Crain's Cleveland Business

VOL. 38, NO. 16

APRIL 17 - 23, 2017

Source Lunch

Akron Kent’s Tesla NanoCoatings is in process of raising $5 million. Page 21

Don Hayes, regional vice president, Wells Fargo Page 23

CLEVELAND BUSINESS

The List Ohio’s largest M&A deals in 2016 Page 18

SPORTS BUSINESS

Cleveland is major NCAA title contender

By KEVIN KLEPS kkleps@crain.com @KevinKleps

The USA Triathlon Age Group National Championships — which will be held at Edgewater Park in 2018 and ’19 — is far from the most significant event Cleveland has landed in David Gilbert’s 17-plus years as the president and CEO of the Greater Cleveland Sports Commission.

But it’s exactly the type of score — a two-day competition that should bring in more than 5,000 athletes and 10,000 visitors from outside Northeast Ohio — that is critical to a nonprofit that says it’s attracted more than 170 sporting events to the region since 2000.

“You know what’s funny: A lot of times we talk about now, especially after the RNC, you can’t just wait for that home run,” Gilbert said after the USA Triathlon announcement on

Wednesday, April 12. “This is one of those big doubles.”

Defining each event in baseball terms before the key statistics (outof-towners, hotel stays, entertainment spending) are known is difficult, but Cleveland, at the very least,

NCAA possibles

seems to have a triple on the horizon. And more big hits could be announced when the NCAA unveils the championship sites for its next four-year bid cycle on Tuesday, April 18.

This week, the Greater Cleveland Sports Commission will find out if the region has been selected to host several notable NCAA events for the next four-year bid cycle (2018-22), including:

SEE NCAA, PAGE 19

Division I Wrestling Championships D-I men’s basketball tournament D-II National Championships Festival D-III baseball tournament Plus: D-II and III championships in swimming and diving, track and field, wrestling and others

Illustration by shanesabin via iStock

RETAIL

Grocers battling declining prices, online retailers

By STAN BULLARD sbullard@crain.com @CrainRltywriter

Cutting and chopping, regular operations in the grocery business, are gaining new meaning as traditional food retailers grapple with additional competitors, online retailing and — a

first in 50 years — food deflation.

Recent store closings accent the trend. Pittburgh-based Giant Eagle closed two stores earlier this year in Cleveland, Wooster-based Buehler’s Food Markets Inc. shut its Brunswick store last October, and the last Akron-area IGA store is closing this month in the Ellet area. Behind-thescenes, Giant Eagle earlier this year

Entire contents © 2017 by Crain Communications Inc.

gave buyouts to what it calls a “small number” of staffers among its 10,000 Northeast Ohio employees — even as it hires new ones. Giant Eagle also cut 300 jobs last year at its headquarters.

Reflecting on shutting its 9-yearold Center Road store, Bob Buehler, vice president of marketing and merchandising at Buehler parent E&H Family Group, observed, “Brunswick

closing was about too many stores for the number of shoppers. I am confident that the stores (there) are healthier now with one less. Question: Is it sized right now for all to be healthy?”

That’s a question experts expect to resonate throughout the industry this and coming years. While food delivery via Amazon and others has

grocers rushing their own delivery options, a fundamental shift most have not seen before is roiling the industry as well, as lower oil prices and other factors caused the consumer price index for food-at-home prices to drop 1.3% in 2016, the first time in 50 years, according to the U.S. Department of Agriculture.

SEE GROCERY, PAGE 3

Middle market report << Teenagers

want summer jobs, but there aren’t enough to go around. Page 11 Q&A with Craig Coffey, about Lincoln Electric Co.’s Arc Magazine Page 12 Tax Tips Page 14; Adviser Page 17

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CRAIN’S CLEVELAND BUSINESS

Fedeli-backed fund is off to strong start

By JEREMY NOBILE jnobile@crain.com @JeremyNobile

Community banks have been good to Cleveland’s youngest hedge fund.

And with a portfolio that reportedly grew about 24% in 2016 — the first full year for Strategic Value Bank Partners’ debut fund that launched in the fall of 2015 — that should be further bolstered by a promising outlook for banks in the lower end of the sector, the fund’s founders are already considering a second fund specifically for the kinds of private placements that mark some of the fund’s favorite investments so far that are also a hallmark of its investment strategy.

Strategic Value Bank Partners is a fund for some of Ohio’s most prominent investors — 92 of them today, including Fred Cummings, the head of Pepper Pike hedge fund Elizabeth Park Capital Management, who owns a stake between 10%-25%, according to filings — fueled by a unique confluence of Cleveland know-how.

Its inception traces back to renowned Cleveland businessman Umberto Fedeli, president and CEO of Independence-based insurance agency The Fedeli Group, who’s been buying and influencing banks on his own as an activist investor for decades.

Besides targeting banks others probably aren’t terribly interested in, the network Fedeli has pieced together for that fund is arguably its greatest asset.

Fedeli

Adams

“When you work with great people, with great investors, and you’re able to share what you’ve already been doing informally for years and align everyone together in the same way,” Fedeli said, “it’s a win-win for all parties. And that’s pretty rewarding.”

Thank the network Fedeli’s approach has always been to find small, undervalued banks that aren’t hitting the radar screens of other investors by virtue of their place in the market — they’re small, and often privately owned. The ones Fedeli really likes have strong boards and plenty of inside ownership.

It’s not a wholly novel approach.

But years of experience and seemingly endless connectivity to the business world’s rich and successful elites puts the Cleveland hedge fund in a unique position to capitalize on it.

It was through private investing that connected Fedeli, who estimates he’s invested in some 100 banks in his career, with one of his partners on the bank fund, Marty Adams. Adams served as CEO of Sky Bank’s parent company, Salineville-based Sky Fi-

nancial Group (formerly Citizens Bank). He’s credited with helping grow that into a highly profitable regional bank that eventually sold to Huntington Bank in Mackovak 2007. Fedeli was a shareholder in Sky and was actively involved in the bank as it made acquisitions of its own.

Referencing Adams’ decades of work that made him a veritable jack of all trades in the business, Fedeli calls him a “community banking Rambo.”

In the late 2000s, as Fedeli sought improvement of Solon’s struggling Park View Federal Savings Bank, where he had a stake of just under 10% at the time, he turned to his “Rambo” for help.

Adams joined Park View as interim CEO. He recapitalized the bank, bought up stock, raised capital and hired a permanent CEO in Robert King. That all put the bank on a path to turnaround.

Park View saw its value double in a few years, setting it up for an acquisition by Pennsylvania’s FNB Corp. in 2013.

Safe to say, that cemented a working relationship.

The two would work together mulling over bank investments through the coming years until they decided to formalize that relationship to let some of their friends, fam-

ily and fellow elite investors in on the lucrative action.

“I like the combination of taking industry experts that are students of the business and students of their industry,” Fedeli said. “So if we can build the best team of industry experts and investment analysts and fund managers and develop a threestep process and formalize our mission … then we’ll have an opportunity to add value as we create value.”

Those three criteria mean finding small banks with strong currency, synergy potential and a solid platform, Fedeli said. In an oversimplified sense, that’s the approach the fund applies today as it targets community banks in a sweet spot it sees in institutions with less than $1 billion in assets.

“Umberto has been investing in banks for 30 years and probably studies the investment business more than anyone I’ve ever met in my life,” Adams said. “He comes up with more names of potential investments than I have ever seen. No one ever forces an idea. But for every 30 ideas, we find one that works.”

Then there’s fellow fund co-founder Ben Mackovak, a 36-year-old Willoughby native who previously worked at a money manager in California and then a generalist hedge fund in Virginia for six years before moving back to Cleveland to start Cavalier Capital (he’s a Cleveland Cavs fan).

That investing network brought Mackovak, a managing member of the fund, into the group. Fedeli

sought him out personally.

The chance to add his web to that network was an opportunity Mackovak said he simply couldn’t turn down.

“The team skill set is quite unique,” he said. “To have the perspective of (Adams) who has run a bank for 30 years is invaluable, and it’s quite rare in investment management. The personal networks we have, plus our different backgrounds — to be able to tap into that has been very helpful.”

Eyeing a second fund Strategic Value Investors LP features $115 million in assets today and carries a minimum investment of $1 million, according to filings.

The fund is currently invested in 27 banks, both public and private, in areas across the country from United Security Bank in California to Foothills Community Bank in Georgia.

There aren’t any Ohio banks in that portfolio, but only because there haven’t been any enticing opportunities yet, Mackovak said.

“We’d love to make some local investments,” he said, “but the opportunity hasn’t presented itself. I’m sure we will at some point.”

The fund gains awareness of its small, seemingly undervalued banks — the privately held ones in particular, where the fund likes to feed growth capital and finance recapitalizations — because of that unique network its top executives have that helps its fund managers find and vet SEE STRATEGIC, PAGE 6

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CRAINâ&#x20AC;&#x2122;S CLEVELAND BUSINESS

GROCERY CONTINUED FROM PAGE 1

Egg prices fell 21% last year â&#x20AC;&#x201D; some months as much as 30% â&#x20AC;&#x201D; meats, poultry and fish fell 3.5% and dairy 2%. Only fresh fruits and vegetable prices went up, and just by 0.8%.

That is tough for the low-margin grocery business. â&#x20AC;&#x153;This is a great opportunity for shoppers buying these items to get more for every dollar they spend,â&#x20AC;?

Buehler said. â&#x20AC;&#x153;The difficulty for grocers is that we sell the same amount of units but at a lower retail. We bring in less dollars. This means less dollars to pay our bills, employee wages and service to take care of customers. In most cases, we still need to sell more units to get our dollars back, but we are still selling the same number of unitsâ&#x20AC;?

Buehler said the only answer is to hunt for efficiencies, even small things. Buehler pointed to the firm having Brady Long, its 23-year-old bagger from Wadsworth who recently won the National Grocerâ&#x20AC;&#x2122;s Association national bagging championship, train baggers at several of its stores. â&#x20AC;&#x153;Our customers and our team members are fortunate to his guidance,â&#x20AC;? Buehler said.

Gabe Nabors, the second-generation owner of Mustard Seed Market, which has stores in Fairlawn and Solon, said he has never experienced food deflation in his career in the family business. However, the natural foods specialist sees it as an opportunity to introduce new consumers to its offerings. â&#x20AC;&#x153;Growing our customer base is the

Cincinnati-based Kroger has acquired several large chains the last few years and operates 212 in stores in Ohio, but has not had a presence in Northeast Ohio since the 1970s. (Mike Simons/Getty Images)

top priority, and showing people that not only do we have the best natural foods, but they can also be affordable to all demographics,â&#x20AC;? Nabors said.

Giant Eagle puts the challenge in a broader framework.

Dan Donovan, director of corporate communications for Giant Eagle, wrote in an email, â&#x20AC;&#x153;The past 12 months have been challenging for

many food retailers across the country, due in part to deflationary trends in food pricing. Within this climate, we have made difficult, but necessary business decisions that will enable us to strengthen our focus on finding new and unique ways to engage our customers.â&#x20AC;? He pointed to everyday prices on popular produce items and the use of more targeted

communications to reach consumers, technology such as its Curbside Express online grocery ordering program and continued investments in remodeling its stores.

When supermarkets shut stores in the past, they often held onto the locations to shut the door on competitors. In some cases, no more.

For example, Donovan said since the closures, Giant Eagle has reached an agreement to discontinue the lease on the Buckeye Road property, allowing the landlord to engage other potential tenants. â&#x20AC;&#x153;Additionally, we are engaged in productive conversations with the Lorain Avenue landlord to collaboratively define the best use for the property,â&#x20AC;? Donovan wrote, â&#x20AC;&#x153;including another potential grocer.â&#x20AC;?

However, experts expect online delivery to become a bigger longterm challenge for traditional grocers and result in more closings.

David Livingston, managing partner of Milwaukee-based grocery site consultancy DJL LLC, said, â&#x20AC;&#x153;Thereâ&#x20AC;&#x2122;s always pressure to keep costs down for traditional grocers. Now sales are going down. Most of the country is over-stored, and there will be quite a few closings around the country.â&#x20AC;?

The pressure is creating an urge to merge that grocers expect to spread through the industry the next few years, not just among little operators but big ones â&#x20AC;&#x201D; and in this case, really big ones that will rationalize supply-chain costs.

Rumors of a Giant Eagle merger regularly go through Northeast Ohio worker and realty ranks and garner perennial mentions in Pittsburgh media. For its part, Giant Eagle shows no sign of being interested in an ac-

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quisition or merger. â&#x20AC;&#x153;Giant Eagle has proudly served Northeast Ohio for more than 20 years, and we look forward to delivering high-quality foods, great overall value and a convenient shopping experience to the community for years to come,â&#x20AC;? Donovan wrote.

