the transaction unfolds.

In order for an acquisition to be successful, key employees must often be retained, reassured and motivated post-closing to keep the business moving. One method a company may implement is a “golden handcuff,” which is a collection of financial incentives that are intended to

encourage employees to remain with a company. These plans often help companies hold onto employees with whom they've invested.

From a dealmaking perspective, both sides of the transaction should be mindful of whether any employees have stock options or profits interests. These benefits often vest over time; however, it Makofsky is common for them to automatically vest and become operative upon a sale or change in control.

Such employee agreements must be

analyzed to determine how the rights are triggered, how the shares are valued and other such terms to determine whether those agreements have an impact on the proper purchase price.

The value of the transaction could also be affected by how well the company protected itself against departing employees.

Effective employMoran ment covenants such as non-competition, non-solicitation and non-disclosure requirements can help preserve the value of the company and, in some instances, help retain

Momentum benefits sellers

By ANDREW K. PETRYK

A

ggressive buyers. Hungry lenders. Robust valuations.

These are themes we have seen repeated over the last few years and

show no signs of abating. Liquidity and the quest for growth are continuing to drive the M&A market with an almost insatiable fervor. Prospective acquirers have considerable buying power, calling attention to Corporate

America’s burgeoning war chest and the billions in unspent private equity capital earmarked for deployment.

The debt markets remain highly liquid; new investors and capital continue to flow into private credit.

the employee.

If, however, an employee’s tenure will be terminated as part of the acquisition, buyers will want to know whether the employee has already agreed — perhaps in exchange for receiving a payout of stock rights — to sign a release agreement that waives any potential claims against the business. Further, if the employee has been paid a retention or other similar bonus, but has not fully performed under the agreement governing the payment, the company will want to analyze whether it makes sense to attempt recovery of some or all of the payment.

Given that employees are often a central asset of a target business, buyers and sellers should be evermindful of the legal landscape affecting those employees as they evaluate any potential deal.

The missing link is deals. M&A volume in North America fell to a five-year low in the third quarter of 2017, according to Mergermarket, which cited a Petryk 32.8% decline from the year-ago period. U.S. private equity deal

flow through the first three quarters of 2017 was down 11% from the comparable period in 2016, reported PitchBook, despite record fundraising activity. Scarcity of quality deals has resulted in fierce competition among buyers and lenders.

Loan demand continues to outstrip available acquisition financing opportunities,

Michael D. Makofsky is a principal in McCarthy Lebit’s Mergers & Acquisitions, Banking & Finance, and Business & Corporate practice areas. Contact him at 216-6961422 or mdm@mccarthylebit.com.

Jack E. Moran is a principal in the Employment & Litigation practice areas. Contact him at 216-696-1422 or jem@mccarthylebit.com.

CONTINUED ON NEXT PAGE

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

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

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

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

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Overcome hurdles, improve deal outcomes Various insurance strategies help buyers, sellers achieve goals

By JAY MOROSCAK

T

he dearth of desirable acquisition targets has created a highly competitive landscape in the M&A market. This competitive situation dictates that buyers be prepared with strategies and tools that facilitate potential transactions.

Transaction liability insurance, a relied upon tool for all M&A practitioners, has emerged as an essential element of the M&A landscape and can be a viable

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sending enterprise values and leverage multiples to historically high levels.

S&P Global Market Intelligence reported the following metrics for the lower middle market (defined as enterprise values between $25 million and $500 million) in December 2017: n Median EBITDA multiples for strategic and financial buyers were 7.23x

alternative to an escrow or indemnity.

The ability to manage and allocate risk on the front end of a deal allows buyers to bid more aggressively because sellers can extract more funds at closing.

Tax insurance protects a taxpayer in the event the IRS or a state, local, or foreign taxing authority successfully challenges his or her tax position.

M&A buyers and sellers can use tax insurance to avoid unanticipated tax payments that could compromise the economic upside of a deal. Tax insur-

ance can be an effective alternative to an escrow or a large indemnity. It can also be used outside of a transaction — simply to manage a large contingent exposure. Institutional tax equity investors rely on tax insurance to ensure an anticipated tax credit will be available as projected and not recaptured.

Representations and warranties insurance covers liabilities arising out of a breach of one or more of the representations and warranties in an M&A transaction. Policies can be

tailored to address a client’s specific indemnity needs.

Buy-side improvements include achieving a lower purchase price by trading for lower escrow. The buyer realizes greater deal protection through use of insurance. The auction process can be eliminated in favor of the buyer by accepting Moroscak seller representations “as is” because the insurance provides the indemnity.

Sell-side improvements from rep-

and 7.93x, respectively, on transactions valued less than $250 million, and 11.24x and 8.43x on transactions valued between $250 million and $500 million. n Total leverage (total debt to EBITDA) inched up to 4.89x, steadily increasing from a low of 4.57x in April.

Total leverage of 5.5x was reported for the broader middle market (EBITDA less than or equal to $50 million).

While investors have a cautionary eye on the economy given the length of the current business cycle, companies are continuing to perform. According to an earnings report released in December by S&P Global Market Intelligence, 73% of the reporting S&P 500 companies beat earnings expectations for the third quarter of 2017, with nearly half (45%) citing double-digit

or better year-over-year growth.

Even cyclicality has not slowed investor appetite. Building Products, one of the cyclical sectors that has seen transaction activity rise on the heels of improving fundamentals, may have even extended its run as recent weather-related events have seemingly lengthened the replacement cycle in affected markets.

Market conditions should continue to

ACCELERATE

GROWTH

resentations and warranties insurance include a sharp reduction of escrows, transformation of some or all of indemnity, increased speed of a deal-closing and minimizing “claw-back” exposures.

