Crain's Cleveland Business

VOL. 40, NO. 4

JANUARY 28 - FEBRUARY 3, 2019

Source Lunch

Akron Goodyear weathering bumps in difficult tire industry. Page 17

CLEVELAND BUSINESS

Robert Falls, chairman and CEO of Falls Communications Page 19

The List Largest Ohio mergers and acquisitions Page 14

A CRAIN’S SPECIAL REPORT

ONE YEAR LATER, A CLEARER VIEW OF TAX REFORM TAKES SHAPE The Tax Cuts and Jobs Act contained something that affected everyone, from corporations to parents, homeowners to nonprofits. With final regulations now in place, investors are moving forward on new Opportunity Zones in low-income urban and rural areas. While banks are passing generally strong earnings, based in part on lower tax rates, on to shareholders, it’s not all good news. And hospitals face challenges on a host of fronts thanks to changes in the tax laws. Crain’s takes a look at some of the areas where tax reform is helping so far – and where it may hurt.

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ILLUSTRATION BY SUJAIMAGES2

FINANCE

HEALTH CARE

Shutdown shuts out small business Work requirements likely Would-be SBA loan borrowers struggle for capital, inventory

to shrink Medicaid rolls

By Jeremy Nobile

By Lydia Coutré

jnobile@crain.com @JeremyNobile

As the longest federal shutdown in history dragged on, prior to a deal Jan. 25 that reopened shuttered departments for three weeks, small business-

es seeking out government-backed loans through the U.S. Small Business Administration’s flagship 7(a) and 504 loan programs were left in the lurch.

That’s caused struggles for wouldbe borrowers. Some lenders — who spoke with Crain’s on background because of the political nature of the shutdown — said that in worst-case

Entire contents © 2019 by Crain Communications Inc.

scenarios, it may lead to some businesses eventually failing altogether.

One banker referenced a seasonal apparel company seeking an SBA loan to ultimately help it build up inventory for the spring season.

“If you’re selling a product retail and you can’t obtain that inventory, then you effectively don’t have a business,” the banker said. “If they don’t get access to capital and can’t purchase in the right time frame, they’re going to miss their season. There is a chance that could put them out of business.”

The SBA approved more than 66,000 loans in the 7(a) and 504 loan programs in fiscal year 2018, amounting to more than $30 billion. The SBA’s Cleveland district office approved 1,811 of those loans, totaling $453.6 million, a 5.7% increase over 2017’s levels.

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lcoutre@crain.com @LydiaCoutre

Arkansas, where people have lost Medicaid coverage following the implementation of work requirements for beneficiaries, serves as a cautionary tale to other states looking to implement such eligibility requirements, according to a report released this month from the Center on Budget and Policy Priorities (CBPP).

As the requests of states — including Ohio — to impose work requirements on Medicaid beneficiaries remain pending at the federal level, some are looking to Arkansas as an example of what could happen elsewhere.

The CBPP concluded that Medicaid work requirements “can’t be fixed.”

“The extent and speed of coverage loss may vary depending on how a state designs its policy, but every state work requirement will have the unintended conHederman sequence of taking coverage away from people who are already working or who should be exempt based on disability or other reasons,” said Judy Solomon, senior fellow at the center and author of the report.

However, Rea Hederman Jr., vice president of policy at the right-leaning think tank The Buckeye Institute in Columbus, said he strongly objects to CBPP’s conclusion that the problems cannot be fixed.

SEE MEDICAID, PAGE 18

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Solon golf course’s future again in question

By Kevin Kleps kkleps@crain.com @KevinKleps

Now in its 10th decade, it appears as if Hawthorne Valley Golf Club in Solon isn’t going to make it to its 100th birthday.

Fred Rzepka, who owns the Donald Ross-designed course at 27840 Auburn Road with his brother, Peter, said Hawthorne Valley — which is closed for the winter — isn’t going to reopen in 2019.

“It’s not going to be played by the public or anyone,” said Rzepka, who purchased the golf course in 2000.

“We’re going to maintain it for the purpose of future sales or someone who might want to do something with it.”

Rzepka said he will hire “three or four” workers to keep up the golf course in 2019.

The shutdown is the second in three years for Hawthorne Valley.

The golf course closed in February 2016, after a failed membership drive that Rzepka said wouldn’t have been profitable. Hawthorne Valley reopened in April of that year, after Rzepka struck a deal with Davey Golf, a division of the Kent-based Davey Tree Expert Co. A Davey spokesperson, however, told Crain’s in November 2018 that it chose not to renew a deal in which the company leased the property from the Rzepka brothers.

“They did not turn it around. They were there for three years, and they were struggling as well,” Fred Rzepka told Crain’s at the time.

The kitchen and dining facility on the 204-acre property — the largest piece of privately owned land in Solon — is being leased by a catering company. That deal runs until the end of 2019, Rzepka said.

What happens next, Rzepka isn’t so sure. But the owner seems hopeful someone will swoop in with an offer.

He told Crain’s in 2016 that he had no desire to develop the property.

Solon Mayor Edward Kraus said he’s had a few conversations with the owners since he was elected in November 2017.

“Long term, I don’t think we’re going to see a golf course there,” Kraus said of Hawthorne Valley. “It’s just inevitable, whether it’s two, three or five years. No one really knows. The ownership group and the city probably think alike that it’s probable that the days of the golf course are coming to an end.”

The city has a vested interest in the future of a golf course that, depending on the source, dates to 1924 (Hawthorne Valley’s website) or 1926 (the Donald Ross Society). Kraus said he will be more than willing, should Hawthorne Valley continue on its current path, to connect the Rzepka brothers with a potential buyer for Hawthorne Valley. (The Rzepkas own Bedford-based TransCon Builders.)

“There may be better uses,” Kraus said. “We’ve seen what other communities have done to large tracts.

Former golf courses have been converted to beautiful parks with walking trails that the public loves.”

The mayor mentioned the possibility of a connection between Cleveland Metroparks and Hawthorne Valley.

The Metroparks’ South Chagrin Reservation is less than 5 miles away.

“The way that I look at these things is we’re a partner,” Kraus said. “We’ll do whatever it takes. We’d love to see a great public benefit. What would the residents of the community want? We have a lot of businesses.

Maybe they would like access to a

P003_CL_20190128.indd 3

beautiful park.”

A recent example of that can be found in Geauga County. In November, the Geauga Park District purchased Wicked Woods Golf Course in Burton Township for $1.5 million.

The 180-acre parcel will be converted to a park district that includes a farmto-table restaurant.

Hawthorne Valley has operated in the red for much of the last two decades. It’s a common theme in the industry.

The most recent report from Golf Datatech, a Florida firm that compiles stats from courses, says rounds played at Northeast Ohio facilities dropped 7.9% in 2018. That figure, which is through November, follows a 2017 in which the number of rounds fell 5.9%.

Rounds played at Ohio courses

plummeted 10.5% in 2018, after a 5.8% drop the year before.

Solon has two courses — a private club (Signature of Solon Country Club) and a public facility (Grantwood Golf Course) — that are within 6 miles of Hawthorne Valley.

“There’s only so many golf courses you can have in your town,” Kraus, the Solon mayor, said.

Fred Rzepka said he’s not going to let Hawthorne Valley, once viewed as a hidden gem in local golf circles, “deteriorate” while it’s closed. He’s also open to another operator, although that seems less likely than finding a buyer at this point.

“I might change my mind and want a public course,” Rzepka said.

“But for this year, that’s what we’re going to do with it.”

Hawthorne Valley Golf Club in Solon will be closed in 2019. It’s the second shutdown for the facility in the last three years. (Contributed photo)

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Fogg plans fourth building for Bluestone Business Center

By Stan Bullard sbullard@crain.com @CrainRltywriter

Ray Fogg Corporate Properties tried something new at its third building in Euclid’s Bluestone Business Center. It didn’t work out as planned, as a structure designed to accommodate multiple small tenants recently was gobbled up by one big tenant that leased the entire place.

“Shows what we know,” said Ray Fogg Jr., CEO of the Brooklyn Heightsbased real estate owner-operator and its sister industrial constructing contracting concern. So Fogg this year plans to clone the 78,000-square-foot Bluestone III next door on Bluestone Boulevard with Bluestone IV. Construction will begin as soon as winter weather begins to break in late February, with a target of being finished by fall.

Like the other four industrial buildings at Bluestone Business Center, Fogg will start the building on a speculative basis, a riskier approach than showing plans to prospects until one or more commit to the property.

“That model has served us well at this park,” said Fogg, whose company has industrial and office properties throughout Northeast Ohio. “We’ve managed to lease each of the buildings in the park relatively soon.”

With the smaller, 75,000-squarefoot design, space in the building can be parceled out among tenants in the 20,000-square-foot range and smaller without creating long bowling alley-style units. The first two buildings were more than 120,000 square feet in size.

Ray Fogg Corporate Properties plans to build Bluestone IV, a mirror image of the third building at Bluestone Business Park in Euclid. (Contributed photo)

The rapid launch of the next building is due to both the appetite of the Northeast Ohio industrial market for space and Fogg’s experience in Euclid.

Last fall, the third building was leased by Euclid-based Lincoln Electric Co. Fogg said his company had another prospect vying for the building as well, and other prospects. He would not say how much it will cost to build the encore building.

Such success was not certain when Fogg launched the 130-acre park in 2009 on a site where a massive World War II-era manufacturing plant had been demolished.

“Initially, it was a real roll of the dice,” recalled Don Bain Jr., an executive vice president in the Cleveland industrial unit of the JLL brokerage.

“The site is so near Lake Erie. That might have put off some tenants, but that hasn’t been the case.”

Even though Northeast Ohio is a well-established industrial market with good highway access, the scarcity of building-ready land meant the area had little track record for recent industrial development, Bain said. The outlook also changed with an Amazon fulfillment center nearing completion on the other side of East 220th Street.

That 600,000-square-foot building went in on the site formerly occupied by long-ailing Euclid Square Mall.

Even with multiple large warehouse projects rising and recently completed in the region — JLL estimates Northeast Ohio industrial construction is at its highest level in the last 20 years — Bain sees little risk of overbuilding in the near term. Other, more popular distribution markets, such as Indianapolis and Columbus, have much busier industrial building activity, with national developers rushing to build 400,000-square-foot properties.

That’s not the case in the Cleveland area, where few out-of-town developers are at work and local developers don’t have to gamble the way national players do, Bain said.

“There’s no one industry driving demand here,” he added. “There’s competition for space and (rent) rates are gradually going up. Near-term, additional space won’t be a problem.”

For Fogg’s part, he said he’s been surprised manufacturers have not been customers for production plants at Bluestone. The site is in a federally designated Opportunity Zone, which means that investments in businesses or real estate there can provide shelter from capital gains under the most recent federal tax law.

“That is an additional incentive for companies to locate there, “ Fogg said. ”It may help us get more manufacturing in the park.”

American Greetings puts Westlake HQ on the market

By Stan Bullard sbullard@crain.com @CrainRltywriter

American Greetings Corp.’s world headquarters in Westlake is not yet 3 years old, but the massive five-floor complex at the south end of the Crocker Park mixed-use center is up for sale.

With a market value for Cuyahoga County property tax purposes of $95 million, the marketing of the property that the personal expressions maker calls its “Creative Studios” is being handled by Dallas-based Holliday Fenoglio Fowler LP. American Greetings has a lease in place for the two-building complex through 2031, so it’s being peddled as a potential sale-lease transaction, a current darling in realty investment circles. There is no stated asking price for the structure.

Don’t worry about the company with more than 1,000 jobs exiting the property: The value of the real estate is more in the rent the company will pay in the future than in its physical presence.

Patrice Molnar, American Greetings communications director, said in an emailed statement it’s business as usual for the maker and seller of greeting cards, wrapping paper and related products.

“The Weiss family has always owned the real estate,” the statement said, referring to the company’s

founding family, which sold a 60% stake — estimated by outside sources at $1.1 billion — last year to Clayton, Dubilier & Rice, a New York private equity investor. American Greetings leased the Creative Studios building before the transaction.

“Although we understand that the Weiss family is considering selling its ownership interest in the Creative Studios building, we don’t expect this will have any impact on American Greetings,” Molnar said, as the company is a tenant and expects to remain in the property outfitted with features for artists, photographers and a variety of creative and technical types for its varied products.

Public records show the Weiss family’s Little Italy-based 540 Investment Corp. holds the real estate through Blue Sky Property Co. LLC. A spokesman for the family investment fund, who asked not to be identified, declined comment for this story.

The Weiss family has long been known as an active real estate investor in Northeast Ohio, serving as an equity source for at least three generations of local property development concerns.

Selling now could be timely because single-tenant net leased properties, though often much smaller, are increasingly popular real estate investments. They are the coupon-clipper’s form of real estate as they require little management effort compared to other forms of property

holdings. That’s because the companies selling and leasing back the properties typically maintain them.

Terry Coyne, a Newmark Knight Frank vice chairman, uttered a quiet “Wow” when asked to size up such a potential transaction.

“The market is super active for triple-net leases, especially for good-credit tenants in good-quality products and good locations,” Coyne said. “American Greetings checks all those boxes. It’s a great building in a great location and will likely command a premium, depending on the terms of the lease.”

Though its size and the potential price might be off-putting — there’s little market for build-to-suit corporate headquarters in Northeast Ohio when one goes dark — Coyne said a corporate headquarters is strategic and the last thing a company is likely to exit. He added there are many buyers for socalled triple-net properties. He has conducted more than 15 such transactions, although the ones he’s handled are industrial or warehouse properties.

If HFF, which declined comment for this story, finds a buyer for the property, it’s certain to garner national attention.

Based on its square footage, the American Greetings property might have ranked fifth on CBRE’s annual list of the top 10 single-tenant net lease transactions posted last April, the most recent available.

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Fogg his firm At Se a join family ing at c al buil later th

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Reducing Real Property Tax Assessments Throughout Ohio And Across The United States Firstar Precision invested almost $1.75 million in their 2018 move from Parma to Brunswick. (Contributed photo)

Firstar Precision grows by staying ahead of customers

By Rachel Abbey McCafferty rmccafferty@crain.com @ramccafferty

Firstar Precision Corp. has based its business on predicting what its customers will need.

And that seems to have paid off.

The CNC machine shop has been growing steadily since opening its doors in 2000. In 2016, business really picked up. President and owner David Tenny couldn’t identify the exact turning point, but pointed to an overall strong economy and the addition of some new customers.

When the stronger pace continued throughout 2017 and into 2018, Tenny knew something had to change. Firstar Precision just didn’t have the space to keep growing at its location in Parma.

So by the end of June of 2018, the company had a new building in Brunswick. The move started in August and by the end of September, everything was up and running at 2867 Nationwide Parkway. The company invested almost $1.75 million in the move, buying the building, making some updates and adding more equipment.