However, that does not mean buyers would not be interested as the industry consolidates nationally to allow some players to increase sales and cope with food growth at retailers from Target to increasingly foodbased Walmart.

Cincinnati-based Kroger has acquired several large chains the last few years and operates 212 stores in Ohio. It exited Northeast Ohio during the 1970s-era supermarket wars but today encircles Northeast Ohio with food stores in Sandusky, Massillon and Steubenville.

Retail real estate agents say they were convinced an out-of-town broker who lined up about 10 food store sites in Greater Cleveland was acting on behalf of Kroger. However, the plug was suddenly pulled on the effort about two years ago. However, when Giant Eagle had its pick of locations when Tops exited Northeast Ohio in 2006, it was able to ensure it secured the best locations and lesser ones are all that remain today.

Tony Visconsi, senior vice president of Hanna Commercial, said given the extent of merger and acquisition action among grocers and â&#x20AC;&#x153;daily email stories about the growth of Amazon in food, no one would be surprised if Giant Eagle did a deal.â&#x20AC;?

For its part, Kroger spokesman Keith Dailey said in an email that the publicly traded company doesnâ&#x20AC;&#x2122;t comment on rumor or speculation.

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A P R I L 17 - 2 3 , 2 017 |

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Local colleges wary of Trumpâ&#x20AC;&#x2122;s budget proposal RACHEL ABBEY McCAFFERTY

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President Donald Trumpâ&#x20AC;&#x2122;s recent budget proposal calls for sweeping cuts in most non-defense or homeland security-related departments or agencies, which could pose serious challenges for Ohioâ&#x20AC;&#x2122;s colleges and universities.

In particular, proposed reductions to the National Institutes of Health or the elimination of Federal Supplemental Educational Opportunity Grants are a cause for concern for institutions of higher learning, particularly those with large research enterprises. Of course, Trumpâ&#x20AC;&#x2122;s proposal isnâ&#x20AC;&#x2122;t suddenly law, but it does give insight into the administrationâ&#x20AC;&#x2122;s priorities and for how different sectors could be affected.

A March 28 report from Moodyâ&#x20AC;&#x2122;s Investors Service found the proposal would be â&#x20AC;&#x153;largely credit negativeâ&#x20AC;? for the higher education and not-forprofit sectors in the United States. It noted, in particular, that the cuts to the National Institutes of Health could shift research priorities, especially in biomedical research. The vast majority of the institutesâ&#x20AC;&#x2122; budget â&#x20AC;&#x201D; about 80%, Moodyâ&#x20AC;&#x2122;s said â&#x20AC;&#x201D; goes to grants for researchers at universities and other research institutions.

Paul DiCorleto, Kent State Universityâ&#x20AC;&#x2122;s vice president for research, said it would be â&#x20AC;&#x153;devastatingâ&#x20AC;? if the proposed budget cuts are implemented as is.

Federal funding is by far the majority of the support Kent State receives for research, DiCorleto said, and there arenâ&#x20AC;&#x2122;t many places for schools to turn to fill gaps that may arise. Universities with large endowments â&#x20AC;&#x201D; which Kent State does not have â&#x20AC;&#x201D; may have the easiest time, he said. â&#x20AC;&#x153;Thereâ&#x20AC;&#x2122;s no other place to go to get the money,â&#x20AC;? DiCorleto said.

DiCorleto gave examples of some of the research currently underway at Kent State, thanks to National Institutes of Health funding: research on Alzheimerâ&#x20AC;&#x2122;s disease in women, meditationâ&#x20AC;&#x2122;s effects on stress and blood pressure, stress-induced eating and low-income adolescents. These are the types of projects that would be at risk if the institutesâ&#x20AC;&#x2122; funding is cut, he said. And new awards would be reduced further because already awarded, multiyear grants would have to be honored.

And faculty could be harmed, too.

DiCorleto said receiving peer-reviewed funding is a way for junior faculty, especially in the sciences, to show their work is of value. It helps them on the path to tenure. The fear, he added, is that a generation of research faculty could be lost.

Suzanne Rivera, vice president for research and technology management at Case Western Reserve University, said the school is â&#x20AC;&#x153;deeply concernedâ&#x20AC;? about the proposed reductions in National Institutes of

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Health funding, the largest funder of the universityâ&#x20AC;&#x2122;s research. In federal fiscal year 2016, the university reported receiving almost $178 million in National Institutes of Health funding.

But Rivera said the concern about research funding isnâ&#x20AC;&#x2122;t about cutting off money to universities. Research done at universities contributes to economic development, human health and quality of life. Examples of such research at Case includes work to reconnect the brain to paralyzed muscles and inquiry into the potential of medicine used for eczema and athleteâ&#x20AC;&#x2122;s foot to reverse the progress of multiple sclerosis. â&#x20AC;&#x153;The best reason to not cut research is that research helps people,â&#x20AC;?

Rivera said.

One notable missing puzzle piece for universities is the National Science Foundation, which wasnâ&#x20AC;&#x2122;t addressed in Trumpâ&#x20AC;&#x2122;s budget blueprint.

The Moodyâ&#x20AC;&#x2122;s report notes that the foundation supports about a quarter of the federally funded basic research at colleges and universities in the nation.

The lack of mention of the National Science Foundation funds is â&#x20AC;&#x153;puzzling,â&#x20AC;? said Sarah Bolton, president of the College of Wooster. Wooster doesnâ&#x20AC;&#x2122;t have any graduate programs, but it does include research as a focus for all its undergraduate students, and programs like the National Science Foundationâ&#x20AC;&#x2122;s Research Experiences for Undergraduates program is important to funding those kind of opportunities. Overall, Wooster had nine active National Science Foundation grants worth $2.2 million as of June 30, 2016, Bolton said in an email.

Research funding ebbs and flows from year to year and from administration to administration, said Michael Hripko, associate vice president for research at Youngstown State University. Heâ&#x20AC;&#x2122;s been monitoring the budget proposal, because he knows the university will need to be â&#x20AC;&#x153;creativeâ&#x20AC;? and â&#x20AC;&#x153;adaptiveâ&#x20AC;? to adjust to whatever gets passed in order to continue its research mission.

Being more creative in finding funding could mean working more collaboratively with other universities, industry or businesses, Hripko said. Heâ&#x20AC;&#x2122;s seen an increase in private-public partnerships like America Makes, the Youngstown-based National Additive Manufacturing Innovation Institute, and he could see that model expanding to academic research.

Of course, the potential cuts to direct research funding is only one factor universities are watching closely.

In fact, the Five Colleges of Ohio consortium â&#x20AC;&#x201D; Wooster, Oberlin College, Denison University, Kenyon College and Ohio Wesleyan University â&#x20AC;&#x201D; put together a letter in support of the National Endowment for the Arts and the National Endowment for the Humanities.

The proposed elimination of the National Endowment for the Arts and

the National Endowment for the Humanities would also affect universities, both directly and in terms of the impact on communities overall.

Bolton pointed to the Wayne Center for the Arts, which gives children in a three-county region access to visual arts and musical opportunities, as an example of one of the programs that receives funding from the National Endowment for the Arts.

In Woosterâ&#x20AC;&#x2122;s case, the vibrancy of the community is â&#x20AC;&#x153;profoundly interconnectedâ&#x20AC;? to the collegeâ&#x20AC;&#x2122;s success, Bolton said, as the resources available play a big role in recruiting students, faculty and staff. And bringing in those individuals is important to communities that donâ&#x20AC;&#x2122;t want to see population decline. â&#x20AC;&#x153;We really depend on one another,â&#x20AC;? Bolton said.

Volume 38, Number 16 Crainâ&#x20AC;&#x2122;s Cleveland Business (ISSN 0197-2375) is published weekly at 700 West St. Clair Ave., Suite 310, Cleveland, OH 441131230. Copyright Š 2017 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00.

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Making college possible And, finally, there are some proposed cuts to financial aid. While the proposal is to keep funding stable for the Pell Grant â&#x20AC;&#x201D; one of the nationâ&#x20AC;&#x2122;s largest sources of need-based financial aid â&#x20AC;&#x201D; cutting the surplus is recommended. And the blueprint suggests eliminating the Federal Supplemental Educational Opportunity Grants, which are reserved for students with the greatest demonstrated financial need, and reducing funds for federal work-study programs. The Moodyâ&#x20AC;&#x2122;s report noted that these two programs account for less than 3% of total operating revenues at Moodyâ&#x20AC;&#x2122;s-rated institutions, but also stated, â&#x20AC;&#x153;elimination would add pressure on already thin operating margins for colleges with already stressed budgets.â&#x20AC;?

At Youngstown State, students receive about $400,000 in Supplemental Educational Opportunity Grants per year, said Elaine Ruse, director for Youngstown Stateâ&#x20AC;&#x2122;s office of financial aid and scholarships. That supports about 1,000 students. Itâ&#x20AC;&#x2122;s not nearly as significant as the Pell Grants â&#x20AC;&#x201D; thatâ&#x20AC;&#x2122;s a $20 million program at Youngstown State, Ruse said, supporting about 5,000 students â&#x20AC;&#x201D; but it is important to the neediest students.

And cuts to programs like that could be particularly challenging in a state like Ohio, where state aid for students has fluctuated, Ruse said.

Financial stability is important for retention and graduation rates. Beyond the importance those factors have for students, theyâ&#x20AC;&#x2122;re critical in Ohio, as the state has shifted its funding formula from rewarding schools simply based on enrollment to focus more on degree completion. Having less financial aid available could also affect decisions on whether to even attend college, she said, or could increase student loan debt. If all the financial aid cuts pass, the state and individual institutions would have to find ways to serve the neediest students. â&#x20AC;&#x153;It will put a lot of pressure on everyone,â&#x20AC;? Ruse said.

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CRAIN’S CLEVELAND BUSINESS

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Northeast Ohio Development Land for Sale Lake & Middle Rd., Ashtabula: +794 Acres

I-271 & Cedar Rd., Pepper Pike: +2.25 Acres

Lake Erie

Kanner group pays $3M for Chester Ave. space

By STAN BULLARD sbullard@crain.com @CrainRltywriter

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COUNTY

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ACRES

Ashtabula

Ashtabula

Lake & Middle Rd.

+794

Ashtabula Twp.

Ashtabula

N. Bend Rd.

+353

Ashtabula Twp.

Ashtabula

Center Rd. (SR 45)

+118.6

Ashtabula Twp.

Ashtabula

W. Center Rd.

+118.1

Ashtabula Twp.

Ashtabula

N. Ridge Rd. (Rt. 20)

+4.2

Chester Twp.

Geauga

8495 Wilson Mills Rd.

+1.3

Pepper Pike

Cuyahoga

I-271 & Cedar Rd.

+2.25

Sheffield Twp.

Ashtabula

Ohio State Route 193

+17.5

Strongsville

Cuyahoga

Foltz Pkwy.

+2.0

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An investor group led by Cleveland businessman Robert Kanner is the new owner of the Ullman Electric building, 3901 Chester Ave., after $3 million changed hands.

Through Roadwork LLC, the Kanner-led group on April 7 acquired the 37,000-square-foot building and its 3-acre site from 3901 Chester Ltd., according to Cuyahoga County land records.

Kanner is best known as the chairman of Pubco Corp., which makes and distributes thermal labels like those used for bar codes and wax ribbons under the Kroy and Buckeye Business Products names. Those enterprises are at 3830 Kelley Ave., near the newly purchased Chester Avenue property.

Kanner did not return three mes-

STRATEGIC CONTINUED FROM PAGE 2

potential investments.

The fund often consults with its small banks, too, and plugs Mackovak and Adams into boards in some instances. (Mackovak serves on two boards and is a board observer of two others. Adams sits on three that he’s been in business with since before the fund, including United Community Financial Corp., which operates local bank Home Savings and Loan Co. of Youngstown, and plans to get involved with more.)

The private investments are going

sages from Crain’s Cleveland Business by last Thursday, April 13. A man who answered a Crain’s call to the same number on April 13 said “no one will talk to you about that” and ended the call without giving his name.

The seller is also familiar: real estate developer Joel Scheer, general partner of 3901 Chester Ltd. Partnership, which paid $690,000 for the building in May 1994, according to county land records. The county assigns the building a market value for tax purposes of $882,700.

Scheer, in a phone interview, said, “After 20 years, it was time to move on to another project.”

Although the electrical contractor Ullman leases most of the 3901 Chester building, about 40% will be vacant because Dealer Tire did not renew its lease for swing office space and storage space in it. Dealer Tire consolidated operations at a new headquarters at 7112 Euclid Ave. from a

building at 3711 Chester. Scheer said Dealer Tire primarily used the space outside his former building to provide parking for its workers.