Transaction liability insurance is becoming a staple in any strategic M&A, offering protection for both buyers and sellers.

remain strong into 2018, with liquidity a primary catalyst. Without a material increase in deal flow, capital will continue to chase tight supply, keeping multiples elevated for the foreseeable future.

Jay Moroscak is a senior vice president in the Cleveland office of Aon Risk Solutions.

Contact him at 216-272-2155 or jay.moroscak@aon.com.

Andrew K. Petryk is a managing director and principal at Brown Gibbons Lang & Company. Contact him at 216-920-6613 or apetryk@bglco.com.

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When it’s right, we will assist clients in finalizing and closing their transaction.

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We help companies and individuals source business acquisition opportunities. Our professionals identify, introduce, and initiate deal flow.

PAA, along with our partner, Pease & Associates, CPAs, leverage our experience with several hundred deals, while offering due diligence, taxation, and other M&A related services.

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Sidestep private equity’s potential landmines Buyers, sellers should consider these potential issues during deal phase

By DAVID KERN and JON STEFANIK

A

t its core, an M&A transaction involving a private equity buyer or seller is no different than any other M&A transaction that involves all of the usual suspects: due diligence

checklists, working capital adjustments, baskets, caps, survival periods, carveouts … you name it. There are, however, several under-the-radar issues unique to deals involving private equity buyers or sellers which, without planning, can become potential problems.

1 PAYMENT OF FINDER’S FEES

The Securities Exchange Act of 1934 (the “Exchange Act”) requires most brokers or dealers to register with the SEC and to join a self-regulatory organization such as FINRA. Section

3(4) of the Exchange Act broadly defines a broker as “any person engaged in the business of effecting transactions in securities for the account of others.”

Section 3(5) of the Exchange Act defines a dealer as “any person engaged in the business of buying and selling

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securities for his own account through a broker or otherwise.”

Private equity firms are often approached by individuals or organizations who are not registered with a self-regulatory organization to source investments and raise capital in exchange for a “success fee” payable upon closing of the sourced investment.

Per Section 15(a)(1) of the Exchange Act, it is unlawful for any person to “effect a transaction in securities” or to “induce the purchase or sale of” any security other than through a broker or dealer registered Kern under an SRO. Section 29(b) of the Exchange Act renders voidable every contract entered into in violation of the above-referenced broker-dealer registration requirements and Stefanik gives the investor the right to rescind its purchase of securities.

Private equity firms should be cautious when working with employees or other unregistered persons in connection with solicitations for investor capital.

ULMER.COM

Private equity firms often concentrate investment in a specific industry. In the M&A context, this industry-specific focus has the potential to implicate U.S. anti-trust laws, including Section 1 of the Sherman Act, which generally prohibits the exchange of competitively sensitive information (including pricing and cost information) among competitors.

A private equity firm must take documented precautions to avoid violating the Sherman Act when acquiring a competitor of one or more of its portfolio companies. Of course, any such precautions must be weighed against the need to conduct proper due diligence — a legitimate business concern for the buyer.

In order to reduce the risk of violating antitrust laws, a confidentiality agreement prohibiting use of any disclosed information must be in place prior to disclosure. Furthermore, such agreement should limit internal disclosure of pricing and cost information to individuals who are not involved in establishing pricing of competitive products or services. The information exchanged should be provided in summary format, or at least sanitized (to the extent possible) to remove commercially identifying information.

Additionally, a “clean team” agreement should be considered to permit disclosure of commercially sensitive information for confirmatory due diligence only to third-party consultants, including accountants CONTINUED ON NEXT PAGE

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Market dynamics tilt deal favor toward seller

By ALBERT D. MELCHIORRE and MATTHEW M. SWEET

T

he M&A markets are dynamic and constantly evolving.

These trends continue to have implications for buyers and sellers. It is particularly important that business owners understand these trends to prepare themselves for a successful transaction.

From a global perspective, transaction volumes have decreased and are now below the fiveyear average, while cross-border transactions continue to make up 20% to 25% of global deal flow.

CONTINUED FROM PREVIOUS PAGE

and investment bankers. If absolutely necessary, the agreement may also apply to employees who do not provide any input on pricing or costing of competitive products or services, and in each case who agree to be bound by the restrictive terms of that agreement. Finally, disclosure of commercially sensitive information could be withheld and used as part of confirmatory due diligence

U.S. companies have shifted their attention to targets in Europe, the Middle East and Asia, with dollar flow into the regions increasing over 20% during the last 12 months. Global valuations have surged to 14.1x EBITDA, forcing buyers to pay a premium in order to get deals done. Melchiorre Domestically, valuations have surged as well. Solid earnings have propelled public equity markets to all-time highs. Strategic buyers have amassed record amounts of cash on their balance sheets, with the S&P 500

non-financial companies holding more than $1.6 trillion in cash alone.

Private equity in the U.S. continues to grow, with the number of buyout funds and overall “dry powder,” or uninvested capital, increasing significantly in recent years to over $600 billion. PriSweet vate equity fundraising, in particular, has grown due to private equity’s long-term outperformance of most other asset classes.

Competition for deals is high.

Transaction multiples have surged, with middle-market EBITDA multi-

ples increasing an entire turn over the last 12 months.

Buyers have taken a modified approach to the deal process to remain competitive. Buyers who elect to participate in competitive sales or marketing processes are conducting meaningful due diligence even before an indication of interest is due, with the hope of identifying growth opportunities that can be factored into an offer, potentially boosting the offer price.

They are getting more creative to get deals done, often bridging gaps in the purchase price with a combination of seller financing or earnouts.