The facility in Parma was 12,000 square feet, 10,000 of that dedicated to the shop. The Brunswick location is 27,000 square feet with 24,000 square feet for the shop. The move gives Firstar Precision room to keep growing, but also allowed it to better organize its equipment.

Firstar Precision is a CNC machine shop working in all kinds of metal, from aluminum to nickel to steel, as well as in plastic. It serves industries as varied as food processing, medical systems and tools. Serving a broad market base has helped the company stay consistently busy over the years, Tenny said.

Total sales were about $3.7 million in 2016 and about $4.6 million in 2017, he said, adding that by the end of 2018, the company had total sales of a little more than $6 million.

Firstar Precision has kept its mission straightforward over the years, focusing on employee and customer satisfaction.

The company has 32 employees, five of whom have been hired since the move to Brunswick.

People tend to stay at Firstar Precision. Tenny said the average tenure of the company’s employees is more than 12 years, a notable number for an 18-year-old company. He’s also had employees leave over the years and then come back. The company pays competitive wages, he said, but can’t compete with big manufacturers. He tries to foster a positive atmosphere. Employees aren’t micromanaged in terms of their work, but

P005_CL_20190128.indd 5

they’re given credit for every minute they put in. And that’s literal: Firstar Precision employees are paid by the minute, which means an employee gets paid for his or her time for clocking in early or staying late, instead of rounding to the nearest hour.

While a lot of companies say they’re focused on customers, Firstar Precision tries to take that a step further.

The company views itself as a project manager, rather than a CNC machine shop, and works with contractors to complete operations, such as heat treating, it doesn’t have in house.

Firstar Precision does an “excellent job” managing outside operations, said Michael Varricchio, procurement manager for Stanley Assembly Technologies, a division of toolmaker Stanley Black & Decker. Not all companies want to take that on, because it’s basically passing money through, he said.

Varricchio also said Firstar works closely with Stanley Assembly Technologies’ engineers on new product designs. The company brings “fresh ideas,” he said, and makes sure components will work smoothly in the finished products. Stanley relies on those resources at Firstar Precision when necessary.

“That’s why it’s a partnership, right there,” Varricchio said. “You grow together.”

Firstar Precision also carries finished inventory for its customers, which a lot of its competitors — and a lot of its customers — don’t want to do. Some of that inventory is backed by purchase orders, Tenny said, but Firstar also takes a risk by stocking excess inventory based on a customer’s history.

“We track history, usage, forecast, everything that we possibly can to try to stay ahead of what we think our customers’ demands are going to be,” Tenny said. “And that’s the biggest reason they keep coming back to us, time and time again, is because we save them more often than we fail them.”

That kind of forward thinking is a differentiator for Bettcher Industries, a cutting-tool company in Birmingham, Ohio.

“If we exceed our demand, our normal demand in a month, we know we can depend on them to have them on the shelf and ship them to us right away,” said supply-chain manager Ed Gross.

That’s not exactly a common practice for companies making customized parts, he added. And it’s important to Bettcher, because as the company has grown, warehouse space has decreased. It needs suppliers that can make just-in-time shipments. Gross said Firstar is proactive, even reaching out to Bettcher when it’s nearing the end of a purchase order.

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AmFin Financial is ready to get back to business

New kiosks put info at your fingertips

By Scott Suttell

By Jay Miller

ssuttell@crain.com @ssuttell

It was a long time coming, but AmFin Financial Corp. of Beachwood, the former holding company for the failed AmTrust Bank, says it’s on the brink of getting a fresh start.

The company announced last Tuesday, Jan. 22, that it has completed a plan of reorganization that was adopted in 2011 — yes, eight years ago — as part of its bankruptcy case that was filed in 2009. AmFin said in a news release that it has “paid in full all claims in the bankruptcy and continues to hold certain assets.”

Over the weekend, on Saturday, Jan. 26, AmFin was scheduled to hold a meeting of shareholders in which the company would “elect a new board of directors and amend its articles of incorporation so that AmFin may engage in activities other than those to implement the plan of reorganization,” according to the release. In other words, to re-emerge as an active concern.

One change already is in place.

Ronald Glass of Atlanta-based GlassRatner Advisory & Capital Group LLC, who served as CEO of AmFin while the company was operating under its plan of reorganization, no longer is in that position.

(GlassRatner says on its website that it specializes in “bringing clarity to difficult business problems through a combination of sophisticated financial analysis, operating insight and practical transaction experience.”)

Glass did not return a phone call placed last week by Crain’s.

The new CEO of AmFin is Robert Goldberg, who served in that role at AmFin predecessors AmTrust Finan-

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cial Corp. and Ohio Savings Bank.

Shareholders at the Jan. 26 meeting were expected to determine other management roles for AmFin. “We are proud that AmFin has been able to meet all of its obligations under the plan of reorganization and now has the opportunity to, ultimately, provide value to our shareholders,” Goldberg said in a statement. He said AmFin “is in the process of reviewing its holdings and the records that were maintained by GlassRatner” while Glass served as CEO throughout the reorganization period.

In a phone interview on Friday morning, Jan. 25, Goldberg said the liabilities paid in full during the bankruptcy totaled about $170 million. That process was completed in December. The assets primarily were real estate, he said, in markets including Arizona and Florida, and included “other venture capital assets.”

He said he was “pleased and happy” that the liabilities were paid in full, even if it took many years to do it.

“It takes a long time to liquidate assets,” Goldberg said.

During the long period of operating during reorganization, AmFin has not issued financial statements, but it said in the release that it “intends to do so after completing its review of the information from GlassRatner about the company’s assets and operations.”

At present, AmFin said, it holds “minority investments in various limited partnerships, two of which have invested in real estate development projects and others, in which AmFin has smaller investments, that are involved in other types of activities.”

It did not provide details of those investments. As Goldberg put it in a statement, “It is not possible to place

accurate values on AmFin’s investments because they are privately held, illiquid investments, controlled by third parties, and the amount that may ultimately be realized is uncertain.”

After satisfying all bankruptcy claims, AmFin said it has “temporarily invested the majority of its currently available cash in U.S. Treasury bills with a face value of approximately $14.8 million, which represents a substantial portion of the total holdings of AmFin at this time.”

AmFin’s common shares are quoted in the Pink Market under the symbol “AFNL.” The company said it has 161,421 shares outstanding, “a majority of which are owned by various members of the Goldberg family.”

Goldberg said he expects that once the new board is in place, AmFin “will explore a variety of more permanent investment opportunities.”

AmFin filed for Chapter 11 bankruptcy protection in November 2009, only days before Office of Thrift Supervision closed AmTrust Bank, naming the Federal Deposit Insurance Corp. as receiver. The FDIC sued AmFin in April 2010, alleging AmFin failed to honor a commitment to keep the Cleveland bank capitalized. AmFin countered that it never made such a commitment.

In a filing in June 2011, U.S. District Court Judge Donald C. Nugent found in favor of AmFin in the action brought against it by the FDIC. As Crain’s reported at the time, Nugent “found the FDIC, which was seeking $518 million, failed to present sufficient evidence to establish that the former holding company of the failed AmTrust Bank had made a commitment to maintaining the bank’s capital. An advisory jury in the matter had come to the same conclusion in April after a four-day trial.”

will be downtown, although the plan is to expand to heavily trafficked areas such as University Circle, the Midtown jmiller@crain.com Corridor and Ohio City. Additional ex@millerjh pansion could take place in the future.

The new kiosks will also include adCleveland is replacing many of those triangular wayfinding kiosks scattered vertising. Mark Thompson, IKE’s development manager and around town with glitzier, associate corporate couninteractive “information portals.” The 8-foot-tall towsel, told council members that advertisements and ers share a lot of capabilities with smartphones, includcommunity-service mesing touchscreens. sages will rotate like screenThe new pylons, provided savers in the top one-third of the screens when they by a Columbus firm, IKE Smart City, will help users are not in use. find restaurants, hotels or “This is how we recover events and provide direcour costs,” Thompson said.

“We install and operate the tions, including bus routes kiosks at no cost to the city.” and arrival times. That inforHe added it costs about mation can then be down$100,000 to get each kiosk loaded onto a smartphone. up and operating, while They will also offer 911 the traffic pillars cost about and 311 connections, free $50,000. Freddy Collier, diWi-Fi, provide locations of IKE rendering social services (including rector of the city planning shelters) and will add to the number commission, said the city will share of security cameras around town. in revenue after the company recovThey’ll gather pedestrian and vehicle ers its installation and operating traffic counts and measure air quali- costs. The city’s money will go into a fund for storefront renovation. ty. They will even take selfies.

“We really think of these kiosks as Legislation moving through Cleveland City Council will authorize re- an additional enhancement to the visplacing 60 current kiosks, which itor experience,” said Hannah Belsito, mostly offer advertising media, sup- vice president of destination developplied by the current vendor, Omni ment and community affairs at DestiMedia, under a contract that dates to nation Cleveland, the convention and 1999. The new vendor has kiosks sim- visitors bureau. “The way IKE has deilar to the ones proposed for Cleve- signed them, we really think they look land in cities around the country, in- like ours and will complement them.” cluding Columbus and Denver.

Destination Cleveland has its own IKE Smart City, a subsidiary of Or- wayfinding signs that feature neighange Barrel Media of Columbus, an borhood maps with landmarks and a outdoor media firm, will start with 60 bit of local history. interactive kiosks. It will also place Belsito said Destination Cleveland what it calls transit pillars, much more is talking to IKE Smart City to work limited towers, around the city. Most with them on providing content.

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1/25/19 1:58 PM

CRAIN’S CLEVELAND BUSINESS

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PA G E 7

TAX LIENS The Internal Revenue Service filed tax liens against the following businesses in the Cuyahoga County Recorder’s Office. Liens reported here are $20,000 and higher. Dates listed are the dates the documents were filed in the Recorder’s Office.

 Wireless Exchange/Wireless Exchange International 4 3447 W. 130th St., Cleveland Date filed: Oct. 22, 2018 Type: Employer’s withholding, unemployment Amount: $32,493.60

LIENS FILED

 Clear Vision Communications 5005 Rockside Road, Suite 240, Independence Date filed: Oct. 22, 2018 Type: Unemployment, corporate income Amount: $28,105.61

Secor Logistics LLC 6909 Engle Road 41, Middleburg Heights Date filed: Oct. 24, 2018 Type: Employer’s withholding Amount: $156,882.37 

Saigon Food LLC 2061 E. 4th St., Cleveland Date filed: Nov. 15, 2018 Type: Corporate income Amount: $117,591.14 

Hooley 3 LLC/Hooley House Sport Pub & Grille 3496 Abington Court, Brunswick Date filed: Oct. 31, 2018 Type: Employer’s withholding Amount: $83,344.14 

HH2 LLC/Hooley House 3496 Abington Court, Brunswick Date filed: Oct. 4, 2018 Type: Employer’s withholding Amount: $81,772.58 

Lakeside Building Services Inc. 2122 St. Clair Ave. N.E., Cleveland Date filed: Oct. 4, 2018 Type: Employer’s withholding, unemployment Amount: $63,897.58 

 D. Michael Sherman Inc. 10303 Brecksville Road, Brecksville Date filed: Oct. 4, 2018 Type: Employer’s withholding Amount: $50,977.50  Savor Inc./Sweet Melissa 19337 Detroit Road, Rocky River Date filed: Oct. 24, 2018 Type: Employer’s withholding Amount: $48,210.69  Alfredo’s at the Inn Inc. 780 Beta Drive, Mayfield Date filed: Nov. 15, 2018 Type: Corporate income Amount: $40,846.17  Galindo Inc. 3456 W. 117th St., Cleveland Date filed: Oct. 31, 2018 Type: Unemployment Amount: $36,625.40

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 JMJ Plumbing Contractors Inc. 2599 Piedmont Court, Westlake Date filed: Oct. 24, 2018 Type: Employer’s withholding Amount: $25,288.61  Alliance of Pennsylvania Saxons of U.S. Branch 1 5393 Pearl Road, Parma Date filed: Oct. 4, 2018 Type: Employer’s withholding Amount: $23,301.72  Corbos Bakery 12210 Mayfield Road, Cleveland Date filed: Oct. 22, 2018 Type: Employer’s withholding Amount: $22,373.16  Dunecraft Inc. 650 Graham Road, Suite 106, Cuyahoga Falls Date filed: Oct. 31, 2018 Type: Unemployment, employer’s withholding, failure to file complete return Amount: $20,379.36

LIENS RELEASED  Choice Construction Co. Inc. 30675 Solon Road, Solon Date filed: Oct. 7, 2011 Date released: Nov. 15, 2018 Type: Corporate income, failure to file complete return Amount: $222,640.81  CC&OT Ltd. 627 W. St. Clair Ave., Cleveland Date filed: Dec. 4, 2017 Date released: Oct. 22, 2018 Type: Partnership Amount: $56,160  Five Star Mechanical LLC 15599 NEO Parkway, Garfield Heights Date filed: Sept. 30, 2015 Date released: Nov. 15, 2018 Type: Employer’s withholding Amount: $26,685.09

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MAC Trailer’s rapid nationwide growth stems from striving for quality and innovation country.” His solution was to launch a pneumatic In 1992, when MAC Trailer president/owner tank, which is used to haul staple food items such Michael Conny started a business repairing commercial truck trailers in a one-bay garage, using an $8,000 as flour or sugar. That line too has become a market leader for the company, Conny says. loan from his mother, his initial ambition was simply Over time, MAC Trailer gained an industry advanto be his own boss. A welder by trade, he thought he tage due to its built-in expertise and deep industry could “make a better living” being self-employed. knowledge, two things amassed because the company Four years later, after a customer asked him to makes it clear to employees there’s room for profesbuild a trailer — and even loaned him the money sional growth. In fact, it prefers to buy the needed parts — MAC to promote from within: Conny Trailer had found its true calling.