“It’s not that I don’t think I can bring in a new tenant,” Scheer said, “but (Dealer’s move) made me rethink it.”

Scheer said he met Kanner once at the building and after that dealt with his attorneys. He does not know what Kanner’s plans are, he said, just that he was not interested in putting a sign on the structure.

Scheer has garnered publicity lately as he led investor groups that have acquired Flats-area properties on Canal Road and the former Sammy’s building, 1410 W. 10th Street.

Scheer and Fairlawn-based Welty Building Co. converted the West 10th building to a home for consulting firm Accenture, Welty’s Cleveland office and environments4business office furniture/interior design unit and others.

so well, Mackovak said, that the fund has discussed establishing a second fund solely to invest in privately held banks. But that’s down the line and after the current fund is fully invested. Sources say more than 80% of that fund has been put to work.

Besides changes in the banking landscape that create lots of growth potential for smaller banks — like rising interest rates, corporate tax reform and the slowing down and possible rolling back of regulations, among other factors — a doubling down on private investments could take this hedge fund to the next level.

“I think what we’ve found, and this was part of our original thesis, is we

are all doing this investing independently. Now, we’ve all come under one umbrella, and we’ve got the critical mass where we do calls from all the investment banks across the country for all the deals that are out there,” Mackovak said. “Now that we have that infrastructure, and we’re seeing all this opportunity, that’s the motivation for exploring a fundbased solely on privately held banks because the list of potential investors is even smaller for the small-cap banks because institutional investors have different liquidity mandates.

“For us, we have a flexible mandate,” he added. “And that can only help potential returns we can earn.”

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CRAINâ&#x20AC;&#x2122;S CLEVELAND BUSINESS

M&A list: Huge deals hang in the balance

By CHUCK SODER ccoder@crain.com @ChuckSoder

We had to put a giant footnote next to the megadeal that tops this yearâ&#x20AC;&#x2122;s Largest Ohio Mergers and Acquisitions list.

We decided to put Sherwin-Williamsâ&#x20AC;&#x2122; plan to buy Minneapolis-based Valspar Corp. for $11.4 billion on the list, even though antitrust regulators have been holding up the deal for more than a year.

Why? We get the raw data from S&P Global Market Intelligence, and it includes all deals announced in 2016 (and excludes deals that were announced in 2015 but closed in 2016). The deal could still close, given the steps the companies are taking to appease regulators: Last week, they announced Valspar agreed to sell its North American Industrial Wood Coatings business for $420 million.

The fourth-largest deal also has yet to close â&#x20AC;&#x201D; but not because of antitrust issues: A federal committee has identified national security concerns with Zhongwang USAâ&#x20AC;&#x2122;s plan to buy Aleris Corp., an aluminum products maker in Beachwood, for $2.3 billion.

The problem? Zhongwang is owned by a Chinese company.

But plenty of deals did get done.

For instance, exactly 131 nursing homes and health care facilities were bought and sold by Welltower Inc., a

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To see the list: Find Ohioâ&#x20AC;&#x2122;s largest M&A deals in 2016 on Page 18

huge real estate investment trust in Toledo. They show up five times on the digital version of the list, which includes 52 deals.

Aerospace supplier TransDigm Group of Cleveland shows up on the digital list twice, and Marathon Petroleum of Findlay and its MPLX spinoff did three deals involving oil and gas pipelines (including one deal between the two companies).

And though it was the biggest local property sale announced in 2016, the $267 million sale of Key Tower (which closed in January) just barely missed the print version of the list.

And I give the Coolest Deal Award to GE Aviation, near Cincinnati: It spent $311 million to buy Arcam AB, a Swedish company that uses 3D printing to make metal parts. GE has been investing big in 3D printing: The parent company spent another $600 million on Concept Laser last year.

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CRAIN’S CLEVELAND BUSINESS

Opinion Personal View

Do this now to make a smart city tomorrow

By JULIE BOLAND

Editorial

The future is now There are two John Kasichs these days. One is the man with less than two years to go in what has been a generally successful stint as Ohio’s governor. The other is the ambitious politician with an obvious craving to get back into the national spotlight of a presidential run.

His State of the State address earlier this month in Sandusky, and some new budget realities after it, reflect that divide.

As he comes to the end of his second term in Columbus, Kasich sounded many futurist notes in the State of the State. “If we aren’t prepared for change, people are going to find themselves out of work. Change is coming whether we like it or not,” he said at one point, in a message that works in Ohio and nationally. He vowed to create a chief innovation officer for the state to keep ahead of technology trends. And Kasich closed with his thoughts on bridging the country's political differences, the main theme of his new book, “Two Paths: America Divided or United,” set for release April 25.

In the book, he writes, “The country never looked so grand and magnificent as it did from ten thousand feet, and it was always a thrilling, faith-affirming thing to look out our window and see the sun splashing across Bryce Canyon in Utah, or the lights of the New York skyline at night as we flew past the Statue of Liberty, or an open field in the heartland that ran as far as our eyes could see. ... I’d look out and think what an honor it would be to lead this great nation. What a blessing.”

Will he be any more successful taking on Donald Trump in the Republican primaries of 2019-20 than he was in 2015-16?

Too early to say. But another Kasich run at the job is a near-certainty.

Those ambitions aside, Kasich has a fresh challenge in the job voters actually elected him to do.

In the State of the State, Kasich talked about his biennial budget proposal, which envisions an income tax cut combined with hikes in the sales tax and the oil and gas severance tax. But he spent relatively little time on it, in seeming acknowledgment

that as a term-limited governor, his ability to keep legislators on his side becomes more limited by the day.

Last week, though, Kasich and Republican legislative leaders came together to get back into the budget weeds and try to identify $400 million in annual cuts to the proposed two-year state budget amid sluggish economic growth and forecast models that continue to overestimate how much money the state will collect in taxes.

“We’re going to look at all the options,” Kasich said last Thursday, April 13, according to The Columbus Dispatch. “Everything has to be under the microscope.”

In a $67 billion biennial budget, $400 million a year might not sound like that much. But Kasich himself already has characterized the budget as “lean,” and there aren’t many obvious targets for cuts.

But more cuts almost certainly are coming. Tim Keen, director of the Office of Budget and Management, told The Dispatch that state tax collections through March were $615 million, or 3.7% below projections for the fiscal year.

Many states are seeing volatility in tax collections, for reasons identified in a Pew Charitable Trusts report that include “economic factors — such as the mix of industry, natural resources, workforce and population growth — as well as federal budget changes and unforeseen events, such as natural disasters.”

Off the table, at least for now, is tapping into the state’s $2 billion rainy-day fund. Kasich said, rightly, that the fund shouldn’t be used at the start of the budget process and should be reserved for true emergencies that come later.

At the very least, though, we hope the governor is flexible enough to set aside the push for more income tax hikes. Kasich the futurist might dream of them, but Kasich the pragmatist with a job left to do in Ohio must understand that true compassion as governor involves minimizing harm that would come to many state residents from further budget slashing.

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

CLEVELAND BUSINESS

CLEVELAND BUSINESS

Managing Editor:

Scott Suttell (ssuttell@crain.com)

Sections Editor:

Timothy Magaw (tmagaw@crain.com)

Contact Crain’s:

216-522-1383

Imagine your morning commute downtown on I-77. It’s easy to see the miles of traffic and feel the stop-and-start movement as your car crawls along. Understandably so, you probably feel the twinge of anxiety and annoyance at the thought of having to do the same thing tomorrow.

Now imagine instead what it would be like to fly down I-77. This time, your vehicle knows where you’re going, when you want to get there and uses information from sensors all around the city to identify the best route, all without you touching the steering wheel.

Unfortunately, we’re some time off from the second scenario, but not too far that planning can’t begin. At the center of these planning efforts should be our city, businesses and local entrepreneurs. This group should begin actively considering how they will work together on smart, sustainable solutions to advance urban development and transform Cleveland into a smart city.

Smart cities use technology to meet various challenges, improve their impact on the environment and better the lives of citizens. The individuals, businesses and systems that exist within these resilient cities won’t just survive the tests they face but will adapt to pass those tests and continue to thrive.

For Cleveland to seize the opportunities and meet the challenges of the future, its major players must begin working now to ensure the city grows along with its people and their needs.

But how can those three extremely large and incredibly independent entities come together to support Cleveland? By leveraging core strengths, asking intelligent questions and identifying key areas of collaboration, government, businesses and entrepreneurs can help Cleveland become a smart city.

Governments

How can Cleveland use big data and technology to improve how it provides services to meet the needs of its citizens?

A great example of this is only two hours south in our state capital. Columbus recently won the Department of Transportation’s Smart City Challenge and launched a test program that uses technology to solve some of the city’s transportation issues.

Columbus won over a number of other cities by leveraging information it had gathered about the transportation problems its citizens are facing and securing partnerships with local businesses to address those issues.

As Cleveland grows, what partnerships can we begin cultivating now that will enable us to address some of the challenges our city will face tomorrow?

Businesses

How are technologies that support smart cities developed without breaking the bank?

There’s a significant financial risk to developing new technologies and producing those on a scale to effectively solve a city’s problems. If something goes wrong, and businesses lose those investments, there’s little chance other organizations will be inclined to participate in future initiatives.

By partnering directly with our government to help ensure clear public-private partnership models or loan guarantees on those investments, Cleveland organizations can develop new and innovative solutions without worrying about the financial implications.

Entrepreneurs

Where are the gaps in what Cleveland offers its citizens and how can those be filled?

By now, many of us have seen or used some of the ride share and bike share services around Cleveland. The convenience and lower environmental impact of these systems have opened SEE BOLAND, PAGE 9

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 letters@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.

CRAIN’S CLEVELAND BUSINESS

BOLAND

CONTINUED FROM PAGE 8

up previously unavailable lanes of travel for our residents.

While these systems are by no means exclusive to Cleveland and have grown into national or multinational organizations, they are excellent examples of entrepreneurs identifying needs governments and large businesses might not be able to see.

Now, what is the next need that must be met and how can Cleveland update legal policies and regulations

to help ensure the entrepreneurs who identify the need can implement their solutions? Answering this question will allow the entrepreneurial spirit to shine in the development of a smart city.

All of this may sound aspirational and lofty, but it’s actually an imperative. At this moment, our cities are at a crossroads. By the year 2030, it is estimated that 60% of the world’s population will live in an urban setting, according to the Organization for Economic Co-operation and Development. It is further estimated that by 2100, that number jumps to 85%.

In their present condition, cities

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around the world, Cleveland included, will not be able to accommodate that many people, much less meet all the needs they will require. But the solution is within reach, and that is why now is the time to begin exploring and investing in transforming Cleveland into a smart city.

By bringing government, businesses and entrepreneurs together, we can build a better, thriving working urban world that meets the needs of all Cleveland’s citizens.

Boland is the Cleveland office managing partner, Ernst & Young LLP.

Let’s be straight about this, the opposition expressed in Crain’s April 10 article on CDBG cuts comes from Cleveland City Council, the mayor of Akron, Euclid’s community development director and the Cuyahoga County Executive, not from the “media.” Block grants have been the mainstay of funding for all manner of locally-directed programs that deliver vital services.

Cutting the line out of the budget wipes out the funding for those programs and buys what? A fraction of a fraction of one submarine. — Jim Dyer

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CRAIN’S CLEVELAND BUSINESS

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Focus MIDDLE MARKET

Too many teens, not enough jobs Despite a recovering labor market, demand by teens still outpaces supply

By JUDY STRINGER clbfreelancer@crain.com

Charday Wynn landed what she considers her first real job last summer.

The 2016 John Hay School of Science and Medicine graduate spent six weeks working part-time for the summer camps program at Cleveland Public Library and as a library page.

Wynn had a few internships before her library assignment — which was part of the Youth Opportunities Unlimited (Y.O.U.) summer jobs program — but this was different.

“With internships, it is much more about learning,” she said. “With a job, you have to do it right or someone else will.”

The Cleveland native, now a freshman at Kent State University, was more than happy for the challenge. She knows she was one of the lucky ones.

Despite recovery in the labor market, demand for summer employment among teens is expected to outpace supply again this year. Nationwide, the percentage of 16-19 years olds working in July, the peak of summer employment, has fallen over the last 20 years from 54% in 1995 to 34% in 2015, according to the U.S. Bureau of Labor Statistics.

Last July saw a slight bump — up to 36% — and labor market watchers say this summer will likely produce another modest increase. Still, “the impact will not be so significant that it will alter that realty that more young people are looking for opportunity than there are opportunities out there,” said Chauncy Lennon, who leads JPMorgan Chase’s workforce initiatives program.