As buyers continue to struggle

to find businesses to acquire, banks continue to aggressively support quality companies. The economy remains strong. Valuations have risen to records levels. There are a number of baby boomers who are looking to transition their businesses. Both domestically and internationally, it is a great time to be a seller and a challenging time to be a buyer.

immediately prior to the closing, while remaining subject to confidentiality.

In addition to criminal prosecution, a violation of the Sherman Act may result in treble damages.

directors to the boards of competitors, or from having the same directors sitting on the boards of competitors. Subject to statutory exceptions related to industry, capital and sales, Section 8 of the Clayton Act provides that “[n]o person shall, at the same time, serve as a director or officer in any two corporations ... that are (a) engaged in whole or in part in commerce; and (b) by virtue of their businesses and locates of operation, competitors, so that the elimination of competition by agreement between

them would constitute a violation of the antitrust laws.”

Section 8 of the Clayton Act is interpreted as prohibiting any “firm” from appointing the same or different individuals to sit as its agents on the board of directors of two competitors.

A violation of Section 8 of the Clayton Act is a strict liability offense, so a private equity firm’s intent in appointing directors is not relevant. A violation of Section 8 of the Clayton Act may result in treble damages.

While these issues do not arise in all M&A transactions involving private equity firms, they do arise frequently enough that they merit serious consideration.

3

INTERLOCKING DIRECTORS

When acquiring a competitive entity, private equity firms must be aware of potential violations of the Clayton Act that may arise from their power to appoint

Albert D. Melchiorre is president of MelCap Partners. Contact him at 330-239-1990 or al@melcap.com.

Matthew M. Sweet is an associate at MelCap Partners. Contact him at 330-239-1990.

David Kern and Jon Stefanik are partners in the Business Practice Group at Buckingham, Doolittle & Burroughs LLC. Contact David at 330-258-6489 or dkern@bdblaw.com.

Contact Jon at 330-643-0209 or jstefanik@bdblaw.com.

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Be strategic when evaluating path to a successful business transition

By SCOTT MCRILL

A

s the baby boomer generation ages and the Gen Xers and millennials come of age and go off to do their own thing, many businesses owned by boomers are left without a natural successor. Many of these business owners are finding that their children and grandchildren do not want to take over the family business.

The good news for them is that McRill there are many other options. But no matter what type of change an owner decides to embark on, planning well

in advance is the key to a successful transition of the business. The following is an outline of steps to take when considering a sale or transition of your business.

Take a long look in the mirror.

Are you truly ready, emotionally, to let go of the business? It has been your baby for years, so it’s understandable why it may be difficult to cede control and let someone else run the business.

Make sure you have taken stock of what you will do in terms of hobbies or other interests to fill the void after letting go of the business. Too often, sellers think they are ready to let go but struggle to pull the trigger when the time comes. This can result in frustration, wasted time and money, and can

be a huge distraction to the business.

Determine what you “need” for the business, not what you “want” for the business. Many sellers launch into the process of selling their business with a desired purchase price in mind.

Often, however, those sellers have no idea if that sale price will be sufficient to fund their retirement and other plans after the sale. Before taking a business to market, the owner should take stock of their entire personal balance sheet, including all assets and liabilities outside the business, and future cash flow needs.

A professional wealth adviser should be engaged to guide the owner through development of a complete retirement plan. Be clear about what goals and

desires you have for retirement, such as a second home, education for children or grandchildren, travel or bequests to charity.

Once the full picture is put together, the business owner can determine how much they “need” to sell the business for in order to achieve their goals. That number may differ from what they “want” for the business or what it is truly worth today.

Do the right homework to determine what the business is currently worth. Now that you know what you need to get from the sale of the business, it’s time to take stock of the current state of the business and get a realistic professional view of what it’s worth. Many business owners rely on their gut feel or a “country club” value, based on nothing more than conversations with other business owners at “the club” who recently sold businesses. This is a risky approach and may not be realistic.

The owner should consider engaging investment banking, transaction advisory or valuation professionals to analyze the numbers through a quality of earnings effort — at least at a fairly high level — to put a rough box around the cash flow potential and therefore the rough value of the business today. Having a realistic view of current value is key to a successful transition.

The current value falls short of my “need.” Now what? Although disappointing to learn, it is certainly better to know if the value falls short before embarking on a full-blown sale process, rather than after a failed transaction. The owner can now focus

on internal efforts to grow revenue and profitability, which will enhance the future value of the business.

The owner may also consider turning the tables and seeking out acquisition targets to expand the business’ product line offerings or geographic reach. This extra time will also allow the owner to prepare well in advance of the actual sale.

These preparations may include cleaning up historical books and records; building a base of externally prepared, audited or reviewed financial statements; and building data-supported projections with deeper details of revenue and profitability by product and customer.

This information will be important when it is time to go to market.

The current value of the business meets my “need.” Now that you know the value meets your need, and you are emotionally ready to sell, you can move full steam ahead.

At this stage, it is important for owners to surround themselves with the right team of professional advisers to achieve a successful transaction. This team should include an investment banking firm to market the business, a transaction advisory services team to perform quality of earnings work on the business and add deeper credibility to the numbers presented by the investment bankers, an experienced M&A attorney and a tax adviser.

With thoughtful reflection, a clear goal, an accurate valuation and a solid team, you’ll be well prepared to transition your business and step into your new role as “former owner.”

Scott McRill is a shareholder in the Private Equity and Transaction Advisory Services Practice at Clark Schaefer Hackett.

Contact him at 216-526-8125 or slmcrill@cshco.com.