“90 percent of our work“I was proud that I was behind “Be straightforward estimates force” falls in that category. building this product,” Conny with your By that same token, MAC says. “That’s when I decided we Trailer has also established a loyal were going to build a building and customers and customer base because they listen to go into new production.” your employees, what their buyers need. “All of our In the next several decades, and build a good product has come from a customer,” MAC Trailer continued repairing he says. “We didn’t invent the trailers, but diversified its buildproduct.”— Michael commercial trailer. We just made a ing business to include dump, Conny, president/owner commercial trailer better because refuge and flatbed trailers. To of MAC Trailer we listened to our customers.” address its growing manufacturContinuously striving for ing needs, the Alliance-based improvement — while still maincompany expanded to Salem and taining a quality product — is perhaps the company’s Kent, but also grew its footprint nationally — first smartest move of all. MAC Trailer also has a standlanding in Billings, Mt., in 2013, and then Oklaalone R&D Center that it invests several million dollars homa City and Texas in 2018. All told, MAC Trailer in annually. Out of this work came a completely new has about 30 acres of roof (1.6 million square feet) invention — a pneumatic tank that’s 1,000 pounds and about 1,300 employees. lighter than existing models — that’s being launched “It is terrific to see homegrown companies like and marketed in 2019. Continued growth at its new MAC Trailer setting the pace in quality production western facilities is also in the cards. and innovative products decade after decade,” says “We think 2019 is going to be a great year,” Conny Darlyn McDermott, market leader of MAGNET says. “The economy is as strong as I have ever seen South. “It’s easy to understand their exploding foot[it] in 25 years. When you’re building a good product, print and increasing demand nationwide.” and you’re building it on time, the customer base will It hasn’t always been easy. This rapid growth do nothing but grow.” required cash, and “it was very tight at times,” Conny MAGNET’s mission is to help manufacturers in says. The company also had to build a nationwide Northeast Ohio grow, compete, implement and innovate. dealer network to support its manufacturing capacVisit us at Cleveland State University in downtown ity, which also took time and finesse. And when the Cleveland, the Everett building in the historic district in 2008 recession hit, Conny realized that MAC Trailer’s downtown Akron or at the Canton Regional Chamber existing product lines were economy-dependent. of Commerce in the Technology and Innovation “Flatbeds haul steel and drywall for home buildDistrict. You can also visit us on the web at www. ing,” he explained. “Dump trailers haul the sand and gravel to make concrete for homebuilding, and refuge manufacturingsuccess.org or call Darlyn McDermott at 330-983-9538 and schedule an appointment. is depending on people buying product all over the

This advertising-supported feature is produced by Crain Content StudioCleveland, the marketing storytelling arm of Crain’s Cleveland Business.

The Crain’s Cleveland Business newsroom is not involved in creating Crain Content Studio-Cleveland content.

1/24/19 4:22 PM

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CRAIN’S CLEVELAND BUSINESS

Opinion From the Editor

Survey shows an optimistic business outlook

Editorial

Reducing hazards First, the good: Cleveland, at long last, is getting serious about reducing significantly the number of children in the city with lead in their bloodstream.

The “Lead Safe Cleveland Coalition,” announced last Tuesday, Jan. 22, by Cleveland Mayor Frank Jackson and other participants, intends by the end of 2019 to host a community summit and launch a “Lead Safe Home Fund” to help landlords make their housing units safe for children. The coalition includes the city’s hospitals and nearly 20 philanthropic/nonprofit organizations, so there’s a broad commitment to the effort.

These are positive steps that are to be applauded. Many studies have highlighted problems caused by lead poisoning in children, ranging from lower IQs to a higher risk of violence as adults. Those issues are particularly acute in cities like Cleveland, with older stocks of rental and owner-occupied housing.

Left unaddressed, problems caused by exposure to lead toxins undermine opportunities for children to grow up healthy and productive, and for the city to begin to grow again.

Now, some nitpicks.

The coalition didn’t commit to a specific timeline for its work, and it didn’t have a cost estimate for the effort or provide details on how it would be paid for. It’s also not known yet precisely what the standard would be for measuring success, in terms of lead levels (per deciliter of blood) in children or in determining if all properties are safe from lead hazards. A group called Cleveland Lead Advocates for Safe Housing — yes, the acronym is CLASH — wasn’t impressed with last week’s coalition announcement, saying in a news release that it amounted to the city “kicking the can down the road” and reiterating that it intends to continue to work on a ballot initiative (also not precisely defined as yet) to prevent lead poisoning.

In short, there’s still a lot of work to do to make sure this coalition leads to meaningful change.

There is a template for success.

Mitchell Balk, president of the Mt. Sinai Health Care Foundation, said at last week’s news conference at Cleveland City Hall that coalition members visited Rochester, N.Y., which over a decade was able to reduce lead toxicity in children by 85%. That effort included passage of a law that led to stepped-up inspection of rental homes before tenants could occupy a property — something that is reasonable to duplicate here. Balk also noted, “We know Cleveland landlords want to do the right thing, but don’t have the resources” to repair all of their units. That’s also a reasonable concern that necessitates the need for some “carrots,” in the form of grants and loans, in addition to the “stick” of crackdowns on landlords.

Cleveland has made some progress on the property front.

Ayonna Blue McDonald, the city’s director of building and housing, noted that a unit launched in July 2017 has inspected 10,000 of the city’s 90,000 housing units and found, in performing about 1,000 lead tests, that only 64 revealed lead hazards.

She added that owners are complying when they receive violation notices.

The coalition is the second recent development, following the Jan. 18 announcement that Cleveland had been designated a Say Yes to Education community, that displays a much-needed focus on the welfare of Cleveland’s children. We wish the adults well in carrying out their mission.

One other note: Much of the momentum for addressing this issue came after The Plain Dealer, led by reporters Rachel Dissell and Brie Zeltner, in 2015 launched a series called Toxic Neglect that examined the impact of Cleveland’s legacy of lead poisoning and looked at solutions. These are not good times financially for the news business; The Plain Dealer itself is among many newspapers making staff cuts. But the paper’s work, in this case and others, underscores the value of local news organizations that are committed to covering their communities with depth, care and precision. That effort is making change possible.

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com)

CLEVELAND BUSINESS P008_CL_20190128.indd 8

Managing Editor:

Scott Suttell (ssuttell@crain.com)

Contact Crain’s:

216-522-1383

Read Crain’s online: crainscleveland.com

Northeast Ohio leaders are generally bullish on business in 2019.

They are feeling optimistic about the business climate over the next year or so, according to Crain’s readers who agreed last year to share their opinions on important business issues by joining the Crain Research Panel.

A large majority of those surveyed — 72% — were hopeful about the short-term economic outlook for their business.

In contrast, 57% of respondents said it was either somewhat or highly likely the U.S. would experience a significant economic downturn in the next 12-24 months.

Allow me to stress that this data, while informative, does not allow a large enough sample size to be considered scientific. I Elizabeth do, though, consider it a snapshot of how McIntyre informed, engaged business people are feeling about the economy and current events right now.

Chief among the concerns for the 61 surRespondents vey respondents was recruiting and retainwho were ing talent. That's not a surprise, considering hopeful about Team Northeast Ohio’s most recent quarterthe short-term ly economic report estimated that our economic 18-county region will need to fill hundreds outlook for their of thousands of jobs due to retirements and business. normal turnover between now and 2023.

A more competitive job market due to low unemployment rates was the biggest challenge, cited by 31% of respondents. The Respondents second-biggest challenge, at 24%, was the who think it’s lack of quality candidates, especially for somewhat or higher level positions. highly likely the With unemployment levels at record U.S. would lows, and the need to attract qualified talexperience a ent, 61% of those surveyed said they expect significant to increase wages in 2019, with an addieconomic tional 21% saying they were uncertain. downturn in the Health care easily outpaced others as the next 12-24 expense that business people identified as months. trending higher than the U.S. rate of growth, with 33% of respondents citing it. Payroll and professional services came in second, at 12% each.

This week in Crain’s, we take a step back to look at the effects of the 2017 Tax Cuts and Jobs Act. Interestingly, a substantial majority of our research panelists, 59%, told us they expect tax reform to be positive for their companies. An additional 25% said tax reform will have no impact, and 16% see it as a negative. Chief among the concerns, cited by 36% of respondents, was staying on top of tax reform updates and interpretations, followed, at 25%, by getting the correct advice on how tax reform impacts their businesses.

A majority, or 58%, of our research panelists also told us the U.S. trade tariffs are not affecting their companies, while 33% said the tariffs were having either a somewhat or extremely negative effect. Of those impacted, respondents said their companies have either absorbed price increases or raised prices in response.

Thank you for those who raised their hands to be surveyed for the first round of the Crain Research Panel. We appreciate you sharing your insights about the economy and your outlook for 2019. For more information or to join the panel, please go to crain.com/research-panel.

72%

57%

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Cleveland Business, 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113, or by emailing ClevEdit@crain.com. Please include your complete name and city from which you are writing, and a telephone number for fact-checking purposes.

Sound off: Send a Personal View for the opinion page to emcintyre@crain.com.

Please include a telephone number for verification purposes.

1/24/19 4:02 PM

CRAIN’S CLEVELAND BUSINESS

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PA G E 9

Opinion

Big cities no longer deliver for workers without degrees

By Noah Smith/Bloomberg Opinion

turing to knowledge industries like software and finance.

Some of this can be explained by virtue of the two basic economic reasons for cities to exist in a modern economy — agglomeration and clustering. Agglomeration refers to the tendency of businesses of all types, but especially manufacturers, to locate near each other. This happens because employers want to be near employees, who want to be near the businesses they work for and buy goods from. The result is a city with lots of different industries.

Clustering, on the other hand, refers to the tendency of companies within a single industry, such as technology, to want to be near each other. Clustering effects are much stronger in knowledge-based industries like tech and finance, because ideas are their lifeblood, and workers who live near each other tend to share

David Autor, a labor economist at the Massachusetts Institute of Technology, has a record of attacking the biggest and most important issues. He has raised alarms about disappearing middle-skilled jobs, pointed to the downsides of trade with China, warned about increasing industrial concentration and attacked the question of whether automation will kill jobs.

In a recent lecture at the American Economic Association meeting in Atlanta, Autor attempted to weave many of those threads together into a single story. Paraphrasing heavily, that story goes something like this: Forty years ago, Americans who didn’t go to college could move to cities and get good jobs in manufacturing or office work. But starting in about 1980, these jobs began to disappear, thanks in part to offshoring and automation. By 2000, manufac- Metal-bending isn’t what it used to be turing was in steady retreat.

Total manufacturing employment Workers without a college education were increasingly shunted into 20M low-skilled service jobs — cleaning, security, retail, food service and 18M manual labor. Fortunately, more Americans went to college than be16M fore, but the ones who didn’t were increasingly marginalized.

Even as educational inequality 14M was growing, geographic inequality was growing as well. High-skilled oc12M cupations increasingly clustered in cities, while low-skilled service jobs 10M have become more plentiful outside 1980 2000 2018 of urban centers. At the same time, 1950 1960 wages for mid-skilled jobs like manu- Source: Federal Reserve Bank of St. Louis Bloomberg Opinion facturing and office work equalized between cities and rural areas — workers in these jobs can no longer The economic ideas with each other (and with various get much of a pay bump by moving different employers). Clustering also arisforces driving into town. es because of the need for employers to Thus, a major route to middle-class have access to a deep pool of skilled workurbanization prosperity has been closed off. In the ers. These are the forces that power Silicon old days, even people without a col- are changing, Valley and other tech clusters.

As the U.S. economy has transferred lege education could move into the manufacturing overseas or automated it, big city and work in a factory or office as the U.S. and as consumers have moved from buyfor a good salary — now, they might economy as well stay in their hometowns. As a ing more physical goods to buying more result, Autor shows, the urban-rural shifts from digital goods and services, agglomeration education gap has widened — in manufacturing has become less important relative to clus1970, an American in a rural area was tering. The smokestack cities of the last only 5% less likely to have a college to knowledge century have given way to tech hubs and degree as someone in an urban area, industries like financial centers. Economist Enrico Moretbut by 2015 that gap had grown to 20 ti has documented this development in points. In other words, the U.S.’ great software and great detail in his book “The New Geograsocial divide — non-college people phy of Jobs.” This shift can probably explain finance. in small towns and educated people many of the trends Autor observes. in cities — has its root in deep ecoSo what’s to be done in order to help mid-skilled and non-college workers live decent, nomic forces.

Actually, Autor’s wage data probably understate middle-class lives? And how can the emerging divide how bad prospects are in big cities for people without between small towns and big cities be arrested or college degrees. Rent and other costs of living are mitigated? Moretti’s idea, which has been echoed by much higher in urban areas, meaning a paycheck some urban development activist groups, is to build doesn’t go nearly as far there. Jed Kolko, an economist lots more housing in cities, driving down rents and at the job-search company Indeed, finds that when making cities more livable for everyone. Another salaries are adjusted for local costs of living, the aver- idea is to use research universities to revitalize flagage worker actually makes less in New York City or Los ging regions by dispersing knowledge workers to less-populated areas.

Angeles than in Toledo or Birmingham, Ala. For college-educated workers, the picture is probaBut in the end, the government may simply have to bly much different. Autor shows that these workers step in and intervene on behalf of the services class. still get a huge pay raise by moving to dense areas — Wage subsidies, government health care, income supprobably more than enough to overcome the in- port, portable pensions, pro-union policies and various other incentives for higher wages can be deployed creased cost of living.

Why are cities no longer lands of opportunity for to make today’s low-skilled jobs more like the good middle-skilled workers and those without college de- office and factory jobs of yesteryear. The alternative grees? The economic forces driving urbanization are may be to watch non-college workers and small towns changing, as the U.S. economy shifts from manufac- fall further behind.

P009_CL_20190128.indd 9

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PA G E 10

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CRAIN’S CLEVELAND BUSINESS

Focus TAX REFORM: ONE YEAR LATER

Growth opportunity Opportunity Zones are designed to help revive struggling neighborhoods in cities like Cleveland and Akron

By Jay Miller jmiller@crain.com @millerjh

Their creation was all but hidden in the Tax Cuts and Jobs Act, which passed Congress in the closing days of 2017, but Opportunity Zones may turn out to be the section of the new law with the most lasting impact.

With tax-advice articles carrying headlines like “How to invest in real estate and pay nothing in capital gains” beginning to appear, taxpayers who cashed out of some investments in the last year will be racing to their financial advisers in 2019 with questions about OZs. At the same time, though, this new investment tool was created to help revive struggling neighborhoods in cities like Cleveland and Akron. The seven-county region of Northeast Ohio has 91 census tracts designated as Opportunity Zones. Most are in the city of Cleveland, but census tracts in the cities of Garfield Heights, Medina, Lorain and Painesville also have the OZ designation.

The OZ concept is not just for real estate, although that’s where much of the early activity is. There is hope that Opportunity Zone money will help create new businesses and help existing small businesses to grow.

Triggered by the built-up capital gains from a decade-long bull market, Opportunity Zone investments were seen as a way to make investment in distressed areas in cities or in rural counties more attractive. People, banks or businesses that sell stock or other investments can write off a portion of their capital gains by making OZ investments. In turn, any capital gains from the OZ-eligible investment can be completely exempt from the capital gains tax if held for the long term.

“It has a really great opportunity to move the needle in areas, quite frankly, we haven’t moved in generations,” said Pat Tiberi, president of the Ohio Business Roundtable. As a congressman until early 2018, he helped shepherd the Opportunity Zones provision into the

Cuyahoga County Opportunity Zones Euclid

The seven counties of Northeast Ohio have 91 census tracts designated as Opportunity Zones; 64 of them are in Cuyahoga County. The 90 creation of the zones in the Tax Cuts and Jobs Act means that, for a limited time, people who invest in real estate or businesses Richmond in these economically struggling neighborhoods can Heights Bratenahl defer, or even eliminate, the tax on capital gains on East Cleveland profits earned elsewhere. The goal is to make Cleveland South these areas more attractive for investment.