Lennon’s own research found that only four out of 10 teens and young adults who were looking for summer

Summer jobs in a 20-year decline

54%

34%

Nationwide, the percentage of 16- to 19-year olds working in July, the peak month of summer employment, has fallen over the last 20 years.

1995

2015

Source: U.S. Bureau of Labor Statistics

jobs in 2015 were able to find work through 18 summer employment programs in 15 cities surveyed by JPMorgan Chase. While Cleveland was not part of that survey, projections from Y.O.U., which manages the youth summer jobs program in Cuyahoga County, suggests the struggle may be even more pronounced locally.

So far more than 10,000 teens have registered for a summer job through Y.O.U., and president Carol Rivchun expects that number to climb to 17,000 before schools are out.

Rivchun said Y.O.U. will be able to place between 2,500 and 3,000 of them in jobs.

“The big challenge for summer jobs is funding,” she said. Organizations like Y.O.U. are primarily funded by federal and/or state contracts. It then becomes the employer of record for the teens and pays youth workers minimum wage. Y.O.U. teens work about 20 to 25 hours a week for six weeks, according to Rivchun.

SEE JOBS, PAGE 16

Illustration by maximmmmum via iStock

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET

Q&A: Craig Coffey

U.S. marketing communications manager, Lincoln Electric Co. The United States is losing 60,000 welders a year to old age and attrition, and Craig Coffey hopes a magazine can fix that — and maybe help sell a few of Euclid-based Lincoln Electric Co.’s products. OK, maybe that’s a bit of a dramatic interpretation of his vision, but Coffey, Lincoln Electric’s U.S. marketing communications manager, believes Arc Magazine surely can drum up a little more interest in the trades by telling stories from the likes of Nick Offerman (of "Parks and Recreation" fame) and the Gas Monkey Garage crew. There’s also a slew of tips for the aspiring fabricator. In particular, with Arc, Lincoln isn’t so much targeting industrial users of its products, but rather the aspiring welder — so, products with fewer than 300 amps of output.

Crain’s recently chatted with Coffey about why Arc, which was named best new publication at last year’s Content Marketing World, has become an integral piece of Lincoln’s marketing efforts. This interview has been edited for length and clarity.

Content marketing seems to be all the buzz these days. As a marketer, why is this something you’ve embraced?

I think everybody in their heart of hearts responds to this kind of marketing. When you buy a Suburu, for example, you get Suburu’s magazine. It doesn’t tell you how to operate your car, but tells you about things Suburu owners like to do — go camping, play sports — and how that car becomes a vehicle, figuratively and literally, to get you where you’re going. Take an in-flight magazine.

Those don’t tell you how to buy a

relationships with customers before they try to pitch. It struck me that, as marketers, we too needed to build that relationship with potential customers first. And I do want that focus to be on potential customers.

Some of our best work and responses have been from people who hadn’t gotten into the welding or metal-working space.

So, what does Arc Magazine do to elicit those responses?

First, we make the cover look like something you’d want to pick up in a bookstore at the airport. And the writing is really good. We have outside talent write all our cover stories because, unlike us, they can get outside the conversation about our products. As marketers, we can’t help but get in our way. Sometimes you can lose that perspective if you’re doing all the writing in-house.

We want to entertain, educate and inform. Then we can sell. If the content is good enough, you’ll forgive us for putting ads in the magazine.

Ultimately, customers will start to have a brand preference. It’s no coincidence that in the tips and tricks we give and the ask the expert

ticket to get on a plane but about all the places you could go if you did.

That’s pure content marketing.

There’s nothing deceptive or wrong about that, but it’s a way to entertain, educate and inform before you try to sell.

And why does this approach work for a manufacturer like Lincoln Electric?

As marketers, it’s in our DNA to just jump to sell. In marketing, we tend to just want to push the product as hard as we can. But salespeople, they spend a lot of time building

columns, we feature products that we want to sell.

For the last year and a half, Jimmy DiResta, a well-known DIY instructor with 970,000 subscribers on YouTube, has been doing a lot of projects for the magazine. What sort of bump has that given Arc? Jimmy’s audience is the audience we want to go after. Those people who are familiar with woodworking but need a gentle nudge to get into metalworking. Jimmy was primarily a woodworker, but if you look at his projects over the last year or so, he’s shifted into metal fabrication more than he ever has in his career. And I think he’s dragged a lot of people with him. I love working with Jimmy, and of course I’m still beholden to dollars and cents, and we see a lift when we do a project with Jimmy.

He’s starting to be that brand advocate and influencer for us.

People are saing, “If Jimmy is using that equipment, it must be good.”

And it was actually Nick Offerman who pointed you toward DiResta?

Yea, he told me that Jimmy had

helped him build a canoe once and that he worked out of this awesome tiny shop in New York. He said he was a genius and was doing a lot of the things we were talking about. So, I looked him up, and he was looking for some equipment. The rest is history.

Arc’s had a successful print launch, so now you’re looking toward the digital space. What’s that look like going forward?

When we started this, our digital footprint was a bit of an afterthought. I’m embarrassed to say that as a marketer. But, nothing can live unless it lives online. It doesn’t exist if you can’t find it on Google, right? We put up a page that mirrored the magazine pretty directly. But we’ve worked with Adcom to develop a much more interesting interface that’ll give people reason to come back. If we don’t have community engagement where readers are asking questions, this isn’t working. We have to make that as easy as possible. That ease comes with frequency, connecting with social media in a much more relevant way and not forcing people

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MIDDLE MARKET

Making connections is top of mind for the Women’s Business Center

By LYDIA COUTRÉ lcoutre@crain.com @LydiaCoutre

to use survey tools to ask and answer questions.

How has the reception been within Lincoln Electric? Is this something that was always well received internally or something that was viewed as a waste of time and resources?

The reaction has been good but the PR battle I’m always fighting is that this is a distraction and that we aren’t doing business with this magazine. My response to that is that this is very much customer focused. I can show you the lift in the numbers when we publish an article about a project that uses one of our products. And the digital space is going to be better at illustrating that direct correlation. If I tried to put ads in a commercial publication — or a trade journal — the audience isn’t as keenly focused as this. We looked at Popular Mechanics as a vehicle. That costs $60,000 for a single-page ad.

That’s two issues of this magazine.

I’d rather own the audience, own the media, own the advertising delivery rather than capture a little bit of somebody’s attention when they’re talking about a broader topic.

After retiring as a nurse, Laura Pajestka had the time and focus to do what she’d talked about for a while: starting a trucking company.

Though it was certainly a shift from a near 30-year career in nursing, she knew the trucking industry well. Her father was a trucker, and her son followed in his footsteps. But she wasn’t quite as familiar with things like marketing and web design, so she turned to the Women’s Business Center of Northern Ohio, which offers coaching, training, networking and assistance in accessing capital.

“They were so instrumental in helping me get going and get started,” said Pajestka, who owns Cleveland-based MJP Trucking LLC. “I could reach out to them at any time and ask for help, and they always say, ‘Yes, come on in. We’re here for you.’”

When the Women’s Business Center of Northern Ohio formally launched in October 2015, it already had 90 members, thanks to Coffee Connections, bi-weekly networking events that had been convening women for several months prior.

Today, membership for the northern Ohio chapter is approaching 400 women and even a few men.

The center is an initiative of the Economic & Community Development Institute, a statewide U.S. Small Business Administration lender.

Since its launch, the regional outpost of the Women’s Business Center

has helped start 35 women-owned businesses, create 86 new jobs and raise $2 million in capital for women business owners.

“Looking back, you don’t think about it when you’re in it, but the market was really ripe for it,” said Jan Conrad, director of the Women’s Business Center.

Conrad works with the center’s two other employees: an AmeriCorps VISTA member and Carrie Rosenfelt, executive director of both ECDI and the Women’s Business Center.

The center relies heavily on volunteers. Women provide pro-bono services and every week an expert comes to the center for Think Tank Thursdays and provides training sessions for members. One session each month focuses on legal issues, accounting, marketing and human resources/general business.

“There’s something really interesting that happens when it’s peer-topeer learning with women,” Rosenfelt said. “They share more; they’re more open; they admit that there’s stuff they don’t know. And when there’s men in the room, the dynamic changes.”

For that reason, Rosenfelt said that even as the center grows and the space evolves, there will always be a physical space that is women-centric.

The space itself — located at 2800 Euclid Ave., just east of Cleveland State University — helps to foster collaboration. A bookshelf at the entrance serves as a lending library, holding various books on business and entrepreneurship as well as brochures and business cards that women began to leave for one another. A

couple of closed offices are available if a member without a dedicated workspace ever needs to meet with a client or customer. A large conference center serves as workspaces for members, a venue for training or a space to network with other members.

“There’s something magic that happens when you get them in a room, because they really do help each other,” Conrad said.

What makes the model unique, Rosenfelt said, is that the center combines training and coaching with lending services. There are plenty of organizations that do each — and the center partners with many of them — but combining them in one organization is rare, she said.

Sara Williams founded Foundations Educational Consulting a decade ago in Cleveland, drawing from her background as a licensed teacher with curriculum development experience and two master’s degrees.

Two years ago, she started Dear Homeschool Mom under the Foundations umbrella with the help of the Women’s Business Center. Williams met with Conrad, who provides oneon-one coaching to members, to brainstorm how to use all of her education and experience to survive financially off of her businesses.

“In meeting with her, it wasn’t just an idea anymore. It became something,” Williams said. “I’ve gone from it just being Dear Homeschool Mom to being a legitimate brand that, even though it’s new, I was able to verbalize it, present it to the world.”

Williams has attended Think Tank Thursdays, took a blogging workshop

to help with her website and has taken advantage of the “phenomenal opportunities” to network with the other members.

Williams said she would recommend the center to entrepreneurs — men and women — from all walks of life who are anywhere on the continuum of starting and running their business.

“They give you every tool that is needed,” she said. “And if they don’t have it, they can definitely find what you need.”

Rosenfelt said she and her team have to be “business social workers” that assess needs, offer resources, find solutions or connect people with a partner who can.

“Everything we do has to be like a warm hug — not to be cheesy, but we have to be social workers,” Rosenfelt said.

What Pajestka really needed for her trucking company was a computer. And through ECDI, she was able to secure a microloan to buy one.

And then second loan for another project as she worked to develop MJP Trucking. She paid back the total $5,000 she borrowed in about a year.

In its first two years, her company has seen steady growth, and ECDI and the center have been “vital” to that growth, she said. Today, the company has four to five drivers and is getting its fourth truck.

“Especially women starting out, it can be a little scary out there,” Pajestka said. “It’s very nice to have somebody on the other end of the phone or an email that says, ‘Come on in.

I’m here for you.’”

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IRS tweaks rules outlining how partnerships allocate liabilities Late last year, the Internal Revenue Service issued regulations addressing how partnerships allocate liabilities to their owners. These new rules will significantly impact the way partners negotiate their ownership and borrowing structures in the future.

One of the primary benefits of operating a business as a partnership is partners are given basis in their partnership interests for debt incurred by the partnership. In no other situation is a taxpayer given basis for money borrowed by another party, without actually putting the taxpayerâ&#x20AC;&#x2122;s own money at risk. Basis in a partnership interest is important because it increases the amount of partnership losses that can be used by a partner to offset other income. Although there are other limitations depending on the taxpayerâ&#x20AC;&#x2122;s situation, in general, the greater the basis, the greater the partnership losses that can be used by that partner.

There are several drawbacks to this benefit. First, the rules relating to allocation of liabilities among the partners are very complex, and need to be understood and taken into account by both the attorney drafting the partnership agreement and the accountant preparing the tax returns for the partnership. Second, while a partner can get basis credit for partnership debt, any reduction in the partnership debt is treated as a deemed cash distribution to that partner, and taxable to the extent that such deemed cash distribution exceeds the partnerâ&#x20AC;&#x2122;s remaining basis.

Such reduction can happen when the debt is paid or forgiven, but also

Carl Grassi is chairman of McDonald Hopkins LLC.

when outstanding debt is reallocated amongst the partners.

The basis credit a partner receives from partnership debt depends on how much of the debt is allocated to that particular partner. These allocation rules are complicated, but generally â&#x20AC;&#x153;recourse debtâ&#x20AC;? is allocated to partners who personally bear the risk of the debt. For one, a common way to cause partnership debt to be specifically allocated to a partner is to have that partner guarantee the obligation.

This concept makes sense; if a partner guarantees a partnership debt, it is only fair that the same partner is allocated that debt for basis purposes.