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

SELL-SIDE ADVISORY | BUY-SIDE ADVISORY | VALUATIONS Copper Run Capital LLC | 614-888-1786 | Copperruncap.com

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Private equity continues to evolve T

he Riverside Co. has seen a lot of change in private equity since our founding nearly 30 years ago. Part of that change has been seeing some of the things we did become much more common and even necessary for success in this increasingly competitive and challenging environment.

We see modern economics founder Adam Smith’s invisible hand at work, guided by demanding limited partners as well as sellers. Kohl Today, it is not enough to just bring financial capital — it must be married with intellectual capital.

As a result, only the best private equity firms will survive and thrive.

The days of relatively easy money and virtually guaranteed returns are long gone. Success today demands sophisticated systems, processes and professionals. That’s especially

true in today’s very competitive environment, which has increasing compliance requirements, strong competition from within private equity and other alternative asset classes, and very high purchaseprice multiples in well intermediated markets awash in liquidity.

Here are some key areas where private equity has adapted and become better in recent years:

GLOBALIZATION

When Riverside was founded in 1988, dealmaking was largely confined to the U.S. The European market outside of the UK was in its infancy, and private equity was almost unheard of in the Asia-Pacific region. Today, being global is becoming a prerequisite for success. Even if you’re only working on North American deals, you need to be able to understand, tap and access markets across the world.

Private equity firms have learned to capture opportunities wherever they may be, using global resources and connections to help them grow.

‘‘

With locals on the ground in different countries looking to source deals, reach and help operate companies in which they invest, successful private equity firms have adopted a “glocal” mindset.

We consider global markets and international competition when investigating industries and companies with which to partner. With locals on the ground in different countries looking to source deals, reach and help operate companies in which they invest, successful private equity firms have adopted a “glocal” mindset.

OPERATING

SPECIALIZATIONS

Firms like Riverside can no longer say “we don’t do technology deals.”

Today, every entity in some way is a technology company, and any industry could be impacted tomorrow by the likes of Amazon, artificial intelligence, robotics and big data.

Only a few years ago, we might have said that a New York City taxi

At our founding, we considered ourselves a generalist firm and that is still in our DNA. However, to succeed today you must have deep industry expertise in order to pick the winners, recognize patterns, add value during ownership and avoid adverse selection to stay relevant and succeed.

Gone are the days of buying a great company and hoping it keeps growing.

Today’s private equity firms are much more hands-on, lending expertise and talent to help companies fundamentally improve so they can sustainably grow more quickly.

TECHNOLOGY

‘‘

By STEWART KOHL

medallion is a “safe investment.”

Then along comes Uber and Lyft, and the value plummets by over 80% in four years.

EXPECT MORE CHANGE

These are just a handful of trends in private equity, which we expect to keep changing as the world keeps spinning and moving forward faster and faster. Nimble, clever and proven firms will capitalize on these changes and continue to fill the demand for this rewarding investment option.

Stewart Kohl is co-CEO of The Riverside Co. Contact him at 216-344-1040 or info@riversidecompany.com.

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Mitigating risk in M&A transactions

Strategies to protect buyers, sellers from unforeseen setbacks

By JACOB B. DERENTHAL

P

articipants in merger and acquisition transactions all tell you they intend to mitigate risk.

But in a marketplace with aggressive timelines and competition, too often deals close without parties taking simple precautions.

M&A risk broadly falls into three categories: financial, operational and legal. These concerns are different and sometimes directly contradictory when viewed by sellers and purchasers.

Sellers want to avoid overpaying and limit business disruption while maximizing strategic and operational

synergies. Buyers look to maximize returns, limit post-closing liability, and provide that employees, customers and other stakeholders are treated fairly by new management.

The best remedy is always due diligence. Sellers who fail to conduct internal diligence risk re-pricing before closing and are more likely to suffer indemnification claims after closing. Sellers should also review buyer backgrounds to verify adequate resources to complete the transaction and confirm a history of fulfilling promises made during negotiations.

Purchasers who implement a rigorous diligence process can avoid

buyer’s remorse. Buyers commonly perform a deep dive into financial data but miss operational, cultural or personnel issues that, in hindsight, made a transaction unwise.

Allowing counsel to review legal diligence can similarly uncover non-balance sheet liabilities in time to Derenthal negotiate pricing, increase escrows or walk away from the deal.

In all M&A deals, parties should analyze insurance coverage to determine if adequate protection exists. Often businesses have not increased legacy

limits to reflect recent growth or failed to add necessary coverage types. Even when existing coverage is appropriate, the purchase of “tail policies” or representation and warranty insurance specific to the deal may be needed.

With advice from deal professionals, it is possible to further reduce risk through transaction structure and agreement terms.

For example, buyers typically prefer to acquire assets rather than equity to avoid unknown liabilities but need to consider if such structure prohibits the transfer of material contracts and permits. Holdbacks, escrows, seller financing and earnouts provide purchasers with added comfort in knowing that a portion of their

purchase price remains available to pay for unknown liabilities. Sellers can limit downside risk by including materiality and knowledge qualifiers, and indemnification baskets, caps and time limitations.

Remember, specialists should always be consulted to review tax implications. As is typical in business, the ultimate takeaway is that owners and management who plan ahead have a variety of tools to minimize M&A transaction risk.

Jacob B. Derenthal is a partner in the Corporate Transactions Practice Group of Walter | Haverfield.

Contact him at 216-781-1212 or jderenthal@walterhav.com.

Don’t let due diligence deflect from the deal of a lifetime

By CHRISTAL CONTINI and EMILY JOHNSON

F

or many small business owners, founders and management teams, selling their business is a once-in-a lifetime transaction. Most have spent years focused on managing and growing their business — not on

the task of selling.

When it is time to sell, though, it is important to be prepared for the buyer’s due diligence investigation.