Euclid Heights

Highland Heights Mayfield Village

Mayfield Lyndhurst Heights

CLEVELAND Bay Village

University Heights Beachwood

Lakewood Rocky River

90

271

Gates Mills

Hunting Valley Pepper Pike

Westlake Fairview Park

North Olmsted

Linndale

Cleveland-Hopkins Airport Brook Park

Olmsted Twp

71

Olmsted Falls Berea

Newburgh Heights

Brooklyn

Cuyahoga Brooklyn Heights Heights

Parma Heights

Warrensville Heights

Garfield Heights

480

Orange

Chagrin Falls

North Randall

Maple Heights

Bedford Heights Bedford

Valley View

Parma

Solon

Independence

Middleburg Heights

Seven Hills

Oakwood Glenwillow

77 Broadview Heights 1 MILE

North Royalton

Strongsville

Brecksville

480

80

Source: US Dept. of the Treasury Community Development Financial Institutions Fund

federal tax overhaul. “I have seen areas, poor urban areas in particular, that have for generations had federal and state money and often city and county money — and this is not unique to Ohio — pour in (in various investment tax credits) and not change the community and help overcome generational poverty.”

Though the Internal Revenue Service has not dotted all of the I’s and crossed all of the T’s on the regulations — and there is a lot of fine print — banks and other investment firms, as well as nonprofits, are beginning to take advantage of OZs by creating investment funds.

A key difference between the Opportunity Zone tax write-off and the earlier tax credits Tiberi was referring to

Crain’s Cleveland Business map

— most recently financial incentives such as Low Income Housing Tax Credits, New Markets Tax Credits and federal and state historic tax credits — is that OZ investing does not come with many of the restrictions, especially government approvals, on the tax break.

SEE ZONES, PAGE 13

Illustration by SteveDF

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CRAIN’S CLEVELAND BUSINESS

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PA G E 11

TAX REFORM: ONE YEAR LATER

Tax reform gives banks a huge boost But leaders wonder if lower tax rates will stick or be a flash in the pan

By Jeremy Nobile jnobile@crain.com @JeremyNobile

The banking sector hasn’t been this profitable since before the Great Recession and then some.

While there are several factors in play — a strong economy, good cost control across the industry, a gradual easing of the regulatory burden and a favorable interest-rate environment — tax reform is the catalyst that’s helped many firms log record balance-sheet growth in 2018.

The Tax Cuts and Jobs Act of 2017 lowered the corporate tax rate from 35% to 21%, but most banks are enjoying a tax rate even lower than that.

For instance, Cleveland super-regional KeyCorp, with assets of nearly $140 billion, is paying an effective tax rate of 15.5%, compared to 26.9% a year prior.

Middlefield Banc Corp., a firm with $1.2 billion in total assets that’s been repeatedly pegged as one of Ohio’s most-profitable community banks, saw its effective tax rate drop from 27% a year ago to about 17% today. Middlefield reported a 33% increase in net income at the final quarter of 2018, and almost exactly half of that is attributed directly to tax reform, said CFO Don Stacy.

Investors look at both return on equity (ROE) and return on assets (ROA) to gauge a bank’s profitability.

The banking industry as a whole saw an average ROA of about 1.13% in 2018, a “huge increase” over 0.83% a year prior, said Fred Cummings, president of Elizabeth Park Capital

Management, a bank-focused hedge fund in Pepper Pike.

ROA for Middlefield stood at 1.15% for the final quarter of 2018 (compared to 0.86% a year prior) and 1.37% for Key (compared to 0.57% a year prior). ROE for Middlefield was at 12.15% for the same period (compared to 6.09% a year prior), and Key’s was 13.13% (compared to 5.07% a year prior).

“Tax reform has been a huge boost to earnings and, just as importantly, profitability,” Cummings said. “To put that into perspective, the industry hasn’t been this profitable on a return-on-equity basis since 2005.”

Where are profits going?

Much to the pleasure of investors like Cummings, significant portions of that new profitability have been funneled to shareholders through 2018 in the form of boosted dividend payouts.

Some of it is being directed back into their respective firms, noted Scott Siefers, a bank analyst with Sandler O’Neill who covers a slew of big bank companies in Northeast Ohio, including KeyCorp, Huntington Bancshares and PNC Financial Services Group.

Many companies raised employee pay and awarded them one-time bonuses. Others are investing part of their windfalls into technology.

But Siefers pointed out that the largest banks in particular are using that excess capital to buy back stock to boost earnings per share. Key, for example, repurchased $1.1 billion in shares in 2018.

“Folks like Key and Huntington

aren’t growing quite as fast. Their loan growth is slower than smaller companies,” Siefers said. “So big banks are buying back all that stock because they can’t use all that capital they’re generating.”

Mostly pros, some cons While tax reform is far and away a net positive for banks, it’s also created a few challenges that have eaten into those capital gains.

The tax law created an upfront, one-time writedown of deferred tax assets in the fourth quarter of 2017, when the bill was passed. That was a “significant negative” compared to tax reform’s earnings benefit, said Jack Burns, an executive director with the global banking and capital markets practice at EY. There was also the phasing out of the deduction for FDIC premiums for banks with total assets between $10 billion and $50 billion.

Other uncertainties created by the bill are being sorted through by firms ranging from giant global banks to smaller S-Corps.

“The banking industry is still seeking clarity on some of these issues,” Burns said. “Global banks are still grappling with whether base erosion tax applies to them and how.”

Broadly lower tax rates may also have a slight impact on commercial lending, where banks make most of their money.

While banks have more capital on hand, so do their clients. While that’s generally a good thing, it has made potential borrowers a bit less reliant on loans, somewhat softening overall demand for those products.

“We have seen some companies that may have had a desire or need to borrow some funds who didn’t need to because they had so much additional cash available,” said Middlefield CEO Thomas Caldwell.

With a record 2018, though, he’s not really complaining. Middlefield logged total loan growth of 7.5% in the fourth quarter of 2018 to hit a record $984.7 million.

Burns said he’s hearing of similar trends at other firms, but most feel loan demand will creep back up shortly.

“The benefit of the tax rate reduction outweighs all the negatives and uncertainties,” he said. “That’s why tax reform has been beneficial as a whole to the industry.”

What it means in 2019 Similar to how tax reform increased cash for potential borrowers, thereby stymieing some loan demand, a similar dynamic is playing out on the M&A front.

There’s a sense in the market that tax reform provided a lifeline to banks that might have struggled to generate incremental improvements in profitability. But an injection to earnings because of new tax codes and a strong year for banking in general separate from that means banks that were once attractive acquisition targets may not be interested in selling.

M&A activity has been pretty steady in the Northeast Ohio market in recent years, but there were no big deals in 2018 in this region.

According to the most recent data

from S&P Global Market Intelligence, the U.S. banking sector was trending down in total M&A deals last year over 2017, while deal values were trending upward.

On the flip side, banks generating piles of cash will need to put that to work — and they can’t buy back stock forever. So that throws the M&A equation into flux, Siefers said. On one hand, deals may not feel as necessary to sellers. But buyers may be increasingly motivated.

Overall, the banking sector should continue to enjoy growth through 2019, even if it’s not as significant as gains in 2018 now that the bulk of the benefits of tax reform have been baked into balance sheets. Investors aren’t expecting 30%-plus growth in earnings but something closer to more regular growth in the neighborhood of 7%-8%.

“In 2019, you’ll see less growth, less revenue momentum, but profitability levels should hold pretty firm,” Siefers said.

As far as additional uncertainties go, a major question on bankers’ minds now is whether this new tax environment lasts or if it will be a flash in the pan.

After all, with President Donald Trump’s popularity trending down, there’s all the more chance he could be replaced by a Democrat motivated to adjust these lower corporate tax rates.

“It’s something people talk about very often: Where will tax rates go in the future based on the current political environment? It comes up in the M&A context, in the business planning context,” Burns said. “No one has the magic crystal ball to say.”

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TAX REFORM: ONE YEAR LATER

Hospitals: tax reform a prescription for pain

By Lydia Coutré lcoutre@crain.com @LydiaCoutre

As nonprofit hospitals and health care organizations feel their way through the new federal tax law, many industry leaders in Northeast Ohio believe the law will unfavorably impact their costs.

Broadly speaking, the Tax Cuts and Jobs Act reduced the individual and corporate tax rates. However, a number of new provisions that effectively serve as “revenue raisers” were applied to the tax-exempt sector as a source of funding for the new law, explained Bob Vuillemot, central region tax leader for EY’s Health Sector.

“So it’s a continuation of a trend that we refer to as ‘exemption erosion,’ which is the federal and local governments finding ways to reduce the benefits of tax-exempt status,” said Vuillemot, who is based in Pittsburgh.

Many of the changes were intended to bring parity between for-profit corporations and major nonprofits.

However, between new rules around certain tax calculations to an excise tax on high-earning executives and more, the new law has the potential to add significant costs to nonprofit health care organizations.

At Akron Children’s Hospital, for example, it’s estimated the additional taxes will cost the institution around a million dollars, said Michael Trainer, chief financial officer and treasurer. The management team has been able to take the changes “in stride” so far, he said, but they’ve had to make tough choices regarding investments in innovation and research. If the tax bill had been larger, or if it were to grow in size, “it may begin to tug at patient care,” he added.

“So make no mistake, we’ve been able to navigate the tax burden, but it does come at a price,” Trainer said.

The law imposes a 21% excise tax on nonprofits that employ people with compensation greater than $1 million.

In Northeast Ohio, most nonprofits that this would hit are hospitals.

In some ways, this provision is meant as a response to certain limitations that for-profit corporations have on the deductibility of certain compensation, said Rob Friz, partner and U.S. tax health services sector leader for PwC. The new tax law also changed the rules around unrelated business taxable income. Nonprofits pay taxes on certain activities that are unrelated to their charitable mission. For hospitals, this could mean certain pharmacy or laboratory activities, for example, or general advisory services or joint ventures.

Previously, organizations could combine the losses and gains of all of those activities to get their net unrelated business income, on which they’d pay taxes. The new tax law requires each of those lines of business to stand alone.

“So if there are some items, some lines that are profitable, then the 21% tax takes effect on those,” said Alicia LaMancusa, vice president of finance at Akron Children’s Hospital. “When in the past, if you had losses, if you netted them all together as a net loss, you had no tax to pay. Now that they’re standalone, there will be tax on more profitable lines of unrelated activity.”

Another tax provision affecting nonprofit hospitals is the taxation of certain fringe benefits: for example, qualified transportation benefits, including offering pretax parking to employees. Under the new law, the

“It’s a continuation of a trend that we refer to as ‘exemption erosion,’ which is the federal and local governments finding ways to reduce the benefits of tax-exempt status.”

— Bob Vuillemot, central region tax leader for EY’s Health Sector

organization is now taxed for the expense of offering that benefit.

“The thought there being to put us on par with the corporate world, where, if a taxable corporation provides the qualified fringe benefits to employees, they’re not permitted to deduct the expense,” said Bob Waitkus, Cleveland Clinic’s executive director of tax.

The tax law also eliminated advanced refunding of tax-exempt bonds, a change that could make the cost of capital more expensive for nonprofit hospitals. Essentially, this was a refinancing mechanism that offered greater flexibility for nonprofits looking to benefit from lower interest rates.

“That typically allowed us to take advantage of declining interest rates

in the marketplace, so we could save interest expense, save costs on borrowing,” Waitkus said. “That has been taken away from tax-exempt hospitals, so that could be potentially costly depending on what interest rates do in the future.”

Bob Tracz, chief financial officer at Lake Health, said his system refinanced its bonds ahead of the change.

Lake Health had been planning to refinance anyway, but with the new tax law going into effect, it “really just forced us to do that,” he said.

“But, you know, some people are having issues with doing refinancing,” Tracz added. “And what you may find is the debt may not be tax-exempt, which would create some issues as far as increasing your cost of capital.”

Another potential cost to hospitals is that the individual mandate requiring people to have health insurance was effectively repealed through the federal tax law, which reduced the penalty for not being covered to $0.

Vuillemot said there’s an expectation that millions of people will no longer carry health insurance coverage, a change that would likely increase hospitals’ bad debt and their cost of providing financial assistance to uninsured or underinsured patients.

“So that’s a change that’s likely to have a significant negative impact on hospitals’ bottom line, potentially leading to some financial challenges down the road,” he said.

Other changes in the tax law essentially reduce individuals’ tax benefit from charitable contributions, which has some hospitals eyeing their donation streams. It’s a bit too early to tell how much this will affect individual giving, but a reduction is expected, Vuillemot said.

“We have not seen that yet, at least

from our perspective on the foundation side, but that’s always a risk,” Tracz said. “I think when we start looking at churches, Red Crosses and those kinds of things, I think people may say, ‘I’m not getting the benefit of tax deduction.’ They may rein in their contributions.”

Simon Bisson, vice president of institutional relations and development for University Hospitals, said that during 2018’s peak giving season, from October through the end of December, UH didn’t see any slowdown in donations.

“And that may be for a number of reasons,” he said. “One being that the news of this law change hasn’t permeated down fully enough and hasn’t been well explained in order to have a big impact at this point.

More people — as they come to file their taxes in April and work with their advisers more closely — may certainly now become aware of it.

And it does certainly have the potential to impact charitable contributions in the future.”

A significant drop in those contributions would be worrisome for hospitals, which use charitable giving as one of the critical resources to fill the gap between reimbursements and the true cost of care, Bisson said.

The sum of all of these potential impacts remains to be seen, but could be dramatic. Vuillemot noted that hospitals across the country often operate on fairly small operating margins.

“So these additional tax costs reduce those operating margins even more, which makes it difficult for hospitals to invest capital in new equipment and new services,” he said. “So certainly in the long term, patients in the community are going to feel the impact of these changes.”

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PA G E 13

TAX REFORM: ONE YEAR LATER

Q&A: Andrew Lee Tax partner, EY

The Tax Cuts and Jobs Act of 2017 has certainly helped boost profitability at American companies, which saw the corporate tax rate drop from 35% to 21%. And while that’s been a net positive, the recent tax reform has also succeeded in making tax codes even more onerous, leaving many firms still puzzling out how to comply with new codes and to what extent they might benefit in this environment going forward. Crain’s sat down with Andrew Lee, a Cleveland tax partner with EY who works with some of the largest multinational companies in this region — manufacturers in particular — to explore the pros and cons of tax reform a year in to get a sense of what’s helping, hurting or worrying companies in today’s tax landscape. — Jeremy Nobile Let’s set the stage here. Was the Tax Cuts and Jobs Act truly the most-significant reform to tax codes we’ve seen in modern times?

Without a doubt, the Tax Cuts and Jobs Act was the most significant change in the U.S. tax environment in decades. And as we look at its impacts, I think a lot of companies have only now been really focused on the dramatic changes it’s made for them, both in how they deal with tax returns — what we refer to as tax compliance — as well as how it impacts financial statements.