However, partners have come up with creative ideas to minimize the risk of the guarantee while keeping the basis. For instance, â&#x20AC;&#x153;bottom dollarâ&#x20AC;? guarantees have been a popular way of causing debt to be specifically allocated to one partner. In a â&#x20AC;&#x153;bottom dollarâ&#x20AC;? guarantee, the partner may guarantee, for instance, $1 million of a $3 million partnership debt that is secured by $4 million worth of partnership property. While technically the partner has guaranteed $1 million of the $3 million debt, and should therefore have that portion of the debt specially allocated to him,

the chances that the guarantor partner would ever have to make good on the guarantee are remote. The value of the $4 million property securing the debt would have to drop below $1 million before the guarantor partner would have to come up with a single dollar. This structure is one of the targets of these new IRS regulations.

The new regulations provide that â&#x20AC;&#x153;bottom dollarâ&#x20AC;? guarantees and similar structures designed to give partners allocations of partnership debt without any real amount at risk will no longer be respected, subject to some transitional rules described below. Other types of limited guarantees, such as where a partner guarantees a portion of every dollar of debt, will be respected, but any guarantee other than a â&#x20AC;&#x153;first dollarâ&#x20AC;? guarantee will need to be closely analyzed if a purpose of such guaranty is to cause the debt to be allocated to the guarantor partner.

Although these rules are effective now, if all existing â&#x20AC;&#x153;bottom dollarâ&#x20AC;? guarantees were not counted as recourse debt as of the Oct. 5, 2016, effective date, a portion of the guaranteed debt would immediately be allocated away from the guarantor partner to the other partners, causing an unexpected deemed cash distribution and a possible taxable gain to the guarantor partner. Therefore, the â&#x20AC;&#x153;bottom dollarâ&#x20AC;? guarantee concept for existing debt obligations will continue to be respected by the IRS until the earlier of: seven years from the effective date or the maturity date of the guaranteed debt. The new regulations restrict the ability of partners to use other common guarantee techniques to accomplish their tax goals.

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MIDDLE MARKET

Riverside Co. sells minority stake to Parkwood LLC

By JEREMY NOBILE jnobile@crain.com @JeremyNobile

Riverside Co., a global private equity firm founded and co-headquartered in Cleveland, has sold a minority stake in its business to fellow Cleveland investment firm Parkwood LLC. Parkwood’s non-voting stake amounts to about 10% of the company, according to Riverside. Terms of the deal, which marks the first investment of its sort in the firm itself, were not disclosed. An employee option plan has also been established to retain and reward employees, according to Riverside.

Parkwood has been a longtime-backer of Riverside funds. Morton Mandel, Parkwood chairman and CEO, has been a mentor of Riverside founding member and co-CEO Stewart Kohl for the past 15 years, Kohl said, adding that he has “drank up” Mandel’s wisdom and applied it to running Riverside.

The investment marked an opportunity for Mandel and Parkwood to serve not just as a limited partner in deals, but as a partner in the firm itself.

“As we watched this emerging trend in our industry and we thought about how were going to make Riverside agile and more successful in the next 30 years,” said Kohl alongside co-CEO Béla Szigethy, “it made sense to us to think about Parkwood becoming an investor in Riverside itself.”

“Parkwood is an excellent cultural fit,” Szigethy added. “Their one of our most supportive investors, and one that really gets us.”

“Parkwood prides itself on working with great people, adhering to rigorous processes and focusing on cultural fit,” said Mandel in a statement. “We have been a significant private equity investor for over 40 years including with many marquee firms. Partnering with Riverside in this way is a perfect fit for our strategy and culture.”

No money comes off the table with

“It made sense to us to think about Parkwood becoming an investor in Riverside itself.”

— Stewart Kohl, Riverside co-CEO

the firm investment, Szigethy said.

The cash investment at the management level will be used to grow existing initiatives, including control equity funds, minority investment funds and some credit-related funds, all of which have room to grow — and the injection of cash lets Riverside further invest in its own funds as they grow, which has been a trend in private equity as fundraising has been so strong.

“Historically, we have invested up to 5% as the general partner in funds, but that’s drifted down some as fund sizes increase,” Kohl said. “Having some capital of this sort of the management company level lets us do that.

Having additional capital at the ready to pump into funds is also good for turning a profit faster, Kohl explained.

In 28 years, Riverside has launched 21 vintages across different initiatives. A typical cycle for the firm is to launch and run an initial fund at a deficit at the management level, then move carried interest into the second fund, which is where “we’d perhaps break even,” Kohl said. By fund three, the firm itself is starting to make a profit — and that’s been a 10 to 12 year process.

“As the PE industry’s momentum and pace have picked up, it’s important for Riverside to be able to do that cycle more quickly,” Kohl said. “This allows us to launch fund one at a larger scale, break even in fund one and hit profitability by fund two.

Shortening that cycle is important to us.”

“These are good things when you think about what Riverside is going to look like 10, 20 or more years from

Crain’s to spotlight emerging local artists In mid-May, Crain’s Cleveland Business is publishing a special report exploring the evolving arts landscape in the region.

As part of that project — and our ongoing efforts to feature more voices in our coverage — we’re looking to put the spotlight on a handful of the artists doing incredible work in the Northeast Ohio community.

There are no hard and fast requirements for those we’d like to profile.

For one, they could be musicians, painters, sculptors, arts programmers or even funders — basically anyone working to advance the appreciation for the arts in Northeast Ohio.

In particular, we’re looking for artists who are doing high-quality work but might be flying under the radar.

If you know someone the community should be paying attention to, let

Sections Editor Timothy Magaw know by April 24. Simply shoot him an email at tmagaw@crain.com with “Artists to Watch” in the subject line and a few sentences about why that individual is something we should be paying attention to. If possible, please send photos or links to samples of the artists’ work.

The five individuals we select will be profiled in the May 15 print edition. The profiles are part of an ongoing “Five to Watch” series where we’re putting the spotlight on a handful of emerging minds in various industries. Recent sections have included finance, startups, health care and sports business.

The next “Five to Watch” series is slated to publish April 24 and feature five up-and-coming individuals in the region’s legal sector.

now,” Szigethy said.

Riverside, co-headquartered in Cleveland and New York, buys control and non-control stakes in businesses valued up to $400 million, having invested in more than 460 transactions since its inception.

Their current portfolio includes about 80 companies. The firm is the industry's 147th largest private equity firm, according to the PEI 300, with a five-year fundraising total of $2.37 million.

Riverside co-CEOs Béla Szigethy, left, and Stewart Kohl (Contributed photo)

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET

JOBS

them on the path for an IT career.”

CONTINUED FROM PAGE 11

Good news, bad news

Not surprisingly, funding often is hard to come by. Lennon said the amount of money spent by the U.S. Department of Labor on youth programs has decreased by 33% since 2000, although private and other public funding sources have stepped in to fill some of the void. Rivchun said Y.O.U. — being the largest youth employment program in the state — has a bit of an advantage when it comes to attracting government contracts earmarked for youth jobs. It landed $6.8 million worth in 2016.

“We have become a year-round program, always talking with employers, getting job openings and, when the funding becomes clear, we are ready to go,” she said.

As of March, 134 employers had registered with Y.O.U., representing 418 Cuyahoga County worksites and 3,035 teen jobs. The organization had 81 registered employers with 125 worksites and 1,178 teen jobs in March of 2016.

And, while municipal jobs — with the Cleveland Water Department or libraries and recreation centers, for instance — make up the bulk of Y.O.U. openings, a growing number of private-sector employers are participating. Rivchun said companies like CVS, T.J.Maxx, Arby’s and DeVore Technologies now account for 20% of Y.O.U. summer jobs.

“T.J.Maxx takes 36 kids, we pay them to work for six weeks, and they will keep some of these kids and put them on their own payroll. So we are jumpstarting the economy,” Rivchun said.

The organization also has a sizable pool of nonprofit partners, including the Cleveland Clinic, University Hospitals, the Rainey Institute, Cleveland Public Theatre and Boys and Girls

Beyond the growth of targeted youth employment programs, teens could see more job opportunities this summer as a result of the rise in the stock market and uncertainty around undocumented workers, according to Renée Ward, founder of Teens4Hire. org, a website designed specifically for teen job seekers. The bullish market means older workers near or at retirement age see a nice increase in their 401(k) plans, which gives many seniors the opportunity to bypass taking low-wage part-time positions — alternatively held by teens.

Meanwhile, the “cloud of suspicion” cast over undocumented workers likely will translate into an increased need for people who can come in and fill those low-wage openings, Ward said.

Also, retailers are pulling back.

But, Ward added, “that is not necessarily bad for teens, because retailers for past few years have been skewing higher like college-age kids or adults coming in as guest workers.”

One reality that will continue to plague teen prospects, this summer and beyond, is the lingering sentiment among businesses that young people just don’t have the preparation or motivation needed to succeed. It’s a tough stereotype to overcome, said Ward, and not one she — or Lennon, Rivchun or Chambers, for that matter — believes is accurate.

“The teens of today that I meet are so self motivated and so self driven, I just don’t see that argument playing out anymore,” Ward said. “Eighty percent of the teens we talk to want to work. They would like a paying job, and if they can’t find one, many will take a volunteer position or unpaid internships to get that work experience.”

So far, 10,000 teens have registered for a job through Youth Opportunities Unlimited. (Contributed photo)

Clubs.

Future talent Rivchun attributes the growing employer roster to Y.O.U.’s improved visibility in the county, but does not discount external factors in the labor environment. A tightening job market, for instance, means big employers such as the Clinic are eager to foster a pipeline of future employees.

They see programs like Y.O.U. as a gateway to influence and even inspire teen populations, Rivchun said.

Then there’s the very specific skills gaps seen in industries like manufacturing and health care — jobs that don’t require a college degree but do

necessitate some level of certification or specialized training. Lennon said employers looking to fill these skills gaps are turning to summer youth jobs programs as a way to connect and communicate with teens who might not recognize the opportunity.

“They want to show young people that you can get a job that pays good wages and that is on a career path that offers even better wages and a higher quality job, without that college degree,” he said.

The technology sector is another place where teen work programs are finding traction. This summer, 25 students from John Marshall High School will get paid to spend six weeks learning web development

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and coding under a new partnership between Y.O.U. and Columbus-based TECH CORPS. The teens will “operate as a mini-web development teams and design websites for a mock business,” according to Lisa Chambers, national director at the nonprofit.

TECH CORPS has operated the summer program in Columbus for eight years; KeyBank is helping sponsor the Cleveland pilot. Like similar work-based programs, Chambers believes the experience offers more future relevance than a traditional summer job at the pool or roller skating rink.

“It gives them the environment to practice becoming better employees,” she said, “and hopefully sets

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PA G E 17

MIDDLE MARKET Adviser: Peter Frankfort

Options abound in the middle market when it comes to private equity deals In considering a potential sale of their company, most middle market business owners know that multiple types of buyers may exist in the market, among them strategic buyers and private equity (â&#x20AC;&#x153;PEâ&#x20AC;?) investors. Further, they understand that a strategic buyer might represent the pathway to a 100% sale, while partnering with a PE investor may represent an initial majority sale event (e.g. 80%), followed by a secondary sale event in the future.

Despite a general familiarity with the concept of PE, many business owners are less likely to fully appreciate the breadth and depth of the landscape that has developed over the last 20 years. According to PitchBookâ&#x20AC;&#x2122;s 2016 Annual U.S. PE Middle Market Report, there are about 5,000 PE firms globally. In the U.S. lower middle market alone, 748 buyouts were completed in 2016 for an aggregate deal value of $36 billion, both figures representing increased activity over recent years. The proliferation in the number of PE firms has resulted in a highly competitive market as well as an evolution in the investment strategies and transaction structures which are being deployed, some of which may have specific appeal to certain business owners.

Increased specialization While organic growth and the use of leverage can generate equity returns, PE investors are increasingly specializing in areas where they have proven to be able to deliver strategic value to companies. One strategy is a targeted focus on select industries with a specific investment thesis, often accompanied by access to seasoned executives with relevant experience and relationships which can be deployed into management or board-level positions. Additional capabilities may exist to support global expansion, complementary acquisitions or operational improvements.

Still others may leverage a specific track record of success in supporting high growth companies or businesses in distress.

Non-control transactions In recent years, the market for non-control deals (e.g. 20-49% purchase) has opened up significantly, not just among PE investors who are willing to do minority deals, but funds that are designated specifically for this purpose. A minority sale might appeal to the business owner who desires a partial, non-control liquidity event to diversify their wealth or to buy out another shareholder, and/or to pursue strategic initiatives with the support of the capital or expertise that a PE investor can provide.

Additionally, creative transaction

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Peter Frankfort is a managing director with Greenwich Capital Group, a middle market focused investment bank located in Detroit and Cleveland.

structures can be designed which balance current value versus future proceeds which may vary upon various investor return scenarios at exit.