During the due Contini diligence phase of a sale transaction, a buyer will seek to

Johnson

documents

identify and evaluate the value proposition and risk factors associated with the target business. A buyer will request that a seller locate and assemble numerous and information about

Aon Risk Solutions

the business, including confidential information about its financial status, customers and suppliers, employees, strategy, price lists, and sales and marketing data. A buyer may also request that a seller provide personally identifiable information.

Personally identifiable information is defined by state law, but generally includes any information that can be used to identify, contact or locate an individual, either alone or in combination with other sources. It includes, but is not limited to, Social Security numbers, driver’s license numbers, credit and debit card numbers, passport numbers, bank account information, date of birth, medical information, biometric data such as fingerprints, mother’s maiden

name, and e-mail or username in combination with password or security question and answer.

Before any confidential information is shared with a buyer, a seller should understand the following key strategies to ensure that missteps during the due diligence phase do not detract from a lifetime of building a valuable business:

EXECUTE A PROPER 1 CONFIDENTIALITY AGREEMENT BEFORE

SHARING ANY INFORMATION.

Most business owners have a standard confidentiality agreement they use in the ordinary course of dealing with CONTINUED ON NEXT PAGE

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vendors and customers. This is not the time to use this document. The sale of a business requires a customized confidentiality agreement that addresses topics which may not be in a standard agreement. For example, if the potential buyer is a competitor, a seller may want to include tailored non-solicitation of employees and customers disclosed during the due diligence phase.

The confidentiality agreement should also address safeguarding any personally identifiable information disclosed during due diligence.

“Confidential information” should be defined to include personally identifiable information and protected health information if due diligence involves disclosure of protected health information. When representing the disclosing party and where possible, the receiving party should be obligated to indemnify the disclosing party for any unauthorized disclosures of personally identifiable information.

‘‘

Only disclose the minimum amount of identifiable information necessary to enable the parties to conduct due diligence.

an unauthorized manner, which could impact the value of the transaction.

THE BUSINESS 4 KNOW BETTER THAN THE BUYER.

A potential buyer of a business will engage its internal management team and

external lawyers and accountants to review every aspect of the target business.

Before this occurs, the seller should have its own team vet the business so that the seller can be prepared to respond to questions and disclose any issues that a buyer may find.

‘‘

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January 22, 2018 S19

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The due diligence phase of a sale transaction is often the time when a buyer decides and/or confirms how much it will pay for the target business.

Business owners who employ the above strategies and engage a competent team of advisers will be better prepared to

maximize the value of the business they have spent a lifetime building.

Christal Contini is a member and cochair of the Mergers and Acquisitions Practice Group at McDonald Hopkins LLC. Contact her at 216-430-2020 or ccontini@mcdonaldhopkins.com.

Emily Johnson is an associate in the Healthcare and Data Privacy and Cybersecurity Practice groups.

Contact her at 312-642-1798 or ejohnson@mcdonaldhopkins.com.

DUE DILIGENCE 2 PROVIDE RESPONSES IN STAGES.

Often, business owners take the approach of responding quickly and openly about requests for information because they believe they run a good business and do not have anything to hide. While this may be true, it is customary and reasonable that a seller provides in stages its responses to questions asked during the due diligence process. The rationale for taking this approach is that a buyer is not obligated to purchase the business until a definitive purchase agreement is executed.

Therefore, a seller should only provide “high-level” information about its business at the beginning of the process and save detailed responses until after the buyer has demonstrated a commitment to buy the business by either preparing a letter of intent or drafting a definitive purchase agreement.

DO NOT OVER 3 DISCLOSE PERSONALLY IDENTIFIABLE INFORMATION.

Only disclose the minimum amount of identifiable information necessary to enable the parties to conduct due diligence. This is particularly true if the due diligence phase will include disclosure of protected health information.

If a particular document contains more information than necessary, the document should be redacted to remove any unnecessary information.

For example, if employment contracts are disclosed that include the employee’s name, date of birth or Social Security number, and the purpose of reviewing the employment contracts is to review the language of the agreement irrespective of the identity of the individual employee bound by the agreement, then any identifiable information should be redacted from the agreement.

Failure to disclose only the minimum information necessary can trigger substantial notification obligations in the event the information is disclosed in

Make the mark.

Serving more than 900 private equity and portfolio companies nationwide From evaluating investments and closing transactions, to mapping out a value-creation plan and exiting successfully, we’re focused on your success. We provide expertise throughout the investment lifecycle.

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Joseph Adams, Partner joseph.adams@plantemoran.com

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Championship-caliber dealmakers understand the language of business

By CHRISTOPHER J. HEWITT and JAYNE E. JUVAN

A

s LeBron James has certainly witnessed this season with the subpar start by the Cavs, building a team that includes the right players who understand the game on all levels is critical to cultivating a winning ball club.

LeBron is regularly touted as being a player with a high basketball IQ, and his comprehensive understanding of the language of basketball Hewitt has led to three NBA championships, three NBA Finals MVP awards and four NBA MVP awards.

Similarly, in the context of corporate transactions, making sure that attorneys on the deal team have the capacity to understand the language of

business, or lingua negoti, is critical to accomplishing a client’s objectives.

Lawyers who understand business on all levels ensure that corporate transactions close and help their clients accomplish their goals with skillful precision. Conversely, the absence of business-savvy attorneys on a deal team can become an impediment to closing the deal.

From the perspective of most business people, many attorneys tend to speak in legalese — the formal and Juvan technical language of law that is often hard to understand. But understanding the language of business means more than having a common vernacular.

It also encompasses understanding how business people approach and solve problems.