While this lowered the corporate tax rate, another original purpose of these changes was to simplify tax codes. But that’s not what actually played out, is it?

Early in the debate about tax reform, simplification was a word you heard quite a lot. As the debate went on, that term went to drop by the wayside and reform took its place.

The new law has lived up to the way it has evolved. You’d be hard-pressed to find anyone who said the tax law was simplified now. And what companies came to realize, especially as 2018 went on, was just how complicated it made their ongoing compliance requirements.

Does that mean some of the original spirit of tax reform was lost in the kerfuffle of debate?

I think in terms of purpose, this was overdue in the U.S. taxation system.

We had gotten to a place where we

ZONES

CONTINUED FROM PAGE 10

The redevelopment of the May Co. building on Cleveland’s Public Square was delayed for several years because the state of Ohio limits historic tax credit awards to $60 million annually and allows only 25% of any investment to be covered by the tax credit. Because it applies directly to taxpayers, the capital gains taxes shielded by an Opportunity Zone investment have none of those restrictions, though the program and the tax advantages area scheduled to expire in 2026.

“It seems like a very low bar to be a qualified fund,” John Sciarretti, a real estate and community development specialist in the Dover office of the Novogradac & Co. accounting firm, told Crain’s last year. “You simply have to be a partnership or a corporation and have an objective of investing in an Opportunity Zone and hold 90% of your assets in an Opportunity Zone.”

P013_CL_20190128.indd 13

were among a handful of highest corporate tax rate countries in the world. Without a doubt, that was impacting our competitiveness as a country if you look at the international tax balance. So the reform was absolutely needed. The challenge arises as lawmakers work through the details of how individual provisions work and how they get political votes to pass it. As you get from the general concept of lowering the tax rate and simplifying the system to the nuts and bolts of how that works out in the law, and how you get those votes to pass it, that’s when simplification drops by the wayside. People did what they needed to do to get the law passed, and simplification was a bit of a victim in that process.

So the perks of a lower tax rate are obvious. What are some of the negative impacts of reform companies are seeing today?

Seems like one of those that might be particularly relevant to this region and its bevy of manufacturers are the rules on how U.S. companies report income from foreign subsidiaries.

That’s a good example. Here in Northeast Ohio, we’ve got a lot of small and midsize manufacturing companies, and it’s not all that unusual that even a smaller manufacturer is doing business in multiple countries. That’s the reality of the global environment today.

Because of all that, a lot of companies that don’t have a lot of large

The IRS has not completed its regulatory guidance, so the exact limitations are not yet fully known. While buying and rehabbing an old, abandoned warehouse or investing in a startup business located in a zone will likely qualify, it’s less certain that an investor will get the tax break for buying a surface parking lot and fixing up the attendant’s shed.

“The Opportunity Zone makes available significantly more capital,” said Drew Sparacia, CEO of GBX Group LLC, a Cleveland investment fund manager specializing in redeveloping older buildings, mostly east of the Mississippi River. “It equalizes the risk in investing in a somewhat distressed zone.”

GBX owns and is redeveloping a handful of properties along Superior Avenue just east of downtown Cleveland. Sparacia said the firm considers its recent rehab of its headquarters building at 2101 Superior one of the first uses of OZ financing.

KeyBank is also getting into the game. Its Key’s Opportunity Zone Fund

internal infrastructure, like in terms of a large and sophisticated tax department, are having to deal with how to properly report and make these calculations required under the new tax law.

Can you give me an example of how that applies?

One example is the expanded definition of, or requirements for, filing information returns for subsidiaries overseas. Some companies are finding, depending on their size, that the number of filings they have to make related to overseas subsidiaries can go up tenfold. It depends on the size of the companies involved. But no matter the size, there’s a lot more diligence that has to be given on these information returns. In the past, because they were information returns, some companies would do a best effort to get information on the return, but especially smaller and midsize companies might not afford the time and attention to get every little detail exactly right. In the new environment, with how these rules have changed, those little details matter a lot more than they did in the past. Companies are finding they might have to go back and calculate things they did in the past as well as put new procedures in place to get those calculations to have a higher accuracy.

So those are efforts that need to be done on the front end to stand up to IRS scrutiny on the back end.

That’s right. They might have been comfortable with estimates in the past. Now, those are input into the potential amount of tax being paid, which means they have to be a lot more precise and make sure they could stand up to an IRS audit if that were to happen.

If complying with tax codes is more onerous, does that eat away at the perks of a lower tax rate?

Well, what companies that have large footprints overseas are finding is the complexity of new tax laws, and some of the new taxes that come into effect, are taking away some of that benefit in a way they didn’t really anticipate when the law was first passed over a year ago.

“Investors are looking for deals. What we’re seeing in the market is tremendous national competition.”

— Daniel Walsh, CEO of Citymark Capital LLC

I Inc. has invested in projects that serve low-income tenants in Ohio, Massachusetts, Connecticut and Colorado, Laura Mimura, a spokeswoman, said in an email. It does not yet have a project in Cleveland; its one Ohio project so far being in Cincinnati.

At a seminar during the December Blockland Cleveland conference, Daniel Walsh, CEO of Citymark Capital LLC, a Cleveland investment firm, said he believes there will many opportunities for firms like his, which invests in multifamily housing across the country. “Investors are looking for deals,” he said. “What we’re seeing in the market

What are some of the financial offsets to the perks?

There are two big ones. First and biggest that multinationals are seeing is they're paying on new taxes on earnings overseas. That’s probably the biggest of the two costs. The smaller of the two is they’re spending more money on complying with the new tax law itself. That does bring about this situation where virtually every company out there is looking for ways to get this work done, whether hiring new people internally or looking for automated solutions like software or looking for outside providers to augment their workforce to get it all done.

They have to think about pending regulations and wait until there’s certainty on how to file their 2018 returns. And that’s not even the last wave. Some companies are going to find themselves in a position where they have to amend or modify their 2017 tax returns because of some of these interpretations and changes.

What we are going to see is complexity and turbulence that comes from reform probably isn’t going to pass until early 2019 or 2020 for most companies. We are working ourselves up a peak in terms of the top of activity. We will hit that peak in 2019 and early 2020. And that’s a level of activity higher than what companies were used to back before tax reform.

So how does all this tie back to companies filing taxes this year?

You’ve hit on the biggest factor here: uncertainty and continuing wave of change. So when I think of tax reform, I think of it in several ways. It was passed in December 2017.

There were a couple provisions that went into effect immediately, affecting 2017 filings. Then, in 2018, the full force of tax reform went into effect. Not only did they have to think about rules in 2017, but comply with additional provisions that went into effect in 2018. Unfortunately, it doesn’t stop there. The U.S. Treasury issues regulations that interpret the tax law written by Congress, and those regulations have still not been all finalized yet. We are in a situation now where companies who report public financial statements are issuing those based on regulations issued so far. But many of those won’t be completed until May or June. The government has until late June to finalize regulations that would still be effective as of Jan. 1, 2018.

Everything we've talked about so far deals with federal taxes. Are there new complexities on the state front as well?

The vast majority of our 50 states have income taxes and each one of those has its own laws. Ohio doesn’t have a business income tax but a commercial activity tax. So it’s completely different methodology anyway. It’s a rare Ohio company that does not file in multiple states today.

So the complexity here is to figure out in each state they do business in, how do those states adopt tax reform into their state income taxes?

The key point here is that every state has its own taxation rules and, in the wake of tax reform, a lot of states are passing their own laws.

That just continues to magnify the impact on companies because once they swallow all the impact of the federal side of things, they’re not done, they have to think about how to deal with the states.

That sounds like a confounding situation.

And it leaves companies in this situation where if they are issuing public financial statements, they have to make the best effort possible right now. They might have significant adjustments that need to be made once regulations are finalized. A lot of their work will be underway by June. So this year will be somewhat challenging as well.

So tax reform is a net positive, but the tradeoff for that has been the establishment of this more onerous tax environment, which is eating into the benefits. Is that a fair summary?

I think so. But when it comes to tax reform, its impact is going to vary depending on who you look at. What everyone really needs to do now is understand what the significant impact of tax reform on their companies is now in order to get the best benefits in a post-tax reform world.

is tremendous national competition.”

Walsh said initially he was looking at OZ investments in existing, rehabable buildings but now also believes that new apartment complexes, where construction can begin quickly, will also be attractive.

He added that social impact, the reason Opportunity Zones were created, is important and that he sees the for-profit and nonprofit sectors collaborating to create projects.

“There are truly opportunities to invest in a thoughtful way but also collaborate with all the different sources of funding from foundations, the private sector and maybe investors who spent their whole life building a company and now want to give back to their community.”

Michael Jeans, president of Growth Opportunity Partners Inc., a part of business accelerator JumpStart Inc., said he sees the Opportunity Zone program having its first impact stimulating real estate development or redevelopment, although he hopes it will also

stimulate investment in small businesses in low-income neighborhoods.

“If this is to work to its fullest extent, then financial impact and social impact will have to overlap,” he said. “We have investors who have higher return targets, who will require a certain type of investment vehicle, and you have other investors who are interested in the social impact. It’s the latter who we anticipate will see more potential in investing for small businesses.”

That social impact is important to groups like Enterprise Community Partners, a national philanthropy that invests in affordable housing and is looking at OZ investing. In Northeast Ohio, it has helped redevelop housing in what are now Opportunity Zones, including the former St. Luke’s Hospital.

Rachel Reilly, director of impact investing with the Enterprise Community Loan Fund, said, “It behooves fund managers to engage in their communities and make sure Opportunity Zones are meeting their intent.”

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CRAIN’S CLEVELAND BUSINESS

THE LIST

Largest Ohio Mergers and Acquisitions Announced in 2018 Ranked by deal size

THIS DEAL VALUE COMPANY/ASSET SOLD; YEAR (MILLIONS) (1) LOCATION

BUYER; LOCATION

SELLER; LOCATION

DATE ANNOUNCED DESCRIPTION OF COMPANY/ASSET SOLD

1

$35,536.0 Closed

Andeavor San Antonio

Marathon Petroleum Corp.

Findlay

Hound Partners; Franklin Mountain Investments New York; El Paso, Texas

4/29/2018

Andeavor is a petroleum refining, logistics and marketing company. It was known as Tesoro Corp. until August 2017.

2

$10,590.1 Closed

Forest City Realty Trust Inc. Cleveland

Brookfield Asset Management Inc. Toronto

Various investors

7/30/2018

Forest City owns, develops and manages office, retail and apartment facilities.

$6,305.6 Closed

HCR ManorCare Inc. Toledo

ProMedica Health System Inc. Toledo

Carlyle Group LP; Stockwell Capital; Quality Care Properties Washington, D.C.; Chicago; Bethesda, Md.

03/02/2018

HCR owns skilled nursing and assisted living facilities, rehabilitation centers and hospice and home care agencies.

4

$4,656.0 Announced

MB Financial Inc. Chicago

Fifth Third Financial Corp.

Cincinnati

Various investors

05/20/2018

MB Financial provides financial services to small and midsize businesses as well as individuals.

5

$4,367.2 Announced

Esterline Technologies Corp.

Bellevue, Wash.

TransDigm Group Inc. Cleveland

NA

10/09/2018

Esterline Technologies makes engineered products and systems primarily for aerospace and defense customers.

$3,768.6 Closed

Quality Care Properties Inc. Bethesda, Md.

Welltower Inc. Toledo

BlackRock Fund Advisors; Silver Point Capital, Abrams Capital Management San Francisco; Greenwich, Conn.; Boston

04/25/2018

Quality Care Properties is a real estate company focused on post-acute/skilled nursing and memory care/assisted living properties.

7

$2,744.1 Closed

Convergys Corp.

Cincinnati

Concentrix Corp.

Pittsford, N.Y.

Various investors

06/28/2018

Convergys operates contact centers providing a variety of customer management services.

8

$2,263.8 Closed

A. Schulman Inc. Fairlawn

LyondellBasell Industries N.V. London

Franklin Advisory Services LLC; Cruiser Capital Ridgefield Park, N.J.; New York

02/15/2018

A. Schulman Inc. manufactures and supplies plastic compounds and resins.

9

$2,150.0 Closed

Kroger Co. convenience store business United States

EG Group Ltd. Blackburn, United Kingdom

The Kroger Co. Cincinnati

02/05/2018

The convenience store business includes 762 stores in 18 states operating under several brand names.

$1,900.0 Closed

Ainsworth Pet Nutrition Parent LLC Meadville, Pa.

J.M. Smucker Co., through NU Pet Co. Orrville

L Catterton Greenwich, Conn.

04/04/2018

Ainsworth makes pet food under brand names including Rachael Ray Nutrish, Dad's Pet Foods and retailer-specific products.

11

$1,858.4 Closed

Phillips Edison Grocery Center REIT II Inc. Cincinnati

Phillips Edison & Co. Cincinnati

Various investors

07/17/2018

The acquired firm is a public non-traded REIT that owns 86 grocery-anchored neighborhood shopping centers.

12

$1,800.0 Announced

Caraustar Industries Inc. Austell, Ga.

Greif Packaging LLC Delaware, Ohio

Paperboard Parent Inc. Austell, Ga.

12/20/2018

Caraustar Industries Inc. manufactures and supplies recycled paperboard and converted paperboard products.

13

$1,550.0 Announced

Gerber Life Insurance Company Fremont, Mich.

Western & Southern Financial Group Cincinnati

Nestle S.A. Vevey, Switzerland

09/17/2018

Gerber Life Insurance offers life insurance and other insurance products aimed at young families on a limited budget.

14

$1,267.9 Closed

Northfield Park Associates LLC Northfield

MGM Growth Properties Operating Partnership LP, Las Vegas

Milstein Entertainment LLC Northfield

04/04/2018

The acquired company owns the Hard Rock Rocksino and the Cedar Downs off-track wagering facility in Sandusky.

$1,250.0 Announced

55 medical office buildings and related properties United States

Welltower Inc. Toledo

CNL Healthcare Properties Inc. Orlando, Fla.

12/27/2018

The buildings include 3.3 million rentable square feet in major markets in 16 states.

16

$1,000.0 Announced

USAA Asset Management Co. United States

Victory Capital Holdings Inc. Brooklyn, Ohio

USAA Investment Corp.

San Antonio

11/06/2018

USAA Asset Management includes USAA Investment Corp.'s mutual fund and exchange-traded fund businesses.

17

$950.0 Announced

Ranpak Corp.

Concord Township

One Madison Corp.

New York

Rhone Capital LLC New York

12/12/2018

Ranpak manufactures paper-based box packaging products.

18

$845.0 Closed

Omni Air International LLC Tulsa, Okla.

Air Transport Services Group Inc. Wilmington, Ohio

NA

10/01/2018

Omni Air International LLC, a charter airline, provides transportation solutions.