For PE investors, minority deals can provide the opportunity to invest in companies that otherwise may not be a candidate for a traditionally structured transaction, while aligning with business owners who have a sound strategic plan for their company and desire the support of a PE investor in order to execute their vision.

Non-traditional PE firms Traditional PE funds are typically raised from predominantly institutional investors and have a defined life span, which may dictate limits to investment hold periods. Another category of financial investor is the â&#x20AC;&#x153;family office,â&#x20AC;? typically highnet-worth individuals or families which invest into businesses in much the same way as traditional PE investors, but which may have greater latitude with respect to their investment time horizon. Another example is the publicly-traded PE fund, which may de-emphasize exit proceeds in favor of annual income in the form of dividends or interest.

Transactions with these types of investors may appeal to business owners who wish to see their companies owned by an entity with the ability to be a steward of the company for a longer period of time.

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CRAINâ&#x20AC;&#x2122;S CLEVELAND BUSINESS

THE LIST

Largest Ohio Mergers and Acquisitions Announced in 2016 Ranked by deal size

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

BUYER; LOCATION

SELLER; LOCATION

DATE ANNOUNCED DESCRIPTION OF COMPANY/ASSET SOLD

1

$11,430.5 (2)

Valspar Corp. - Deal has not closed (2) Minneapolis

The Sherwin-Williams Co. Cleveland

Public investors

3/19/2016

Valspar makes coatings, paints and related products.

2

$4,428.6

CLARCOR Inc. Franklin, Tenn.

Parker-Hannifin Corp.

Mayfield Heights

NA

12/1/2016

CLARCOR provides filtration products, systems and services worldwide.

3

$3,457.4

FirstMerit Corp.

Akron

Huntington National Bank Columbus

Public investors

1/25/2016

FirstMerit Bank and its branches throughout the Midwest now operate under the Huntington name.

$2,330.0 (3)

Aleris Corp. - Deal has not closed (3) Beachwood

Zhongwang USA LLC United States (Chinese owned)

Oaktree Capital Management LP; Bain Capital Credit LP; Apollo Management LP Los Angeles; Boston; New York

8/29/2016

Aleris makes aluminum rolled products for the construction, truck trailer, automotive, consumer durable and metal distribution industries, among others.

$2,293.9

G&K Services Inc. Minnetonka, Minn.

Cintas Corp.

Cincinnati

Public investors

8/15/2016

G&K provides branded uniform and facility services programs in the United States and Canada.

$2,170.0

Four power plants Ohio, Indiana

The Blackstone Group LP; ArcLight Capital Partners LLC New York; Boston

American Electric Power Co. Columbus

9/13/2016

Three natural gas plants and one coal plant with a total of 5,200 megawatts of generation capacity. One natural gas plant is in Indiana, and the rest are in Ohio.

$2,015.4

Hardin Street Transportation LLC; Woodhaven Cavern LLC; MPLX Terminals LLC United States

MPLX LP (Marathon Pertroleum spinoff) Findlay, Ohio

MPC Investment LLC (Marathon affiliate) Findlay, Ohio

12/5/2016

Hardin Street owns crude oil and refined product pipeline systems and storage tanks. MPLX owns light products terminals. Woodhaven owns butane and propane storage caverns.

$2,000.0

36.75% stake in Dakota Access LLC and Energy Transfer Crude Oil Co. United States

Enbridge Energy Partners LP; Marathon Petroleum Corp.

Houston; Findlay, Ohio

Bakken Holdings Co. (affiliate of Energy Transfer Partners LP and Sunoco Logistics Partners LP) United States

8/2/2016

Dakota Access develops underground crude oil pipelines and Energy Transfer owns and operates natural gas transportation pipelines.

$1,500.0

Intelligrated Inc. Mason, Ohio

Honeywell Sensing and Productivity Solutions Fort Mill, S.C.

Permira Advisers Ltd. London, U.K.

7/1/2016

Intelligrated provides automated material handling solutions for retailers, manufacturers and logistics providers in the United States.

10

$1,152.6

19 senior housing properties United States

Welltower Inc. Toledo

Vintage Senior Housing LLC Newport Beach, Calif.

8/2/2016

Located on the West Coast, the properties will be operated by existing operating partners of Welltower.

11

$1,100.0

64 health care facilities United States

Second Spring Healthcare Investments United States

Welltower Inc. Toledo

11/1/2016

NA

12

$1,000.0

ILC Industries LLC Bohemia, N.Y.

TransDigm Inc. Cleveland

Behrman Capital New York

5/24/2016

ILC makes data bus, motion control and solid-state power controller products for aerospace and defense industries.

4 5 6 7 8 9

THE LIST

Largest Ohio Mergers and Acquisitions Announced in 2016 DEAL MAKERS. NOT DEAL BREAKERS. The M&A Attorneys of

Ranked by deal size

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

SMART SOLUTIONS FOR MERGER AND ACQUISITION DEALS OF ALL SIZES.

216.781.1212 | walterhav.com

BUYER; LOCATION

SELLER; LOCATION

DATE ANNOUNCED DESCRIPTION OF COMPANY/ASSET SOLD

$950.0

Contech Holdings, Inc West Chester Township (Cincinnati area)

Quikrete Holdings Inc. Atlanta

Anchorage Capital Group; Littlejohn & Co. New York; Greenwich, Conn.

10/24/2016

Contech makes products used in infrastructure systems such as bridges, retaining walls and sewer systems.

$930.0

11 senior housing properties; 28 skilled nursing facilities United States

Unionlife Insurance Co. Ltd.; Cindat Capital Management Ltd. Beijing, China

Welltower Inc. Toledo

11/2/2016

NA

$631.0

iSqFt Inc. Cincinnati

Roper Technologies Inc. Sarasota, Fla.

Warburg Pincus; Genstar Capital; others New York; San Francisco

10/31/2016

iSqFt develops web-based software for the commercial construction industry.

$585.0

WIL Research (now Charles River Laboratories Ashland LLC) Ashland

Charles River Laboratories International Inc. Wilmington, Mass.

American Capital Ltd.; American Capital Equity Management LLC Bethesda, Md.

1/6/2016

Charles River Laboratories Ashland provides safety assessment, contract development and manufacturing services to chemical companies worldwide.

$570.0

Aston Care Systems Inc. Sun City Center, Fla.

Welltower; Canada Pension Plan Investment Board; Discovery Senior Living Toledo, Toronto, Bonita Springs, Fla.

Kayne Anderson Capital Advisors L.P. Los Angeles

2/18/2016

Aston Care Systems, doing business as Aston Gardens, operates senior living communities in Florida. It offers independent living, assisted living and memory care services.

$450.0

InterWrap Inc. Vancouver, Canada

Owens Corning Toledo

Quad-C Management Inc. Charlottesville, Va.

2/24/2016

InterWrap manufactures coated woven packaging products and multi-layer laminated reinforced plastic substrates.

$410.0

Assurex Health Inc. Mason, Ohio

Myriad Genetics Inc. Salt Lake City, Utah

Investors include North Coast Angel Fund of Mayfield Heights and several from Cincinnati: American Financial Group; Cincinnati Children's Hospital; CincyTech; Allos Ventures

8/3/2016

Assurex offers genetic tests that help health care providers determine appropriate medications for patients suffering from neuropsychiatric and other medical conditions.

20

$400.0

Cardon Outreach LLC The Woodlands, Texas

MedData Inc. Brecksville

Serent Capital San Francisco

6/13/2016

Cardon Outreach provides services and technology solutions to health care facilities in the United States.

20

$400.0

Cement plant; related assets Fairborn, Ohio

Eagle Materials Inc. Dallas

CEMEX Construction Materials Atlantic LLC Xenia, Ohio

9/11/2016

The assets include a plant that grinds clinker (a stony residue used to make cement) and a distribution terminal.

22

$390.0

16 properties Upstate New York and Alabama

DRA Advisors; DLC Management Corp.

New York City; Tarrytown, N.Y.

DDR Corp.

Beachwood

10/7/2016

The majority of these properties are retail centers in upstate New York. One is in Alabama.

23

$375.0

Mactac Americas LLC Stow

LINTEC Corp.

Tokyo

Platinum Equity LLC Los Angeles

10/23/2016

Mactac makes pressure sensitive, adhesive coated papers and films. It has locations in the United States and Mexico.

$323.4

50% stake in Convergence Fuel Systems LLC United States

GE Aviation Evendale, Ohio

Woodward Inc. Fort Collins, Colo.

1/4/2016

Convergence makes fuel systems for commercial aerospace applications.

25

$311.3

Arcam AB Molndal, Sweden

GE Aviation Evendale, Ohio

Public investors

9/2/2016

Arcam AB provides additive manufacturing solutions for the production of metal components.

26

$311.2

National Interstate Corp.

Richfield

Great American Insurance Co. Cincinnati

Public investors

3/6/2016

National Interstate is a specialty property and casualty insurance company.

27

$310.0

Lymphoseek product

Cardinal Health Inc. Dublin, Ohio

Navidea Biopharmaceuticals Inc. Dublin, Ohio

9/5/2016

Lymphoseek is a radioactive diagnostic agent.

13 14 15 16 17 18 19

24

RESEARCHED BY CHUCK SODER Source: S&P Global Market Intelligence, Marketintelligence.spglobal.com. The data does not include deals that were announced in 2015 but closed in 2016. The full list includes 52 deals and is available for purchase at CrainsCleveland.com. Crain's does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all feedback and will include omitted information or clarifications in coming issues. (1) Includes earn outs and other payments that occur only when certain conditions are met. (2) This deal has yet to close due to antitrust concerns raised by federal regulators. (3) This deal has yet to close because

the Committee on Foreign Investment in the United States has identified national security concerns with the transaction.

CRAIN’S CLEVELAND BUSINESS

NCAA

CONTINUED FROM PAGE 1

Five months before USA Triathlon holds its largest event in Cleveland, the 2018 NCAA Division I Wrestling Championships — a triple if the RNC is part of the grading scale, and probably a home run from a college sports perspective — will be at Quicken Loans Arena.

Also in 2018, the Division III Wrestling Championships will be at Public Auditorium. The sports commission’s 2017 slate includes the D-III men’s and women’s outdoor track and field championships at Spire Institute in Geneva and the CONCACAF Gold Cup at FirstEnergy Stadium.

And this week, Cleveland will find out where it stands when the NCAA championship venues for four school years, beginning in 2018-19, are announced. The sports commission has put the region’s hat in the ring for quite a few — most notably the returns of the NCAA men’s basketball tournament and Division I wrestling.

“The 18th is a big day for us,” Gilbert said. “Fingers crossed.”

Cold call was key Each athlete who competes in the USA Triathlon championships brings “about 2.2 people” with them, USA Triathlon CEO Rob Urbach said at last week’s announcement.

Even if that figure is proven to be optimistic, the event should produce an out-of-town visitor total in the five figures, since USA Triathlon’s national championships have drawn a high of 5,715 athletes — the vast majority of whom are from outside the host city’s region.

Cleveland’s pitch began with a cold call 14 months ago.

“David and I planned a trip last February to Colorado Springs,” said Mike Mulhall, the sports commission’s vice president of business development. “I literally just started calling people and said, ‘Hey, we’re going to be in Colorado Springs. Can we stop out and introduce ourselves to you?’ And this kid (from USA Triathlon) was like 23 years old that we met with, because no one else was around. But he met with us, and that literally was how this started.”

The competitions will comprise four August days (two each year) in 2018 and ’19, and Gilbert told Crain’s that USA Triathlon “is open to dis-

Kyle Snyder of Ohio State won his second straight national title at last month’s NCAA Wrestling Championships in St. Louis. The city has hosted the event eight times since 2000 and projects that the average visitor stays almost four days. (Hunter Martin/Getty Images)

97 percent JJProportion

of the 19,100-plus 2017 D-I wrestling championship visitors that were projected to come from outside of St. Louis.

3.9 days JJAverage

length of stay for the

visitors.

$13 million to $15 million JJEstimated

“direct visitor spending” of the attendees.

cussing a third year.”

The visitor count will be boosted by “recon missions” in which competitors come to Cleveland to check out the triathlon course ahead of time, Urbach said.

Crazy in a good way That type of devotion would fit right in with the wrestling community.

Gilbert said the Division I showcase has a “cult-like following” — so much so that only about 1,000 tickets are set aside to be sold locally.

“They do a thing every year at the championship where they ask people to stand up if they’ve been here five years, 10 years, 15 years,” Gilbert said.

“You see people who have come to the championship for 50 or more years every year. And they are so passionate. It’s really amazing.”