Understanding the language of business requires an intelligent approach to due diligence in M&A transactions. Legal due diligence should focus not only on identifying issues that need to be solved to close the deal, but also on identifying issues that may inhibit effective integration of the acquired company. The latter is often overlooked and is more likely to drive return on investment.

For the former, lawyers need to focus on the diligence items that are most material and, when undesirable facts are discovered, be creative in order to minimize their impact on the closing.

The language of business requires listening to clients to gain an understanding of the issues that are most important to them. In some instances, lawyers will negotiate hard for issues that their clients have less concern over, yet neglect or be entirely unaware of other issues that impact

the business. Lawyers who understand their clients’ priorities can assist with advance planning that addresses these issues before the deal closes.

The language of business requires experienced judgment. Many business decisions move at the speed of light. Business clients are constantly asking their legal counsel to answer questions or provide guidance based on their experience and judgment, even when the available information may be imperfect. Experienced legal counsel do not shy away from these opportunities and can be a real value-add to the client by providing insight in real time.

The language of business requires succinct and clear answers.

Businesspeople usually want a yes or no answer. Especially in the fastpaced M&A context, nothing is more frustrating to a businessperson than to ask a question that should require a simple yes or no answer only to

receive an incomprehensible 10-page memorandum that asks more questions than it answers. Even if the advice requires some explanation, busy executives expect a succinct executive summary that clearly provides an answer, possibly followed by a more robust explanation that the executive can read if she so chooses.

The language of business requires legal counsel to understand their clients’ operations. Reviewing websites for most companies can provide a trove of information on their products, customers, core values, business philosophy and almost all aspects of their business. In addition, public company clients have robust disclosure in their federal securities filings about matters that would not be included on their websites. Being equipped with this level of detail can help lawyers work with their clients to identify the most important objectives in a transaction.

Understanding the language of business can help source opportunities for clients. The amount of dry powder chasing deals is staggering. With all the cash in private CONTINUED ON NEXT PAGE

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

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

Congratulations to all 2018 ACG Cleveland Deal Maker Award honorees!

Cleveland | Columbus | Cincinnati | Washington, D.C. | Calfee.com

©2017 Calfee, Halter & Griswold LLP. All Rights Reserved. 1405 East Sixth Street, Cleveland, OH 44114

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Business-savvy deal lawyers do not focus on keeping score of deal points won or lost.

CONTINUED FROM PREVIOUS PAGE

equity funds, in family offices and on company balance sheets, together with even a minimal amount of leverage, there is over $10 trillion on the sidelines looking to be deployed.

Attorneys who understand their clients’ businesses and the industries in which they operate by keeping abreast of trends, reading trade publications and attending events are the best dealmakers because they can help clients identify proprietary buying opportunities. On the sell side, these attorneys can help clients find strategic buyers to maximize sales price.

Understanding the language of business can help deal professionals of all types get their deals closed. Business-savvy deal lawyers do not focus on keeping score of deal points won or lost.

Rather, they focus on whether

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January 22, 2018 S21

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a provision makes sense in the context of the transaction and, on the buy side, how the acquired business strategically fits into the client’s existing business.

Just as LeBron needs to surround himself with teammates who have a high IQ for the game, lawyers who understand the language of business are critically important when building a championship-caliber deal team.

Christopher J. Hewitt is a partner, M&A Group chair and Corporate Governance Group co-chair at Tucker Ellis LLP. Contact him at 216-696-2691 or christopher. hewitt@tuckerellis.com.

Jayne E. Juvan is a partner, Private Equity Group chair and Corporate Governance Group co-chair at Tucker Ellis LLP. Contact her at 216-696-5677 or jayne.juvan@tuckerellis.com.

Making earnouts work

A carefully constructed arrangement can increase value of business

By JAMES D. VAIL and JAMES M. GIANFAGNA

I

n the sale of a business, an earnout entitles a seller to additional purchase price if the target business meets certain post-closing benchmarks. The benchmarks are usually based on the target’s financial performance — generally revenue, gross profit or EBITDA. Earnouts can bridge a difference in the value each party attributes to the target business. Thus, the buyer pays a fixed price at closing, with future additional proceeds if certain Vail benchmarks are met.

Earnouts are unsecured promises to pay. Usually buyers can better finance litigation if a dispute arises. Sellers should recognize these risks by limiting

the percentage of purchase price represented by the earnout, doing appropriate due diligence and drafting carefully.

Here are some issues to consider:

1

Learn (from the buyer, your investment banker or independently) about the buyer’s track record for paying earnouts.

2

Choose a benchmark appropriate for your transaction, preferably one over which you have control and one that is not easily manipulated by the buyer.

3 4

Keep the earnout period short.

You may face less risk if your Gianfagna deal is part of a rollup.

You may learn how the buyer treated previous sellers. And buyers in a rollup want to avoid a reputation of not paying earnouts because they will have

difficulty finding future sellers.

5

Measuring post-closing performance is easier if the target business remains a stand-alone division, rather than merging into the buyer’s business.

6

Owners of the seller who become employees of the buyer post-closing typically have some control over the target’s operation and knowledge of its post-closing performance.

7 8

Consider liquidated damages if the buyer itself may be sold before the earnout period expires.

Ensure you get documentation supporting the buyer’s earnout calculation.

Earnouts can increase a business’s value, but involve risk and must be crafted carefully.

James D. Vail is managing partner at Schneider Smeltz Spieth Bell. Contact him at 216-696-4200 or jvail@sssblaw.com. James M. Gianfagna is an associate at Schneider Smeltz Spieth Bell. Contact him at 216-696-4200 or jgianfagna@sssb-law.com.