19

$840.0 Announced

Formica Corp.

Cincinnati

Broadview Holding B.V. s-Hertogenbosch, Netherlands

Fletcher Building Ltd. Penrose, New Zealand

12/18/2018

Formica Corp. manufactures and markets laminating and solid surfacing products.

20

$810.0 Closed

Tools & Test business of Textron Inc. Rockford, Ill.

Ridge Tool Company Inc. Elyria

Textron Inc. Providence, R.I.

04/18/2018

The Tools & Test business makes electrical and utility tools, diagnostics, and test and measurement instruments.

21

$784.0 Closed

FCX Performance Inc. Columbus

Applied Industrial Technologies Inc. Cleveland

Harvest Partners LP New York

01/08/2018

FCX Performance distributes process flow control solutions and products.

22

$700.0 Closed

Relish Labs LLC Chicago

The Kroger Co. Cincinnati

L Catterton Greenwich, Conn.

05/23/2018

Relish Labs LLC, doing business as Home Chef, offers a meal delivery service that includes ingredients and recipes.

$690.0 Closed

ATM and debit servicing business of Elan Financial Services United States

Fiserv Inc. Brookfield, Wisc.

U.S. Bank NA Cincinnati

09/25/2018

This business includes debit card processing, ATM managed services and MoneyPass network assets.

24

$607.0 Announced

Drive Systems Segment of Oerlikon Group Switzerland

Dana Inc. Maumee

OC Oerlikon Corp.

Zurich, Switzerland

07/30/2018

The Drive Systems Segment develops gear-related parts and systems for vehicles and industrial equipment.

25

$600.8 Announced

Harvest Volatility Management LLC New York

Victory Capital Holdings Inc. Brooklyn, Ohio

Various investors

09/21/2018

Harvest is a derivative asset management firm with $12.5 billion under management as of Dec. 6, 2018.

26

$550.0 Closed

L.D. Kichler Co. Inc. Independence

Masco Corp.

Livonia, Mich.

NA

01/08/2018

L.D. Kichler provides indoor and outdoor lights, ceiling fans, mirrors and home accessories.

27

$525.0 Closed

Extant Components Group Holdings Inc. Melbourne, Fla.

TransDigm Group Inc. Cleveland

Warburg Pincus LLC New York

03/19/2018

Extant manufactures support electronics and avionics systems for aviation applications.

$521.0 Announced

15 television stations of Cordillera Communications United States

Scripps Media Inc. Cincinnati

Cordillera Communications LLC St. Paul, Minn.

10/27/2018

The 15 stations include five in Montana and 10 stretching from Lexington, Ky., to San Luis Obispo, Calif.

$470.0 Closed

Sunlight Supply (2) Vancouver, Wash.

Scotts Miracle-Gro Co., through Hawthorne Hydroponics LLC Marysville, Ohio

Sunlight Supply affiliates Vancouver and Tumwater, Wash.; Surrey, British Columbia

04/12/2018

Sunlight Supply makes and distributes specialty gardening supplies for indoor, hydroponic, organic and greenhouse gardening applications.

30

$452.0 Closed

Celenex Inc. Columbus

Amicus Therapeutics Inc. Cranbury, N.J.

NA

09/19/2018

Celenex develops and commercializes gene therapy programs for lysosomal storage disorders.

31

$450.0 Closed

Pin Oak Terminals LLC Mount Airy, La.

MPLX LP Findlay

Pin Oak Holdings LLC Mount Airy, La.

09/26/2018

Pin Oak Terminals owns and operates oil and gas terminals.

32

$445.5 Closed

Portion of non-prime credit card receivables portfolio

CarVal Investors LLC; Castlelake LP Minneapolis

Signet Jewelers, through Zale Delaware and Sterling Jewelers; Irving, Texas, and Akron

03/12/2018

NA

33

$431.9 Closed

20% stake in 10 Hudson Yards New York

State Teachers Retirement System of Ohio, Columbus

NA

05/18/2018

10 Hudson Yards is an office tower that's part of a large mixeduse real estate development project.

3

6

10

15

23

28 29

RESEARCHED BY CHUCK SODER (CSODER@CRAIN.COM)

Get all 54 deals and deep transaction details. Become a Data Member: CrainsCleveland.com/data

Source: S&P Global Market Intelligence, (Marketintelligence.spglobal.com) and Crain's research. The list excludes deals that were announced in 2017 but closed in 2018. Crain's does not verify all information and there is no guarantee these listings are complete or accurate. Send feedback to Chuck Soder: csoder@crain.com.

(1) Includes earn outs and other payments that occur only when certain conditions are met. (2) Includes Columbia River and all assets of Sunlight Supply, IP Holdings and Sunlight Garden Supply entities

P014_CL_20190128.indd 14

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t

CRAIN’S CLEVELAND BUSINESS

SHUTDOWN CONTINUED FROM PAGE 1

That means the SBA lent out an average of $2.5 billion a month in the prior fiscal year, or about $37.8 million a month in Cleveland.

Since the shutdown began over a month ago, on Dec. 22, that’s logically about what’s being kept from wouldbe borrowers today, which includes everything from service firms and manufacturers to retailers, wholesalers and construction companies.

Mark Zandi, chief economist at Moody’s Analytics, estimated that the government shutdown likely delayed about $2 billion in SBA financing so far, citing that as one of many reasons the economy could have been driven into a recession if the furlough stretched into February or March.

Many lenders rushed to process some SBA loans before the shutdown happened. But requests that came in since then have simply been sitting in a queue, waiting for the government to reopen, which it did on Jan. 25.

James Fliss, the national SBA manager for KeyBank, one of this market’s most active SBA lenders, said previously approved loans are unaffected and the bank is still processing new SBA requests in the meantime.

But the process couldn't be completed until the government reopens.

“Once the government shutdown ends, these clients’ loan requests can be quickly authorized through the SBA,” Fliss said prior to the temporary resolution. “We will continue to support our clients during this time.”

“The business banking credit and operations group is working closely with the sales teams on behalf of our borrowers to do the right thing in terms of supporting those impacted by a unique circumstance,” said Emily Smith, a spokeswoman for Huntington Bank, which is this region’s most active SBA lender. “This includes the ability to make loan payments or overdrafts due to delays from government contracts or receivables.”

While lenders say they’re working

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PA G E 15

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Cleveland district’s SBA loans by industry

SBA pools dry up

The sectors that receive SBA loans through the 7(a) and 504 loans programs vary greatly. The Cleveland district saw an average of $37.8 million in SBA loans awarded a month in 2018, with the total number of dollars lent growing by 5.7% over 2017. Considering the government shutdown lasted more than a month, small businesses in Northeast Ohio may have already missed out on nearly $40 million.

U.S. government shutdown pulls hundreds of millions from the market.

12/23/2018-1/22/2019

0 — Shutdown

11/23-12/22/2018

$487.4M

10/23-11/22/2018

$732.6M $991.5M

9/23-10/22/2018 $683.8M

8/23-9/22/2018 7/23-8/22/2018

$901.5M

6/23-7/22/2018

$772.7M

5/23-6/22/2018

$648.6M

4/23-5/22/2018

$594.5M

3/23-4/22/2018 2/23-3/22/2018

$842.7M 488.8M

1/23-2/22/2018

with these SBA borrowers, their support can only go so far, particularly in terms of actually providing capital.

The purpose of the SBA programs is to make credit available to generally higher-risk small businesses that might not otherwise have access to loans. The government-backed guarantee in the SBA loan programs is what makes those products serviceable in the eyes of risk-averse lenders. That means SBA borrowers may not have access to capital via other products.

And while some lenders say they’re offering short-term bridge loans to help these borrowers, it’s unclear if that might violate the SBA’s “credit elsewhere” statute — which effectively excludes borrowers from consideration for an SBA loan if they can get money elsewhere — potentially making traditional SBA loans unavailable to those borrowers once the government reopens. That’s something the Consumers Bankers Association brought up in a letter to Congress requesting that “all options be explored” to get the SBA back online.

“Small businesses were among the first to feel the effects of this shutdown due to the inability of the SBA to process and guarantee loans within its

programs, including the important 7(a) and 504 programs, among others.

These programs, which work with preferred lenders, remain a vital source of lending for many small businesses that would not otherwise qualify for conventional lending,” wrote CBA president and CEO Richard Hunt. “These loans also allow America’s small businesses to expand, hire new workers and grow local economies. … In order to help mitigate the economic ripple effects of the government shutdown, CBA requests that all options be explored to reopen the SBA’s 7(a) and 504 loan programs.”

Although loan requests are being placed into a queue, there’s a chance that could lead to a bottleneck in the approval process when the government reopens, particularly for firms that don’t fit into the SBA’s Preferred Lenders Program (which includes both Key and Huntington), as they have to go through a more cumbersome approval process.

“There’s never a good time for this to happen. But once it does, and the government comes back, you typically don’t miss a beat,” one banker said, referencing past shutdowns. “This is different.”

$581.5M

12/23/2017-1/22/2018

$623.2M

Source: Bloomberg data

Bloomberg

Small business ‘livelihoods at stake’ in shutdown Bloomberg

Small business owners may have to rethink their plans as the longest-ever U.S. government shutdown blocks them from securing funding, according to the head of one of the biggest U.S. Small Business Administration lenders.

Huntington Bancshares Inc. CEO Steve Steinour said the SBA closure, part of the federal shutdown, is beginning to hinder businesses that rely on its federally backed financing.

“We’re actually going to have small business, very soon, impacted negatively because we can’t get an SBA

loan,” Steinour said in an interview last Thursday, Jan. 24. “These are mom-and-pop businesses — they’ve got their livelihoods at stake.”

Columbus-based Huntington is offering its customers solutions, such as short-term bridge loans, but the remedies can’t replace the full financing package that comes with SBA loan approval, Steinour said.

The SBA issued about $700 million in bonds a month over the past year, but that stopped when the shutdown began. Without government funding, the SBA is closed, preventing small business owners from getting funding from the administration.

LIST ANALYSIS

Marathon Petroleum purchase dominates M&A deals list

By Chuck Soder csoder@crain.com @ChuckSoder

Marathon Petroleum Corp. got much, much bigger in 2018.

Last year, the Findlay-based company acquired one of its rivals in the oil and gas industry, San Antonio-based Andeavor, for a whopping $35.5 billion.

That deal easily topped our list ranking the largest Ohio mergers and acquisitions announced in 2018.

In fact, it’s by far the largest deal to appear on the list since we first published it five years ago.

The deal added 10 oil refineries to six already owned by Marathon, pushing it past Valero to become the biggest U.S. oil refiner by total volume. It also should push Marathon’s annual revenue past $100 million. The company generated $74.7 billion in sales in 2017, while Andeavor generated $35 billion in that year. (Figures for 2018 weren’t available as of last Friday, Jan. 25.)

Marathon only did one deal on the list, which is based on data from S&P Global Market Intelligence. The full digital version includes 54 deals.

But it was such a big deal that it greatly skewed the annual total: The top 50

P015_CL_20190128.indd 15

deals on this year’s list were valued at $98.5 billion. If you take out the Marathon deal, the total drops to $63 billion — just a tad lower than last year’s total.

Marathon has been one of the most active acquirers on this list since we started compiling it if you also count deals done by its sister company, MPLX LP, which owns and operates oil and gas pipelines and other so-called “midstream” energy assets. That company made acquisitions that ranked in the top 10 on versions of this list published in 2016, 2017 and 2018 (granted, in a few cases it was buying assets from Marathon affiliates). MPLX’s purchase of Pin Oak Terminals in Lousiana appears at No. 31 on this year’s list.

The No. 2 deal on the list was one of the biggest local news stories of 2018: In December, Brookfield Asset Management finalized its acquisition of Forest City Realty Trust, a national real estate company with a long, storied history in Cleveland.

Another local public company, Fairlawn-based A. Schulman, was bought out by LyondellBasell Industries of London last year. That deal is at No. 8 on the list.

Northeast Ohio will lose yet another public company headquarters

when Victory Capital — which is slated to acquire USAA Asset Management Co. in the second quarter — moves its headquarters to San Antonio, where USAA is based.

However, another deal on this list will add a business to Northeast Ohio’s roster of public companies: A special-purposed acquisition company called One Madison Corp. struck a deal to acquire packaging products maker Ranpak Corp. of Concord Township in December. One Madison Corp. is publicly traded; thus, Ranpak will be publicly traded when the deal closes.

Granted, not every deal on this list will close. Seventeen of the 54 deals on the full digital list — nearly a third — have yet to do so.

The most active acquirer this year in terms of number of deals was Welltower. The Toledo-based health care real estate firm shows up in the buyer column on the full digital list three times. Its $3.8 billion acquisition of Maryland-based Quality Care Properties appears at No. 6 on the list.

Another company that usually shows up a few times in the buyer column on this list is TransDigm Group. This year is no exception: The Cleveland-based aerospace products company has two deals on the list.

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GSB_LoanAd_Craines_4x6.indd 1

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CRAIN’S CLEVELAND BUSINESS

AKRON

Client assurance demand propelling startup SubRosa

By Judy Stringer clbfreelancer@crain.com

Here, runners cross the finish line at the Akron Marathon, Half Marathon and Team Relay, but it’s the new start line on the grounds of Stan Hywet Hall & Gardens that has participants excited. (Contributed photo)

New start line creating more marathon buzz

By Judy Stringer clbfreelancer@crain.com

Akron Marathon officials typically get a little bump in “buzz” about the September run when registration opens in January, according to race director Brian Polen.

In his seven years on the job, however, Polen has not seen an opening quite like this one. More than 1,000 runners registered on Jan. 9, a record-breaking opening day for the 16-year-old marathon. Running clubs and groups from all over the city are asking him to come and speak.

“People are excited. They are talking about it. They almost can’t wait,” he said. “A lot of people have started their countdown calendar, and I can’t tell you how fun it is to see a fresh batch of excitement in our local running community.”

The catalyst behind this “fresh batch of excitement” was the announcement, a day earlier, that the marathon start line will move 3.5 miles west from South High Street, near the corner of University Avenue, to a location inside the gates of Stan Hywet Hall & Gardens. While runners will still end their journey at Canal Park Stadium, a West Akron start transforms the longtime loop course — which began and ended within two city blocks for the past several years — to a point-to-point race. That means a whole lot more shuttling will be required, said Anne Bitong, executive director of the Akron Marathon Charitable Corp.

In previous marathons, buses from Akron Metro RTA escorted 3,500 to 4,000 relay runners to various exchange zones on the route throughout the six-hour event. This year, Metro will move nearly twice that number even before the race begins.

Polen said upward of 6,500 marathoners, half-marathoners and firstleg relay runners will park downtown — as they have in the past — and jump on shuttles from the former start line on South High to Stan Hywet for the 7:30 a.m. start.