Gilbert’s counterpart at the St.

Louis Sports Commission, Frank Viverito, knows that all too well.

St. Louis has hosted the D-I wrestling championships eight times since 2000, including last month’s event, and he said about 97% of the visitors are from out of town.

A story that sticks out to Viverito is from 1999, when his group was at Penn State to promote the wrestling championships, which would be coming to the Gateway City the following year.

“An older gentleman came up to me and almost poked his finger through my chest,” the St. Louis Sports Commission’s longtime president said. “He looked me in the eye and said, ‘I’ve been going to this event for 60 years. Don’t you screw it up.’ That absolutely set the tone for me.”

The wrestling championships are one of a kind, Viverito said, and the numbers it brings are every bit as meaningful.

An economic impact analysis of the 2015 championships in St. Louis estimated that 97% of the 19,100-plus visitors for the 2017 event would be

from out of town, and 91% would travel from outside Missouri. The group’s average length of stay was expected to be 3.9 days, which led to an estimated “direct visitor spending” of between $13 million and $15 million.

The Cleveland stop will be on St. Patrick’s Day weekend next year — March 15-17. In 2017, that weekend, according to STR, a global data and analytics firm that has an office in Rocky River, produced hotel occupancy rates of 68.5% (Friday, March 17) and 65.7% (March 18) for the 7,159-room downtown market, which also includes Independence.

Next year, Gilbert expects “every hotel downtown” to be sold out, plus “many of the suburbs.”

Anthony Holman, the NCAA’s associate director of championships and alliances, said the organization prefers to have one hotel for the schools and one that serves as the headquarters for the NCAA, media, officials, VIPs and broadcast partners.

The team hotel needs at least 400 rooms, and the headquarters requires another 200 or more.

“Teams are coming in as soon as Monday or Tuesday,” Holman said.

“That’s five room nights. Those numbers really add up quickly. That’s direct impact that we know we’re spending.”

Plans haven’t been finalized, but three downtown hotels — the Westin, Hilton and Marriott — will be affiliated with the wrestling tournament in some way, Holman said.

Beyond the in-arena spending and hotel stays, the St. Louis Sports Commission’s Viverito said wrestling fans eat at odd hours.

“They’re ready for lunch at 3 and they’re ready for dinner at 9:30,” he said. “It can be great business for a host city, because they’re already doing normal lunch and dinner business, and wrestling fans are pouring into the restaurants at what can be odd hours. (The tournament) has a bit of an unusual start and end times.”

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‘Take care of it’ If Gilbert had his wish, Cleveland would have hosted the Division I Wrestling Championships prior to the NCAA deciding on bids for the next four-year cycle.

But even if The Q isn’t selected for any of the 2019-22 wrestling championships, the sports commission is taking a “long-term view.” If it (cue another baseball analogy) “knocks it out of the park” for each event it hosts, the organization eventually will return, Gilbert said.

This week, the sports commission hopes to get good news on March Madness and/or Division I wrestling, plus such NCAA championships as the Division II festival (a 1,000-plus athlete gathering that decides national titles in men’s and women’s swimming and diving, men’s and women’s indoor track and field, and wrestling) and Division III baseball.

Mulhall said when the NCAA last announced the four-year championship sites in 2013, the organization received about 2,000 total bids for all of the events. This time around, the tally increased to about 3,200.

Wrestling, not surprisingly, draws quite a bit of interest from cities, said Holman, the NCAA’s championship coordinator for the sport.

“Five years ago, when I started in wrestling, we had maybe five or six venues interested,” he said. “We’re three times that now for each of the four years (2019-22). And these are all viable sites — really good venues and traditional (NCAA) cities.”

The Greater Cleveland Sports Commission, Holman said, has a reputation as a very good host.

Viverito, whose organization has hosted NCAA wrestling on nearly an every-other-year basis for 17 years, had a simple message when asked if he had any advice for Cleveland in 2018.

“Tell (Gilbert) he can have it once, but then we want it back,” Viverito said.

“Seriously, I would say take care of it, because it’s not just another event.”

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AKRON

FirstEnergy spends billions in grid upgrades

By DAN SHINGLER dshingler@crain.com @DanShingler

Akron-based FirstEnergy Corp. says it’s making a multibillion-dollar investment in its distribution system that will not only help the company better manage equipment maintenance, but also reduce power outages for its customers.

The company says it’s continuing its “Energizing the Future Transmission Program,” known around FirstEnergy as EFT. The company has spent $3.8 billion under the program since it began in 2017 and will spend another $400 million this year. It will continue the program through 2021.

“We will invest (another) $5.8 billion by 2021. That’s in addition to the $3.8 billion so far,” FirstEnergy spokesman Doug Colafella said.

When it’s done, FirstEnergy says it

will have a transmission system far advanced from what it had just three years ago. Almost every piece of equipment will be tracked by computers — in real time and with bar codes that allow field technicians to get detailed information on more than 400,000 pieces of equipment.

That will range from how old the component is to when it was last serviced, how it performed on its previous tests, and even the temperatures and other operating conditions to which the equipment has been exposed.

The plan includes the components of over 2,400 of FirstEnergy’s smaller electrical substations, where the company’s more than 9,000 field technicians spend much of their time, said Dana Parshall, FirstEnergy’s director of assets.

The plan also includes more than 1,000 large substations that handle large voltages for the company’s transmission system in six states.

The moves can be expensive, in part, because FirstEnergy has to retrofit some equipment that was not manufactured with the sensors and other electronics the system needs.

“We’re bringing this not just to new stuff, but to 5- and 10-year-old equipment,” Parshall said.

But now Parshall can view the company’s substations on a system that shows him on Google Maps where each site is located and, more importantly, exactly how it’s performing at any given moment.

Further spending will expand the measures and drive the changes deeper into FirstEnergy’s system. The money also will provide more equipment and training to field technicians who manage and maintain the transmission system.

For FirstEnergy, the investment is not much of a risk. The expenditures count when the Federal Energy Regulatory Commission determines the rates that the company can charge

for its transmission of power — costs that eventually find their ways to customers’ bills. So the company is basically guaranteed to make its money back, and more.

But the upgrades will also make power more reliable for millions of customers, the company says, and that can be an economic development aid in the areas where FirstEnergy provides power to businesses.

“In general, particularly for larger customers, reliability is very important. It’s high on the list of what needs to happen,” said Kevin Murray, executive director of the Industrial Energy Users of Ohio trade group in Columbus.

The very largest customers may not care, because they buy high-voltage power and handle it with their own substations, but the reliability of FirstEnergy’s transmission system is important to other users, which includes many mid-sized manufacturers, Murray said.

Matt Brakey, who works with both the IEUO and smaller manufacturers as a consultant with his firm, Brakey Energy in Cleveland Heights, said the move is probably a smart one for FirstEnergy.

“It is good business sense to make sure that their customers are being reliably served,” Brakey said. “Not only does FirstEnergy have the incentive of making sure their customers have continued access to their product, but FirstEnergy can also get a regulatory rate on return on approved investments it makes.”

However, while Brakey thinks the investments will improve reliability, he said that’s a tough thing for FirstEnergy to get credit for, even among large customers.

“I think it's human nature to pay more notice to problems than improvements. I've never gotten a call from a client wanting to let me know their power quality is fantastic,” Brakey said.

The Dish: Jennifer Karpus-Romain

A new beer hot spot: Hudson-Stow area will get 3 breweries With three new breweries opening in the Hudson-Stow area in the next few months, northern Summit County is grabbing its share of the ever-growing industry.

According to the recent Brewers Association’s report, there are more than 5,300 breweries operating in the U.S., representing 12.3% market share by volume of the overall beer industry.

The breweries coming to the area — Hop Tree Brewing, Headtrip Brewery and the Brew Kettle — differ in size and style, so beer lovers will have plenty from which to choose.

Hop Tree Brewing Cory Ross and Greg McClymont dreamed about opening a bar together in their younger days, but nothing ever came of it until their love of craft beer changed the game.

“We started to get into craft beers and realized how much we enjoyed them,” Ross said. “One day, we bought a kit and tried to make it ourselves, and a passion kind of blossomed from there.”

The business partners are renting the 12,000-square-foot location at 1297 Hudson Gate Drive. They hope to open the business in June.

The microbrewery at one point had been looking at the opening up in the old Falls Theatre in Cuyahoga Falls, which is part of a major project to open up the Front Street pedestrian mall to vehicular traffic and revitalize the area. However, Ross said, he and McClymont had “concerns on our end with the timeline on that project.”

Eager to get their brewery off the ground — “It’s been 10 years since we’ve been dreaming up this business plan,” Ross said — the duo went with Plan B, the Hudson location.

However, he said, should the business grow, Hop Tree would consider,

perhaps, a satellite location in Cuyahoga Falls at some point.

The Hop Tree owners anticipate hiring four to six employees in the first year. Ross will focus his time solely on the business, while McClymont plans to continue to work at Berry Plastics in Streetsboro.

While they declined to discuss their personal investment, Ross said the value of the project cost overall is near the $700,000 mark.

All beer will be brewed on the premise and be all their own recipes.

There will be 10 taps, with three dedicated to Hop Tree IPA, Cuyahoga Brown Ale and Genesis Golden Ale. The rest will rotate styles throughout the year.

“If people want to take a keg home, they are more than welcome to do that,” Ross said. “We’ll have growlers for people to purchase to take home.

Eventually, we’d like to get into canning, but we’re not exactly sure when that’s going to take place.”

There will be a small menu comprised of appetizers, sandwiches, entrees, salads and soups, including a Cuban sandwich and pretzels with beer cheese.

Headtrip Brewery Two men with a passion for quality craft beer and good conversation are turning an at-home hobby into a business.

Nick Seagle and Tom Mitchell met at the now-closed Trailhead Brewery in Akron’s Merriman Valley, where they enjoyed the vibe and camaraderie of the establishment. They liked that people actually talked to each other.

The pair are working to open Headtrip Brewery at 1634 Norton Road in Stow, right on the Hudson border. They aim for a summertime opening. “(Hudson) is doing pretty good

The Brew Kettle in Hudson will have the same vibe as the Amherst location, seen here. (Contributed photo)

Tom Mitchell, left, and Nick Seagle of Headtrip Brewery, a nanobrewery on the Stow-Hudson border. (Contributed photo)

The Brew Kettle

Hop Tree Bewing plans a summer opening at its site in Hudson after first looking at a spot in Cuyahoga Falls. (Contributed photo)

with its downtown,” Seagle said.

“They got a lot of craft beer-friendly restaurants down there. … But what they don’t have is a brewery right in their backyard.”

Locating Headtrip at the border of the cities extends the nano brewery’s reach to Stow, where, at present, no other craft breweries reside.

Headtrip will have a laid-back atmosphere, with tables the business partners are making themselves from reclaimed wood.

The duo — who plan to run the place on their own at first, without any hires — is 100% focused on the beer, which will be brewed at the 1,500-square-foot spot they’re renting in the Stow Hudson Towne Center plaza.

Patrons will be welcome to bring in any food they’d like, but Headtrip

only will have snacks and munchies, like chips and pretzels, on hand.

Guests can purchase growlers or bring in their own to take home their favorite selections. Headtrip will start with six taps.

“We’ll always be rotating, but there will be a couple of mainstays,” Seagle said. “The peanut butter oatmeal coffee stout, that one is a mainstay.”

He said he enjoys making different types of IPAs, including a wheat series, and he plays around with different seasonal fruits.

The pair is putting a lot of their own time and money into their establishment, under $100,000, to get it off the ground.

For now, they plan to keep their day jobs (Seagle works in a motor development lab; Mitchell works for a coating application company).

Strongsville-based Brew Kettle has been in Northeast Ohio for more 20 than years, but expanded its footprint with taprooms in Strongsville in 2003 and Amherst in 2015. The brewery aims to open its newest location, at 11 Atterbury Blvd. in Hudson (the former Varsity spot), sometime in June.

The Hudson spot will employ 40 to 45 people, said Chris Russo, owner.

Although he would not release specific figures, he said the investment for the 4,500-square-foot location has been substantial.

Russo said he chose Hudson because “an opportunity arose and I liked the location. … Hudson is a great area, great demographics.”

While there will be a small manufacturing system in Hudson, the bulk of the beer will be brewed at the Strongsville brewery.

For patrons who’ve visited the Amherst spot, the décor and atmosphere at the Hudson location is set to match. The menu will be the same at all three locations, including slowcooked pulled pork, barbecue spaghetti and Chicken Parma-que.

Russo said they will have 36 to 40 handles, including 10 to 15 that are Brew Kettle brands and a variety of other brands.

“We’ve won awards on our beer, and our food and our wine,” Russo said. “And we’ve been around for 22 years.”