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Managing risk and liabilities as global M&A grows

By JEFF SCHWAB

T

homson Reuters reported worldwide dealmaking grew 12% in the first quarter of 2017 over the same quarter in 2016, to $777.7 billion. The number of deals in the same time fell 9%. Fewer deals, with larger dollar amounts, result in increased pressure and risks that are more complex.

From a risk advisory perspective, earlier involvement is the No. 1 best practice. Making your risk management

and benefits advisers early members of the M&A team allows your team to examine, understand and find solutions for risks in categories that can slow or mitigate a deal.

Best practices involve products and services that protect the buyer and seller.

Comprehensive dil- Schwab igence, including data analytics, can uncover material issues, such as identifying and managing an undisclosed

self-funded medical plan and finding an insurance arrangement that enables a smooth transaction.

We see representations and warranties insurance in almost every significant transaction. Protecting buyers from breaches or inaccuracies in the statements made in the purchase agreement, representations and warranties also benefit sellers through faster deal closing.

Other services and products, such as tax liability protection and contingent liabilities, are long-

standing best practices used to protect buyers by transferring risk and covering unique circumstances such as unforeseen taxes, indemnifications and successor liabilities.

In addition, environmental insurance, vital in many industries beyond manufacturing, is an area almost always worth review.

Beyond standard best-practice insurance products, we see many applications for cyber and privacy liability coverages, and review existing coverage and exposures due to

sensitive and proprietary information.

Experience matters when it comes to navigating your deals. Choose risk consultant and employee benefit advisers who understand all areas of M&A, and can help you find the best practice solutions that meet your needs today and grow together with you to tackle the risks around the corner.

Jeff Schwab is a senior vice president and director of Private Equity Services at Oswald Cos. Contact him at 216-658-5208.

Enlist a buy-side adviser to gain the advantage

By DAVID PEASE

M

ergers and acquisitions represent a key strategic growth tool for business owners and executives in today’s business environment. Given the desire and popularity for growth by using this approach, opportunities to acquire targets have become increasingly more difficult to source in a competitive climate with a growing number of strategic and financial buyers looking to place available capital. Now

more than ever, investors in businesses in the mid- to large-sized markets are looking to leadership teams to complete acquisitions to help fuel growth and ultimately increase the value of their stock.

So, what does the typical company do once it decides that growth through acquisition is in its strategic plan? Of the various ways to find acquisition opportunities, there are two main methods to source and complete a deal.

The first method is to identify and contact companies in a targeted

industry. The second method is to look for investment bank deals that are put through an auction process.

Both methods can provide success, but have their set of challenges that can be difficult to navigate without the proper experience, resources and guidance.

The first method starts by the acquiring company reaching out directly to known companies within a targeted industry. After a company reaches out to known acquisition targets and is unsuccessful in closing a deal,

TMA Ohio Chapter announces 2017 award winner!

Alan R. Lepene, Thompson Hine LLP, winner of the 2017 Lifetime Achievement Award, pictured with Mark Kozel, TMA Ohio Chapter President.

We thank Alan for his leadership and the contributions he has made both in the turnaround industry and our community.

it will have to find and identify new acquisition targets. Most companies will find it difficult to uncover and engage additional targets, as well as devote the proper time needed.

It tends to be easier to source and have success with this approach — outside of using an adviser — when the buyer is visible and well-known to the market. Sellers tend to view wellknown companies more favorably because of their perceived ability to offer a significant exit. Well-known companies are more attractive to the prospective buyers, which makes the acquisition search process easier.

Lesser-known companies do not have this advantage.

They will proba- Pease bly have to go through a lengthier, time-consuming process to find and identify acquisition targets beyond the known ones. A buy-side firm can help bring value to the process. Relying on the expertise and experience of a buyside firm’s ability to manage the acquisition search process can be key to the ultimate success of the search.

The second method companies use to identify target opportunities is contacting sell-side investment banking firms. Sellside focused investment banking firms put their clients through a competitive auction process. It can be difficult to get a deal done when the buyer enters the auction process to acquire the target because the buyer has to compete against other attractive buyers.

Other buyers can be difficult to compete against and may be able to move through the initial diligence process faster, allowing them to offer a higher multiple of earnings. Additionally, this may also lead the prospective buyer to overpay for the target because of the competitive bidding nature of the auction process. In contrast, when a buyer purchases a target in a proprietary deal, the buyer will typically pay a lower multiple of earnings than they would in an auction process. The likelihood of a deal reaching the closing stage, given

the auction process, is significantly diminished.

Searching for deals primarily in the auction market, as opposed to using a buy-side adviser who can run a process that results in proprietary opportunities, will increase the buyer’s odds of paying a higher premium for the target company. The ability to speak to attractive targets, when no other prospective buyer is, can be very valuable for the buyer at closing.

That ultimately leads to success when measuring the results of your acquisition goals.

Because of the challenges presented by the two main methods to source and complete an acquisition, engaging a qualified buy-side adviser as a professional intermediary is usually the most proactive way for a prospective buyer to be successful in acquiring the target company. In these situations, the buyer engages the adviser to execute a comprehensive buy-side process for identifying and facilitating the successful closing of one or more transactions.

It is important to understand a buyside firm’s methods and tactics while managing the search process. You will want to know how they will execute a search process that is measurable and backed by the performance statistics of the firm. This will ultimately lead to a successful engagement.

Additionally, you may also want to find an adviser who not only is an expert in closing transactions from a deal prospective, but from the tax side as well. If your adviser understands deal structure and how post-transaction taxes can affect the seller, there may be an alternative deal structure that helps increase the amount made by the seller, without increasing the purchase price.

Using a buy-side adviser to help with your acquisition growth goals can be a very smart strategic decision that will lead to a successful result.