“Another thing we have done is move the start time from 7 to 7:30 a.m.,” Polen

P016_CL_20190128.indd 16

said, partly because Stan Hywet’s grounds don’t have the same level of illumination at 7 a.m. as downtown streets, but also to provide shuttle time.

“So if I were a runner and I was used to parking downtown at 6 (a.m.), I would still park downtown at 6 and use the additional half hour with the start-time change to accommodate my travel,” he said.

With the start-line change, eight to 10 more buses will be needed, compared with previous marathons, bringing the Sept. 28 race-day shuttle fleet to about 40, according to Metro RTA spokeswoman Molly Becker.

Sourcing those buses is not a concern, Becker said, because it’s on a Saturday and the extra buses would have been off duty in the garage.

Paying Metro for the added vehicles and manpower is not a significant issue either, Bitong said, noting that transportation accounts for roughly 1% of the marathon’s annual expenses, eating up less of the budget than other line items provided to runners such as swag and giveaways.

The operating budget is $1.3 million, which covers the three races in the series: an 8K in June, a half marathon and 10K in August, and the marquee event in September, Bitong said.

Akron Children’s Hospital is the title beneficiary of the series, and the events have raised $1.3 million toward patient care over the past three years.

Akron Mayor Dan Horrigan thinks the point-to-point design actually might be less taxing on local police and safety forces. Three of the final 4 miles, for example, are on the Ohio & Erie Canal Towpath Trail, which reduces the number of intersections that have to be shut down and manned. Horrigan said the city provides those safety services free of charge, planning as much as a year in advance to accommodate the demands of that one day.

“It’s kind of like a national holiday for the city. Residents get excited.

They get up early to cheer runners on,” he said. “I think (marathon officials) know best on how to stage an event in and around the assets and limits of what Akron has to offer, and we are here to support that.”

The change is well worth any other costs and headaches associated with additional internal planning and coordination with the city, transit authorities and the folks at Stan Hywet, Polen said, because the aim is to improve the experience for marathon participants.

“Since I have been here, this will be the first time we are changing the course because we want to make it a better course for our runners, as opposed to reacting to something that is out of our control,” he said.

The Akron Marathon has long been known as “a pretty challenging course,” according to Bitong. Many marathoners choose races based on hills and elevation, she said. The previous route required runners, at about the halfway point, to climb out of downtown into West Akron.

By moving the start line to West Akron, the course will be “flatter and faster,” she said, as marathoners begin at the high point and run downhill. In fact, the redesigned course features a net 300-foot drop.

“We have taken our biggest disadvantage and turned it into our advantage,” Polen said.

An added benefit, according to Polen, is that “half-marathoners now get to weave in and out of West Akron before the downhill finish into the stadium.” On the previous course, half-marathoners never made it to Akron’s west end.

“Something that we have heard from our half runners many times is that they’d love to run in West Akron,” he said.

In both cases, runners will experience some of Akron’s best urban assets, Polen noted, as the final segment of their 26.2- or 13.1-mile foot tour takes them on the Towpath Trail, over the Summit Lake floating bridge and into the city, where they will pass Akron Children’s Hospital “with the patients out cheering them on and the excitement of the campus.”

“To me, the most exciting part of all of this is that we are rolling out an Akron Marathon course that we as a staff, we as a city, want our runners to experience,” Polen said, “and that hasn’t been the case for the past few years.”

While data breaches at big companies tend to get the big headlines — and big settlements — smaller enterprises are just as much of a target for cybercriminals, according to John Price, president at Hudson-based SubRosa Cyber Solutions.

In fact, almost half of all cyberattacks — 43% — are directed at small businesses, according to data compiled by the nonprofit business advisory SCORE in 2018. A study by Massachusetts-based Kaspersky Lab, meanwhile, found security breaches cost small- and medium-size companies an average of $117,000 in 2017.

And if that’s not enough to get business owners’ attention, Price said, consider this: Large corporations are all too aware of the potential impact of lax security protocols and bad habits among third-party vendors.

“Companies are taking a closer look at their supply chain and risks that are posed by their vendors and clients, and the vendors and clients of their vendors and clients,” he said.

“And they are making business decisions based on this information.”

For more than a decade, Price worked in cybersecurity for the U.K. government and for the financial services industry in the U.S. He launched SubRosa in 2017, but the information security services provider “really took off” in the past six months or so, buoyed in large part by its vendor risk and due diligence services.

“The major driver is this client assurance piece,” he said. “For the most part, cybersecurity is still a very reactive industry, but here we see our small- and midsize companies reacting to their client demands, not necessarily only to a breach or an event.

“Cybersecurity is becoming an influencer in the decision process and in the procurement process, so if a client of ours is bidding on a big contact and that contract involves cybersecurity, that is when we see the most interest.”

The corporate focus on client assurance, Price said, can be traced back to the 2013 Target breach, in which attackers backed their way into Target’s network by compromising an HVAC contractor’s system. Today, vendors who serve larger clients are “inundated with questionnaires and requests for (security and data protection) information,” he said.

“The contractual or legal requirement to answer these questionnaires can cripple a company or really drain an IT department’s resources,” Price continued.

SubRosa helps clients fulfill those requests, while advising them on how to plug up security holes and/or strengthen data protection practices along the way. For its larger clients, SubRosa assesses and analyzes supply-chain threats. The company also helps businesses scrutinize the information security strengths and weaknesses among M&A targets, another area of growing concern.

If Target’s consumer breach was the wake-up call in the vendor-risk

SubRosa Cyber Solutions president John Price

sphere, Price said, Verizon Communication’s purchase of Yahoo demonstrated the importance of data security due diligence. Verizon sliced $350 million off its Yahoo acquisition offer after a series of data breaches were revealed.

“Verizon was able to negotiate a large discount because they are inheriting all that risk,” he said. “You buy a company and you are buying all the risk that goes with it — all the bad habits and the bad practices.”

Price said only a handful of Northeast Ohio companies specialize in helping business mitigate third-party security risks. SubRosa operates as a remote company. Price runs the organization from an office in the vintage octagon “bank barn” on the south end of Hudson. The building is owned by The Impact Group, whose co-founder, Don Polyak, acts as chief marketing officer for the cybersecurity startup in addition to his day job.

SubRosa also has an office in London, according to Price. Its 15 employees, however, are located around the U.S. and Europe, including two employees in Hawaii who conduct the off-hour network testing.

“We have not had a need for an expanded physical location in this area yet, but that is something that we are looking to grow this year and into next year,” Price said.

Price prefers to hire cybersecurity personnel from military or government, he added, because they are well trained and “live and breathe this every day.” Finding that kind of talent locally is difficult, he said.

Price will not disclose revenues, but said the company averages between 20 and 40 clients at a time.

About 30% of its business is overseas, primarily in Europe, where tougher privacy laws require companies to employ a data protection officer.

“We offer a capability where we can be that data security person for a small or midsize company,” he said.

That said, Polyak thinks the bulk of SubRosa’s future growth will be much closer to home. His boutique marketing firm gets hit at least twice a year with a “targeted malicious attack.”

Having Price’s expertise has been invaluable, he said.

“If you as a business owner are not concerned, are not thinking about how you protect your information and your assets, someone else is,” Polyak said.

1/25/19 12:02 PM

CRAIN’S CLEVELAND BUSINESS

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PA G E 17

AKRON

Goodyear hopes to ride out bumpy road

By Dan Shingler dshingler@crain.com @DanShingler

Goodyear Tire & Rubber Co. lost 42% of its market value in 2018, as its stock plummeted from more than $34 a share to about $20 per share between Januaries.

The company has been facing a challenging environment, with high raw material costs, a tough market for price increases, lower demand for its tires in the U.S. and some other markets, and a slowing Chinese economy.

So, what’s in store for the Akron icon?

The company and at least some of the analysts following it think Goodyear can wait for conditions to swing around in its favor, something the 120-year-old company has done many times. But others say it could face pressure to change, possibly even from an activist investor if one chooses to take advantage of the company’s vulnerable position.

“It’s not a vote of confidence when your stock drops from $40 to $20. I’m surprised there’s not an activist in there now,” said Anthony Deem, an analyst who follows Goodyear at Independence-based Longbow Research.

Deem, often critical of Goodyear, has not been taken totally by surprise by the drop in the company’s stock.

“I didn’t think the stock would drop as precipitously as it has, but I think it’s justified,” Deem said.

Others think the market has overreacted and don’t blame Goodyear.

“The tire business is one that’s incredibly complex,” said John Healy, an analyst at Northcoast Research in Cleveland. “There’s a chemistry business to it in terms of research and development and creating a quality product. Then there’s a very challenging manufacturing side of things, and there’s the sales on a global basis. … Then there’s also the impact of raw materials and foreign exchange (currency) movements. It makes it just a tough business to manage.”

Healy, a value investor, has a buy recommendation on Goodyear’s stock.

He and Deem agree, along with the company, on some of the things Goodyear needs to do: Build and maintain capacity for high-value tires, enforce higher pricing, regain some market share at home and abroad, and, perhaps most important, stop surprising the markets with bad news.

That last point has been particularly painful to watch, analysts say, because the wounds of missing earnings guidance are largely self-inflicted in their eyes, and they cost the company dearly in credibility with investors.

“That was one of the big problems with the stock last year. The company didn’t have reliable forecasting. I think in something like 12 of the last 14 quarters they’ve revised their guidance,” Deem noted.

He and others say Goodyear may have addressed that issue by bringing back its former chief financial officer, Darren Wells, who they say ran a tighter ship before he left the company in 2013. Wells seems to have taken his lumps early by removing the company’s earnings guidance for the year. But investors went from expecting operating profits of $1.8 billion at

P017_CL_20190128.indd 17

its when it brings foreign currency home and coverts it to dollars.

As it waits for those situations to improve, Goodyear is taking steps to cut costs and increase sales, Zamarro said. In 2018, it shuttered its four most expensive plants: three in the European Union and one in VenezuC R A I N ’ S C L E V E L A N D B U S I N E S S | Sela, E P Tshe E M Bnoted.

E R 3 - 9 , 2 018 | PA G E 4 0 It hasn’t announced any recent job cuts in Northeast Ohio, and no announcements are pending regarding further closures, Zamarro said.

The company formed TireHub LLC, a joint venture with Bridgestone Americas Inc. that will wholesale both companies’ tires. It also launched Roll, a service by which consumers can order tires from a Goodyear dealer and have them delivered and installed at their home or business.

To place your listing in Crain’s Cleveland Classifieds Whether those moves will be enough or whether external condiContact Kate Rozek at 216-771-5276 / email CLBClassified@crain.com tions will change soon is still up in Copy Deadline: Wednesdays @ 2:00pm -- All Ads Pre-Paid: or Credit Card theCheck air.

Zamarro, however, doesn’t think there’s much an activist investor or a purchaser could do differently, though.

The tire company is already so concentrated that another major One of Goodyear’s blimps flies over the tiremaker’s Akron headquarters. (Contributed photo) company could have trouble buying North America, and that’s ramping up Goodyear anyway due to antitrust laws. now,” Zamarro said.

“When you think about someone Deem said he’s talked with suppliers of the Mexican plant, who were coming in to purchase our company, the idea is usually that there’s someimpressed.

“They’ve never seen a plant ramp thing that the management team up so successfully in such a short isn’t doing to change the course of time frame while other competitors business over the short course of are struggling to get capacity,” he time … but I think our leadership said. team has demonstrated an ability to But it’s another nation that might get savings from our business as well worry Goodyear and its analysts the as to drive underlying performance,” most — China. The nation of about she said.

1.4 billion people has only about 240 More succinctly, Zamarro said, million cars, so it’s seen as the ulti- “This is an industry issue, not a mate growth market for automakers. Goodyear issue.”

Healy thinks the company is set to But the Chinese economy’s growth rate slowed to 6% last year, more than have a good year, with its balance sheet in good shape, its costs under enough to clobber its auto industry.

“It’s resulted in an OE market down control and a good strategy to in4% in 2018, and that was Advertising the first time Section crease sales. Like Deem, he said there market has been down many the start of 2018 to $1.3 billion, and, “In the U.S., at the end of 2016, we the Chinese To place your listing, contact Kate are Rozek at variables beyond the company’s control that could threaten its now, perhaps a bit less. The company were very tight on high-end tires. 2017 since 1990,” Zamarro said.

313-446-0485 or email krozek@crain.com Goodyear also can’t do much about success, but he’s in. is expected to release its 2018 results saw a little relief, but it came from flat of the U.S. dollar, which to down markets for replacement the valuewww.clevelandbusiness.com/classifieds on Feb. 14.

“As we exit 2019, you’ll see GoodGoodyear vice president of finance (tires). We’ve added new capacity for when high dings the company’s prof- year in good shape,” Healy predicted.

Christina Zamarro said the company is addressing its issues, though some will take time to resolve.

She said the company is having fewer troubles with its pricing, something critically important as Goodyear attempts to sell more large-diINDUSTRIAL BUSINESS ameter, high-value tires. On a standard tire with a diameter of 17 PROPERTY FOR SALE inches or less, Goodyear makes about $9 in profit, compared to about $26 on a larger, high-value tire, the For Sale or Lease company reports.

150,000 SF Industrial Goodyear was the first big tiremaker to increase prices last year, and Contact Kate Rozek: when others didn’t quickly follow suit, it was at a price disadvantage.

But the pressure of higher raw mate216-771-5276 or rial costs have evened the playing field, Zamarro said.

“We hit a point in the fourth quaremail CLBClassified@crain.com ter where the majority of tiremakers 8820 East Avenue,Mentor, OH 44060 had come out with price increases, so Sale Price: $5,250,000 it’s moving in the right direction,” she • 150,000 +/- SF on 7.8 acres • 14’-22’ Clear Heights said.

• Multiple Loading Docks and Drive-in Doors The company also has addressed Copy Deadline: • Large Parking Area its capacity issues, she said. It once • Rail Access Contact had trouble making as many of the • City of Mentor Incentives Available Wednesdays @ 2:00pm high-value tires as customers wantKate Rozek at RICK OSBORNE JR. O: 440.299.5190 ed, but a new $550 million plant in C: 216.219.0290 216-771-5276 All Ads Pre-Paid: Check or Credit Card Mexico will enable it to meet derickosbornejr@kw.com OH #2010001710 mand.

CLASSIFIEDS

CLASSIFIEDS

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He said it is incumbent on governments to “go the extra mile” to make reporting requirements easy and get information into the hands of people who could potentially be affected.

“If you’re giving this benefit to healthy people, you need to encourage them to remain in either the labor market or remain in some type of productive capacity so that they don’t lose what economists call human capital, so they don’t drop out of labor markets, so they don’t work less, for example,” he said.

Since it became the first state to implement work requirements last June, Arkansas has seen nearly 17,000 people lose their Medicaid coverage, which is more than 20% of all beneficiaries subject to the new policy.