Brew Kettle brands are well-known to Northeast Ohioans, including its White Rajah IPA and the first licensed beer with the NBA: All For One.

CRAIN’S CLEVELAND BUSINESS

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AKRON

Coatings firm pushes for capital, growth

By DAN SHINGLER dshingler@crain.com @DanShingler

Up in Cleveland, it’s long been Sherwin-Williams Co.’s mission to “cover the earth” with its paints and coatings.

But down in Kent, Tesla NanoCoatings CEO Todd Hawkins is telling potential investors he only needs to cover some of the world’s infrastructure and vulnerable heavy equipment with his company’s specialized corrosion-prevention product.

Tesla, which has raised more than $4 million to date, is in the process of raising another $5 million as it gears up to serve a rebounding oil and gas industry. It also wants to grow into the marine and heavy equipment-protection industries.

“We’re going through a capital raise right now,” Hawkins said.

“We’re going to raise $5 million. That will support our growth, and it will also support some new product opportunities we need to pursue.”

Hawkins thinks he has the next big thing in the world of corrosion prevention, a worldwide industry that encompasses everything from heavy industrial and mining equipment to bridges, other infrastructure, and oil and gas drilling rigs and pipelines.

Tesla — no relation to the car company — makes a two-coat protective system that it says can guard materials

Tesla NanoCoatings demostrates how its coatings are applied at the site of a potential customer that is a Louisiana-based oil and gas service provider. (Contributed photo)

longer and at substantially lower costs than the three-coat systems that dominate the market today. The system uses tiny nanotechnology carbon tubes to provide a protective barrier that Hawkins says other products can’t match.

In addition, the system’s base coat reacts with the top coat and the metal it’s protecting to provide galvanic protection that can last for years longer than existing technologies, Hawkins said.

But it’s the two-coat application process that Hawkins is hawking the most.

“That saves them a third on their maintenance costs,” he said, explaining that about 98% of the cost of using Tesla or other competing products is the labor required to apply them.

Better yet, he said, there is no waiting time between applying the first and second coats. The interval in between can be 10 seconds or 10 weeks; it doesn’t matter, he said.

And the No. 1 market Tesla thinks will want to achieve the savings, both in time and costs, is the oil and gas industry.

Hawkins said that after several years of relatively low activity, the industry is now coming back strong, whether it’s drilling for oil and gas in the shales of Ohio and Pennsylvania, or in Saudi Arabia, or even offshore in the Gulf of Mexico and other marine environments.

“The oil and gas market is really important, and they’ve made their adjustments to the new conditions and $50 oil (per barrel). … We do things faster and cheaper, and that helps them with their maintenance backlogs,” Hawkins said.

It’s also an industry where, perhaps more than any other, time equates to money. Every day that a drilling rig is being painted is a day that it’s not drilling — and one more day before it starts producing money instead of costing it. Such delays can cost drillers hundreds of thousands, even millions, of dollars.

“They can put production people on their rigs instead of maintenance people,” by using Tesla’s products, Hawkins said.

Tesla has found several potential customers willing to test its system, both in the U.S. and Saudi Arabia. But Hawkins said he can’t yet reveal their names.

Some small local companies also have been working with it, including Navarre-based R. Straus, a trucking company that hauls milk for local dairies owned by Stark County commissioner Richard Regula.

“Corrosion in the trucking indus-

try is a big deal,” Regula said.

About 10 years ago, Regula started noticing that his expensive tanker trailers were suffering from more corrosion than he’d seen in the past, possibly because of new winter road treatments or even from new chemicals used by dairies to clean the trucks. That stopped when he started using Tesla NanoCoating’s products, he said.

He even tested it when he had a trailer reframed recently, applying Tesla NanoCoating to some bolts but not others.

Three years later, “the bolts that had been treated with Tesla did not have any corrosion at all, but all the others did,” he said.

Since then, he’s been referring the product to other local businesses, including some of the area’s large tanker operators and fuel haulers, which he says have reported good results.

That’s likely exactly what Hawkins wants to hear, especially as he continues to make his case before potential investors. Hawkins said interest has been good, and he expects to close the current round of fundraising in August.

The company does not release its financials, but Hawkins said he is currently positioned to do about $40 million to $50 million in annual sales with his existing capital. He plans to use about $2 million of new capital to grow sales, another $2 million for further product development and about $1 million to develop the company’s presence internationally.

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APRIL 17, 2017

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PAGE 17

ANALYSIS

Eaton Corp. has stretched meaning of ‘core’ for a long time BLOOMBERG GADFLY

Eaton Corp. may be just about the only one who thinks its vehicle-components business is “core.”

That mantra got repeated last Monday, April 10, even as Eaton announced it’s contributing automated transmission operations to a joint venture with truck-engine maker Cummins Inc. in exchange for 50% interest and $600 million of cash.

It’s a smart deal that creates a stronger, more integrated competitor in a growing part of the transmissions market. Cummins, not Eaton, will consolidate the results on its balance sheet.

Eaton, which is based in Ireland but has its North American headquarters in Beachwood, stressed the deal isn’t an indication that it’s trying to distance itself from the vehicle parts altogether. Nor does it mean

Eaton can’t distance itself from the vehicle parts if it wants to.

The $34 billion industrial company can say what it wants, but analysts and investors are generally looking at a spinoff or sale of the vehicle business as a when, not if, situation. Because while Eaton is right that the unit can be quite profitable and should benefit as the truck market recovers, it’s still a naturally more cyclical business that’s been a drag on the company’s valuation.

The fate of the truck and automotive parts operations has long been a source of speculation, so a bit of background is helpful.

In 2012, former Eaton CEO Alexander Cutler tried to diversify his way to a multiple more in line with multi-industrial peers with the $12.8 billion acquisition of lighting-gear maker Cooper Industries. That deal marginalized the vehicle business to about a

fifth of Eaton’s revenue. For many investors, the logical next step to achieving the company’s valuation goal was to separate out the truck and automotive business altogether. Management initially indicated this was at least a technically possible scenario.

But in 2014, Eaton said that actually it couldn’t do a spinoff until five years after the closing of the Cooper deal without incurring a massive tax liability and that the company had been “well aware of this all along.” Potato, potatoe. Also Eaton didn’t want to do a spinoff anyway because there are synergy benefits from keeping all its power-management operations together — i.e. vehicle is a “core” unit.

So the vehicle business stayed and now Eaton trades for about 16.7 times its earnings in the past year, compared with about 24 times for a basket of top North American multi-indus-

trial companies. That roughly 30% discount is comparable to the differential that existed before Eaton announced the Cooper takeover that was supposed to close said gap.

It might have been wider but for the almost 20% rally in Eaton’s shares in the wake of President Donald Trump’s November election victory and optimism that his economic policies will help restart capital spending. The surge has also helped narrow the stock’s discount to RBC analyst Deane Dray’s sum-of-theparts estimate of about $80 a share, but it’s a fair question whether all of that rally was justified given the uncertainty about Trump’s economic policies and an industrial rebound.

Segment margins of about 15% at the vehicle unit in 2016 are actually better than the average for Eaton’s self-selected peer group. But they trail

the company’s own so-called throughthe-cycle targets that are supposed to represent consistent profitability. You could call that an opportunity, as Eaton does, or you could call that a sign that the business isn’t living up to the company’s own criteria for what’s worth keeping under its corporate umbrella.

By contrast, Eaton’s electrical products, aerospace and electrical systems units have already hit or are set to hit their 2020 targets this year. The hydraulics division is another laggard and parts of that business could be divestiture candidates as well.

With the five-year post-Cooper waiting period drawing to a close this winter, Eaton will need to follow through on its promises to turn its vehicle and hydraulics businesses around. If it doesn’t, an activist investor may decide it knows better than management what’s “core” to the company.

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CRAIN’S CLEVELAND BUSINESS

Source Lunch Don Hayes

Regional vice president, Wells Fargo Don Hayes is no stranger to Cleveland’s highly fragmented banking market, and that’s why Wells Fargo likes him. Hayes spent some 15 years with National City Bank and a couple years at Key Bank before joining Wells Fargo, where he was charged with opening the financial services giant’s first commercial banking office in Cleveland and growing its Northeast Ohio market share. While Hayes has seen success in building the commercial business here, it’s reasonable to wonder whether the recent Wells Fargo fake-account scandal has hit the local market in any meaningful way — after all, the company’s CFO told analysts just last week that costs incurred from the scandal are coming out higher than expected, and the dings to reputation are having their own effects. Crain’s sat down with Hayes to talk about how that scandal is, or isn’t, affecting his swath of the region. — Jeremy Nobile

Five things Where do you usually golf?

Firestone Country Club

Favorite TV? Home improvement shows

What’s something people don’t know about you?

I used to do home construction as a rough framer for residential housing through college.

Preferred libation?

Single-barrel bourbons

What did you want to be when you were a kid?

NHL player for the Chicago Blackhawks

Lunch spot Saigon Restaurant & Bar 2061 East 4th Street, Cleveland

The meal Vermicelli noodle bowl with charbroiled chicken and charbroiled chicken over white rice, both served with romaine lettuce, cucumbers, scallions and sweet pickled carrot/ daikon, plus ginger ale and hot tea.

The vibe Authentic-yet-Americanized Vietnamese presented in a very modern-looking, soft-lit space. It's going for a relaxed vibe, but the restaurant was very busy on a Monday afternoon. Service is very fast. The noodle bowl was fantastic.

The bill $ 25.64, plus tip

Let’s start with the obvious question: How is the bank different since the fake-account scandal?

In a broad sense, we’re even more customer-focused in trying to repair our trust with customers because we had a lot of retail customers affected by that. We’re kind of following along with the thought where you break a bone, it tends to heal stronger. That’s where I see the direction of the bank now: focused on doing what’s right for the customer.

So Wells Fargo doesn’t have a retail presence in this market. Has this scandal affected the commercial business at all, at least from what you can see?

We focus on $20 million to $500 million-size revenue companies, predominantly privately held. I’d say out of 250 customers around the state of Ohio, we have less than 10 public companies in that customer profile. You never really know what kind of business you didn’t get. But our whole focus has been, and continues to be, gaining new relationships. In 2015, we brought in 41 new relationships around the state, and 43 in 2016. If you use that as a standard, I’d say we were relatively unaffected by the scandal that hit us.

But that event was also relatively late in the year. Even though we’re talking commercial banking, and that affects retail, do you think that might still have any impact on your business?

In commercial banking, it’s not that someone decided one day to make a change. That’s usually several months, if not several years, of thinking about: “What does this bank bring to me as a business? How do they help my business?” And that change can be time-consuming and costly.

Surely it’s brought up sometimes, though, yes?

Anecdotally, we proposed converting a piece of business to us from a competing bank. They were a 401(k) customer at the time, so they had some concerns. We had our institutional trust folks come in and talk to the employees about accounts in 401(k) versus retail checking and all that. Lo and behold, a month later, we did win the relationship. So that didn’t impact us other than creating a need to communicate what all that was and how it wasn’t going to impact their business.

And the numbers in your market still seem relatively unaffected?

The business owner that isn’t calling us back because of the scandal, we’re not going to know about that.

But yes, our numbers are good. Out of those total (Ohio) numbers, I think in 2015 we had 19 new customers.

Last year, we had 23. And this is our biggest market. We’re very mindful of this and we like having the opportunity to talk about it — I’m sure there is some impact. But our relationship activity is still moving along nicely.

All that aside, this is still a really competitive market. What’s part of your pitch for courting new clients?

The huge benefit is within the wholesale bank, having 80 different product lines. When you talk about things that continue to be important to Ohio manufacturers, we’re pretty good with international currencies and exchange trading. We have over 2,000 people in Hong Kong, an office in London, a bank charter in Canada. We say that we’re in the countries you need to be in and we’re able to leverage that.

There are some big companies here, but fewer compared with several years ago. Is there really a lot of hunger for that kind of work by businesses here?

There really is. And businesses are becoming more knowledgeable about the world scene. Some have been good at it for a long time, while others are just now going down that path. But we have unique experience — not that other banks don’t have it.

But we localize what we do. There are 145 offices like ours, but they’re all different because there are different business around them.

Bringing that national and international capability helps us.

Community banks are getting bigger and doing more, and there are still a lot of large banks doing similar work here. Does the market feel any more competitive in general nowadays?

You have seen a lot more activity with banks moving into this market that might originate from Marietta or western Pennsylvania. Michigan moved in with Chemical Bank. But everyone is hungry for assets today.

From a loan perspective, those community banks might now be able to go up to $15 million or $20 million.

But we can play at a much larger level, like many of our regional competitors. So our job is really to differentiate ourselves.

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