David Pease is vice president at Pease Acquisition Advisors.

Contact him at 216-472-4455 or dpease@peaseacq.com.

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NORTHEAST OHIO’S LEADING DEAL MAKERS TO BE HONORED Park Place Technologies

ACG Cleveland, Northeast Ohio’s leading organization for merger and acquisition and corporate growth professionals, will recognize the winners of its 22nd Annual Deal Maker Awards at 5:30 p.m. Thursday, Jan. 25, at the Hilton Cleveland Downtown.

Private Company Category

Park Place Technologies is a global leader in third-party hardware maintenance and service. It provides an alternative to postwarranty storage, server and networking hardware maintenance for IT data centers. Acquisitions have played an important role in Park Place’s rapid growth. Over the past year, the company has made six acquisitions, enabling it to increase its client base, broaden service offerings, improve customer support, streamline operations and expand its geographic reach both domestically and in international markets.

The Deal Maker Awards are a tribute to Northeast Ohio’s preeminent corporate deal makers for their accomplishments in using acquisitions, divestitures, financings and other transactions to fuel sustainable growth. The 2018 winners are:

Blue Point Capital Partners

Parker Hannifin Corp.

Private Equity Category

Deal of the Year

Parker Hannifin is a global manufacturer of motion and control technologies and systems. In 2017, the company completed its largest transaction ever with the acquisition of filtration products manufacturer CLARCOR Inc. It acquired CLARCOR for $4.3 billion in cash, including the assumption of net debt. The strategic transaction creates a combined organization with a comprehensive portfolio of filtration products and technologies. It can offer customers a single, streamlined source for all of their purification and separation needs. The transaction is expected to be accretive to Parker’s earnings, after adjusting for one-time costs.

Blue Point is a private equity firm that partners with entrepreneurs and management teams, investing in and growing lower-middle-market companies. The firm earned a Deal Maker Award because of the torrid pace of transactions and exceptional results it has generated for its investors. Blue Point has made 24 acquisitions, composed of four platforms and 20 add-ons, since November 2015 and has divested four portfolio companies since June 2015.

Karen Tuleta, MPE Partners

Women in Transactions Deal Maker of the Year

Nordson Corp.

Karen Tuleta is a partner with MPE Partners and has been with the firm (including its predecessor, Morgenthaler Private Equity) since 1995. She serves on all transaction deal teams and works closely with the firm’s portfolio companies to help drive their growth. Tuleta has more than 25 years of corporate finance experience and has been involved in more than 60 transactions over the course of her career. She has served on the local and global ACG boards and is currently on the ACG InterGrowth Task Force Committee. Beyond her aptitude for transactions, she has been a helpful mentor to many women in the dealmaking community, helping them to further their careers.

Public Company Category With operations in more than 30 countries, Nordson is the leader in precision dispensing, fluid management and related technologies. Since August 2014, the company has completed 10 strategic acquisitions, which added nearly $300 million in top-line growth, strong EBITDA margins, differentiated technologies and nearly 1,500 employees. In 2017 alone, it made four acquisitions, including ACE Production Technologies, InterSelect GmbH, Plas-Pak Industries Inc. and Vention Medical Advanced Technologies.

Beth Haas, Cyprium Partners Chris Hogan, KeyBanc Capital Markets

January 22, 2018 S23

GROWTH&M&A

Sponsors supporting the 2018 Deal Maker Awards include Benesch, Grant Thornton, Huntington, KeyBanc Capital Markets, Oswald Cos. and Roop & Co. Strategic Integrated Communication.

Megan Horvath, Resilience Capital Partners Jonathan Ives, SCG Partners Tom Libeg, Grant Thornton Martin McCormick, Huntington Capital Investment Co.

2018 ACG Events Calendar

For more information and to register, visit www.ACGcleveland.org

Jay Moroscak, Aon Risk Solutions

DATE

EVENT

TIME

LOCATION

Jan. 25

22nd Annual Deal Maker Awards

5:30 p.m.

Hilton Cleveland Downtown

Kevin Murphy, Deloitte

Feb. 6

Regional Networking, East | Scot Lowry, CEO, Fathom

5:30 p.m.

Cedar Creek Grille

Matt Roberts, MelCap Partners

Feb. 15

Regional Networking, Central | A.J. Petitti, President, Petitti Garden Centers

5:30 p.m.

Lockkeepers

Jeff Schwab, Oswald Cos.

Feb. 15

Young ACG Winter Social

TBD

Margaritaville

Peter Shelton, Benesch

Feb. 20

John Gordon, President, Ultimate Air (joint event with FEI)

5:00 p.m.

Union Club

Feb. 22

Regional Networking, West | Mike Malley, President, Malley’s Chocolates

5:30 p.m.

Lakewood Country Club

March 8

Laurel Stauber, Regional Economic Development, NASA

11:45 a.m.

Union Club

March 22

Young ACG Professional Development Program

TBD

TBD

May 10

New Leadership in Fortune 500 Companies

4:00 p.m.

Ritz Carlton, Cleveland

May 22

Young ACG Professional Development Program

TBD

TBD

June 12

Spring Social

5:30 p.m.

Shoreby Club

Sept. 5-6

Great Lakes Capital Connection

TBD

Marriott Indianapolis Downtown

Sept. 24

14th Annual Golf Outing

TBD

Firestone Country Club

Bertrand Smyers, New Heights Research Cheryl Strom, The Riverside Co. Theodore Wagner, Bober Markey Fedorovich William Watkins, Harris Williams & Co. Thomas Welsh, Calfee Halter & Griswold LLP Rebecca White, Kenan Advantage Group

PWC