“The fact that such a large share of Arkansas beneficiaries have already lost coverage raises huge concerns as

CRAIN’S CLEVELAND BUSINESS

to what will happen in other states,” Solomon said on a press call.

Loren Anthes, public policy fellow for The Center for Community Solutions’ Center for Medicaid Policy in Cleveland noted that CBPP tends to be “a little bit progressive in their orientation, but, I mean, the numbers are the numbers.”

Work requirements inherently add additional layers to the eligibility process that require more of individuals and the system.

“I’m just not convinced that you could create something so seamless in the context of government that makes it simple,” Anthes said. “So I think their claims generally around work requirements and the disenrollment and why it’s happening are pretty accurate, and I would go so far

they were incarcerated, had passed away, requested closure or saw their household income increase.

In December, for — Loren Anthes, public policy fellow for The Center for instance, 14% of Community Solutions’ Center for Medicaid Policy Arkansans who as to say that Ohio would probably lost coverage lost it because their household increased income, which experience something similar.”

Ohio’s pending proposal requests Hederman said is a success story: permission from the federal govern- seeing people make enough money ment to require that, in order to re- to move up and off of Medicaid.

Also in December, 36% of those ceive benefits, Medicaid recipients either work or participate in ap- who lost coverage did so because proved community engagement ac- they failed to return requested infortivities. A number of exemptions are mation. For 12%, they were unable to included for certain groups, includ- locate the client or the client had ing those 50 years of age or older, in- moved out of the state. dividuals who are physically or men“The reason I think that looking at tally unfit for employment and this is important is kind of for what others. we call program integrity, to making Hederman said he doesn’t believe sure benefits are going to people that the CBPP report tells the full story. deserve them,” Hederman said.

The Ohio Department of Medicaid Some people lost coverage because

“I’m just not convinced that you could create something so seamless in the context of government that makes it simple.”

estimates that only 5%, or about 36,000, of current Medicaid expansion enrollees will need to comply with the work requirement or face disenrollment. The state is estimating that roughly half of those 36,000 individuals subject to the requirement will not comply and lose their eligibility for Medicaid, according to its proposal to the feds.

“I don’t think it’s accurate to say that this would be impossible for government to implement,” Hederman said. “The state of Ohio does expect some people to not comply or not even report, so I would anticipate some people from Medicaid who fail to follow the rules will temporarily lose their benefits.”

Ultimately, Ohio is likely to see folks fall off the Medicaid rolls if it implements work requirements.

“Any time you’re going to put extra steps in a process, you make that process more complicated, and with complexity comes problems — in anything,” Anthes said.

Advertising Section

PEOPLE ON THE MOVE

To place your listing, visit www.crainscleveland.com/people-on-the-move or for more information, please call Debora Stein at (917) 226-5470 or email dstein@crain.com.

INSURANCE

LAW

LAW

LEGAL

LEGAL

Brunswick Companies

Sutter O’Connell

Calfee, Halter & Griswold LLP

Taft Stettinius & Hollister LLP

Taft Stettinius & Hollister LLP

Brunswick Companies is proud to announce the addition of Rachele Spencer as the Manager of our Personal Insurance Department. Rachele will be responsible for leading the team in their focus on managing existing clients and supporting the continued business growth. With her strong background protecting high net worth individuals, family offices and professional athletes, Rachele compliments the high level of service we provide to our clients nationwide.

We are pleased to announce the election of Kevin Kita as a Shareholder. Our clients have benefited from Kevin’s successful experience in automobile warranty, product liability, insurance coverage/bad faith, and breach of contract cases. He has obtained favorable verdicts in multiple state and federal courts. He has also defended appeals in the various Courts of Appeal in Ohio, Federal Circuit Courts, and the Ohio Supreme Court.

Kevin earned his JD from the University of Akron School of Law.

Calfee, Halter & Griswold LLP is pleased to announce that Gwen Gillespie Herman has been elected Partner. Gwen practices with Calfee’s Corporate and Capital Markets group in the areas of mergers and acquisitions, divestitures and sales, and public company M&A counseling. She counsels private and public company clients on general corporate, business, and governance matters, new business formation, mergers, acquisitions, divestitures and reorganizations.

Mark F. Fazio has joined the Cleveland office of Taft as a partner in the Mergers and Acquisitions and Private Equity groups.

Mark has significant experience representing public and private companies on a wide array of matters, including mergers, acquisitions and divestitures, business formation and growth strategies, and private debt and equity financings. He received his undergraduate degree in accounting from the University of Notre Dame and his J.D. from Duke University School of Law.

Taft is pleased to announce that Brandi N. Weekley has been elected to the firm’s partnership. Brandi focuses her practice on mergers and acquisitions, private equity and venture capital transactions. She counsels private equity funds, venture capital funds and emerging growth companies on all aspects of acquisitions, dispositions, capital formation and private placements. She received her B.A. from Ohio Wesleyan University and her J.D. from Cleveland-Marshall College of Law.

LEGAL

LEGAL

MANUFACTURING

O’Toole, McLaughlin, Dooley & Pecora Co., LPA

O’Toole, McLaughlin, Dooley & Pecora Co., LPA

Kichler Lighting

We are pleased to announce that Samuel Dodoo has joined the firm as an associate attorney. Sam received his undergraduate degree from UC Berkeley where he majored in Environment Economics and Policy and earned his law degree from Case Western Reserve University. He is admitted to the Ohio Bar, the U.S. District Court for the Northern and Southern Districts of Ohio and is a Health Services Officer in the United States Army Reserve. Sam will be supporting the Litigation and Public Sector practice groups.

We are pleased to announce that Bernadette M. Matheson has joined the firm as a senior associate. Bernadette received her undergraduate degree from Northwestern University where she majored in Mathematics and International Studies and earned her law degree cum laude from the University of Dayton School of Law. She is admitted to the Ohio Bar, the U.S. District Court for the Northern District of Ohio and the U.S. Tax Court.

Bernadette will be supporting the Probate and Estate Planning practice group.

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PEOPLE ON THE MOVE

Vijay Shankar joins Kichler as executive vice president of sales.

He most recently served as the senior vice president of sales at Shurtech Brands where he was responsible for customer relationships, market development, field sales, customer supply chain and visual merchandising. Vijay earned an MBA from Pittsburg State University. He currently sits on the executive committee of U.S. board of directors for Enactus and serves as president of the board of directors for Rising Star Academy.

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SOURCE LUNCH

Robert Falls

CLEVELAND BUSINESS

Chairman and CEO, Falls Communications Rob Falls is a survivor in a business segment that is much smaller than when he arrived in Cleveland 30 years ago to run a struggling public relations firm. A graduate of Western Michigan and Michigan State universities — but emphatically not the University of Michigan — Falls grew up in Detroit, where his father, the late Joe Falls, was a nationally syndicated sports columnist. He came to Cleveland in 1989 from Detroit’s Anthony M. Franco Inc. as Franco was joining with the Griswold Inc. advertising agency in a fourperson Cleveland PR office. Now, he is sole owner of the firm and has more than 60 employees. The firm’s clients include Duck brand tape, plumbing fixtures maker Moen Inc., paint and coatings giant Sherwin-Williams Co. and blender maker Vita-Mix Corp. The firm also played a role in bringing the Republican National Convention to Cleveland in 2016, including creating the convention’s logo, a red elephant on the neck of a blue guitar. — Jay Miller

The Falls file Favorite place In his kitchen with his wife and some friends.

Recent book read “The Boston Marathon,” by his father, Joe Falls. He’s rereading it now because he recently reconnected with Kathy Switzer, the first woman to run in the Boston Marathon.

Travel destination He wants to see where the Battle of Waterloo was fought.

Lunch spot Red, the Steakhouse 417 Prospect Ave., Cleveland 216-664-0941

The meal One had the Classic Caesar salad with salmon, the other a hamburger and french fries, with Diet Coke and water.

The vibe It’s a steakhouse — which means red and dark wood. Over the summer, its patio was the place to look out on the under-construction Quicken Loans Arena.

The bill $24.19, plus tip

When I look back several decades at what the public relations industry looked like when you came to Cleveland in the late 1980s and then look at what it is now, I see dramatic change. Most of the firms that were at the top of Crain’s list of the largest public relations firms are gone. So what accounts for that change?

Here’s my take on that. When we opened up in 1989, there were 25 to 30 more corporate headquarters in Cleveland that could support that kind of an industry. So, as private and public companies have been sold, the decision-makers leave town. So people have said to me, “I can’t believe how much this industry has shrunk.” And my reaction was, “Well, tell the people in charge of selling the companies to cut it out.”

So it’s not surprising. The interesting part is that in my industry and most professional service firms here in town, the talent is huge. We have great talent. I’ve had experiences with companies that have gone to New York or Chicago and paid three times as much for one-third to one-fifth the results.

Is that because by going out of town to a bigger firm, the Cleveland company is not an important account so the large firm pays less attention to the work?

Yes. So with a midsize firms like us, you’re going to have a senior person working on your business and you’re also going to have the young talent that’s being generated at Ohio universities, although I’d like to get more from Michigan State, but, you know.

Michigan State — not Michigan?

No, not Michigan. Sometimes people want to come directly back home and start working. Sometimes they want to go seek their fortunes elsewhere, but the amount of boomerangers that we get back in Cleveland after they worked with other firms is huge.

We get great talent.

How many people do you have?

We’re up to about 60, 65. We have three and three-quarters floors in the Terminal Tower.

You know, it used to be companies were pretty confident that half the money they were spending on public relations and advertising was effective — they just didn’t know which half. How has technology, the ability to digitally track the impact you have, allowed you to better track the results you get?

Research is becoming so important.

It’s become very important. We have some clients who spend almost $100,000 in measurement. In measurement. To make sure that we are targeting and being effective.

Clients want to know what are we spending? What are we getting?

What is our ROI (return on investment)?

So how do you see your business connecting to a client’s sales, which public relations didn’t necessarily do in the past?

Research and analysis are becoming so important. Clients want to know what is our return on investment and how do we measure it? You want an analogy that people get? I hunt geese, ducks. With marketing, you

can flush a lot of birds. With sales, you shoot them. If you don’t flush a lot of birds, you’re going to go hungry. So that’s why we changed our name from public relations to communications.

So what’s the next big thing that’s going to change your business?

Artificial intelligence.

How will it change things?

How artificial intelligence will be used as a communications tool nobody knows. Maybe you’ll ask your home virtual assistant, “Siri, where’s such-and-such a movie playing?” “It’s playing at 7:30 at blah, blah, blah. But most of the critics are suggesting this movie, and here’s where it’s playing.”

What’s the best piece of advice you ever got?

I’ve got a longtime client, and we were driving a car in Florida in the middle of nowhere. I’m thinking out loud. “What if we try this? What if we try that? I thought this out.” He said, “Pull over,” and then he said, “Don’t talk to me like that.” So if you offer advice, it better be well thought out, it better be on target, better be cost-efficient, better check all the boxes. So the best piece of advice was: Never give casual advice. If you don’t know, say, “I don’t know.” I guess I’m not the smartest guy in the world, maybe in the top 50%.

So if you’re not so smart, what’s kept you in business all these years?

The most important thing I do is hire the right people. When clients compliment me on our team, that’s the biggest joy, period. Hands down.

700 W. St. Clair Ave., Suite 310 Cleveland, OH 44113-1230 Phone: (216) 522-1383 www.crainscleveland.com Twitter: @CrainsCleveland Publisher/editor Elizabeth McIntyre Group publisher Mary Kramer Managing editor Scott Suttell Sections editor Michael von Glahn Creative director David Kordalski Web editor Damon Sims Associate editor/Akron Sue Walton Assistant editor Kevin Kleps Senior reporter Stan Bullard, Real estate/construction Reporters Jay Miller, Government Dan Shingler, Energy/steel/auto/Akron Rachel McCafferty, Manufacturing/ energy/education Jeremy Nobile, Finance Lydia Coutré, Health care/nonprofits Senior data editor Chuck Soder Cartoonist Rich Williams Events manager Ashley Ramsey Marketing coordinator Megan Lemke Integrated marketing manager Michelle Sustar Managing editor custom/special projects Amy Ann Stoessel Associate publisher Lisa Rudy Senior account executive Dawn Donegan Account executives Laura Kulber Mintz, Loren Breen Office coordinator Denise Donaldson Pre-press and digital production Craig L. Mackey Media services manager Nicole Spell Billing Peter Iseppi Credit Rod Warmsby Crain’s Cleveland Business is published by Crain Communications Inc.

Chairman Keith E. Crain Vice chairman Mary Kay Crain President KC Crain Senior executive VP Chris Crain Secretary Lexie Crain Armstrong CFO Robert Recchia G.D. Crain Jr., Founder (1885-1973) Mrs. G.D. Crain Jr., Chairman (1911-1996) Reprints: Laura Picariello, 732-723-0569 or lpicariello@crain.com Customer service and subscriptions: 877-824-9373 Volume 40, Number 4 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for the last week of December, at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230.

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THE WEEK New nuCLEus vision

Hire goals

The proposed 54-floor nuCLEus skyscraper in downtown Cleveland looks to be trimmed by half in images that surfaced on the UrbanOhio.com blog.

The new drawings showed a pair of shorter towers, an office building with 16 floors and an apartment building of 15 floors, both on a nine-story base that includes first-floor retail and eight floors of parking. It’s a big switch from the lanky, Jenga-esque design of the building when it was first proposed in 2016.

Ezra Stark, chief operating officer of Stark, said in an email, “This is an old version. We have updated it since then.” A Stark spokeswoman said separately that the company has had “hundreds of different models” and none will be authentic until one is submitted and approved by Cleveland City Planning Commission.

Progressive Corp. said it “expects to hire more than 10,000 people in the coming year” to support rapid growth. The Cleveland area will see the most hires in 2019, about 2,000 people.

Lori Niederst, chief HR officer at the Mayfield Village-based insurer, said this is “the largest hiring forecast in Progressive’s history.”

The 10,000 figure represents planned hires, not the net addition to Progressive’s employment ranks.

Progressive has 35,000 employees nationwide, including more than 10,000 in Northeast Ohio.

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This new iteration of the proposed nuCLEus project — about half the height of the original skyscraper — created a buzz on the web Jan. 23.

Ezra Stark, Stark’s chief operating officer, said the design is not the most current one. (Stark Enterprises)

Solution ahead FirstEnergy Solutions, the Akron-based generation subsidiary of

utility FirstEnergy Corp., said it has reached a restructuring support agreement with its creditors.

The company says the agreement, commonly known as a “lockup,” likely means the bankruptcy case, filed in April 2018 in the U.S. Bankruptcy Court for the Northern District of Ohio in Akron, is coming to a close, and that as a result, FirstEnergy Solutions will remain in operation.

In the money Independence-based cybersecurity firm Keyfactor raised $77 million in growth funding led by New York private equity and venture capital firm Insight Venture Partners.

The funding will be generally applied to Keyfactor’s ongoing market expansion.

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