www.crainsdetroit.com Vol. 30, No. 12
MARCH 24 – 30, 2014
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Page 3 Lansing ponders pulling plug on electric regulation
Hospitals merger: Rx for capital Beaumont-Oakwood-Botsford alliance would bolster assets BY JAY GREENE CRAIN’S DETROIT BUSINESS
Detroit neighborhood sprouts new development Digital news: The digits not adding up on the bottom line
A ‘deal junkie’ is lifetime achievement winner, Page 11 Inside It’s getting bloody for beef buffs as prices rise, Page 20
This Just In New restaurant options coming to Metro Airport
A range of national and local restaurant chains plan 25 new dining options for the McNamara Terminal at Detroit Metropolitan Airport. The Wayne County Airport Authority approved concession agreements for the new food and beverage sellers that will open in the terminal over the next year and a half. Local restaurants with concession agreements include Andiamo, Bigalora Wood Fired Cucina, Plum Market, Zingerman’s Deli, Corridor Sausage Co., Grobbel’s Gourmet Deli and Papa Joe’s Gourmet Market. Restaurants based out of state include P.F. Chang’s, Chick-fil-A, LongHorn Steakhouse, Bruegger’s Bagels, Potbelly Sandwich Works, Pinkberry and Espressamente Illy. The new restaurants will add about 22,000 square feet to the terminal’s food and beverage space. — Nathan Skid
The proposed merger of Beaumont Health System, Oakwood Healthcare Inc. and Botsford Health Care could give the new $3.8 billion health corporation more affordable access to capital that none of the systems could achieve on their own, said several health care experts in interviews with Crain’s last week. Last week, CEOs of the three health systems — Beaumont’s Gene
Michalski, Oakwood’s Brian Connolly and Botsford’s Paul LaCasse, D.O. — confirmed they signed a letter of intent Thursday to begin 90 days of discussions to combine their organizations into a new $3.8 billion health care system. Crain’s had reported Thursday that a potential merger or alliance was imminent, citing sources close to the deal. At the time, the hospital systems declined to comment. “It makes sense from an accessto-capital standpoint, because the larger the institution, the greater
the cash flow and the greater ability to service debt,” said Jim McTevia, managing member of McTevia & Associates in Bingham Farms. “Hospitals McTevia have to have access to capital because there is so much uncertainty in the future with an aging population and de-
GM ignition recall may haunt Delphi Supplier’s fate in liability case could be matter of timing BY DUSTIN WALSH CRAIN’S DETROIT BUSINESS
A faulty part in as many as 1.6 million vehicles could ignite legal and financial calamity for Delphi Automotive plc if it is held responsible for the actions of its bankrupt predecessor. The Troy-based supplier of the defective ignition switch at the center of a massive recall, investigation and public shaming of General Motors Co. could face mounting scrutiny over the hot-button issue. However, the unanswered questions in the inquiry has left legal experts unsure of Delphi’s plight. Delphi, as well as GM, is protected under Chapter 11 bankruptcy code
from certain product liability obligations that occurred before they emerged from bankruptcy, but it still may not be able to avoid penalties, experts say. Delphi declined to comment on the issue for this article. The issue comes down to whether the product liability discharge for bankrupt Delphi Corp. is upheld in the face of civil suits and potential fraud under a criminal investigation. “This is relatively unprecedented and will make for a great law school class,” said Mark Aiello, partner at Foley & Lardner LLP in Detroit. “Forget about the complexity of a component that has failed; now you have the complexSee Delphi, Page 29
clining reimbursement” from Medicare and private payers, said McTevia, a longtime health care consultant in Southeast Michigan. If a Beaumont-Oakwood-Botsford deal materializes, the new system would control eight hospitals, 3,015 beds and about 30 percent of Southeast Michigan’s inpatient days. The new company would employ 25,500 workers, and the systems have more than 5,000 physicians on its hospital medical staffs. See Hospitals, Page 30
South by Southwest: 12 days of tech music, film — and brand building.
SOUTHWEST EXPOSURE Texas festival is as much for brands as bands BY NATHAN SKID CRAIN’S DETROIT BUSINESS
The crush of people, brands and bands at the South by Southwest Festival in Austin, Texas, creates brand exposure, and this year Detroit companies, musicians, attorneys and advertising agencies were there to capitalize on the opportunity. Mark Rieth, owner of Detroitbased Atwater Brewing Co., sent 2,100 cases of Dirty Blonde Ale to the nine-day conference and festival. The beer was given away for free at more than 22 events over 12 days as a way to plant Atwater’s flag in its new market. The reason? Atwater is building a $15 million, 80,000-square-foot brewing facility in Austin with the capacity
A photo of a Chevrolet Cobalt taken by an engineering firm hired by the lawyer for the family of a woman who died in a 2010 crash.
Merging of the Minds (see our ad on pg 2)
See SXSW Page 30
March 24, 2014
CRAIN’S DETROIT BUSINESS
MICHIGAN BRIEFS Siemens donates $55.8M in software to Mott College Mott Community College in Flint received its largest in-kind donation in school history with a $55.8 million software grant from Siemens Corp. Siemens, the U.S. subsidiary of German-based Siemens AG, donated its product life cycle management software to the school for classes in manufacturing design, development and engineering. The software will be used in Mott’s curriculum for certificate and associate degrees in design, manufacturing and service industry specialties. Siemens, which has 13 offices in Michigan including Troy, Livonia and Plymouth Township, has made more than $2 billion in investments and donations to nearly 30 of Michigan’s community colleges and universities. — Dustin Walsh
Business, agriculture groups want to open Muskegon to river barges A coalition of business and agriculture groups and West Michigan economic developers want to make it easier to ship products into the region’s only deepwater port from the Mississippi River system, MiBiz reported. They are seeking approval from the U.S. Coast Guard to allow barges
Doctor fired after Facebook post sues health system An emergency room doctor has sued Grand Rapids-based Spectrum Health, saying her position was eliminated and she was wrongfully accused of violating the Health Insurance Portability and Accountability Act over a comment she posted on Facebook, MLive.com reported. Catherine Puetz, a former associate medical director of emergency services, filed the lawsuit this month in U.S. District Court against Spectrum and two executives. The lawsuit involves a Facebook post Puetz made in August 2013 in response to seeing a picture posted by an emergency department from the Mississippi River system — connected to the Great Lakes via the Chicago Sanitary and Ship Canal — to travel to Muskegon under the restrictions they have to other Lake Michigan ports, such as Milwaukee. Currently, much of the freight that comes in by water with West Michigan as its final destination first goes to the Chicago area. “It would be a game-changer for West Michigan and potentially all of Michigan as we look at the freight advantages from a cost standpoint of moving things by water as opposed to by truck or by rail,” said Jim Byrum, president of the Michigan Agri-Business Association.
MICH-CELLANEOUS The New York City-based investment bank Goldman Sachs and
nurse that showed the backside of a woman. Thinking she recognized the woman, Puetz posted a comment: “OMG. Is that TB?” According to the suit, Spectrum investigated the post and comments. Some employees were fired and some not. Puetz said she submitted an apology and the chief medical officer said her job was not in jeopardy. Puetz said she later was told she was being removed from her leadership role but she would continue as an emergency physician. Spectrum Health officials declined to comment.
Vestar Capital Partners, a private equity firm, signed a definitive agreement to acquire Hearthside Food Solutions from Wind Point Partners, a Chicago-based private equity firm, bakingbusiness.com reported. Downers Grove, Ill.-based Hearthside, the nation’s largest independent baker and largest contract food manufacturer, has five plants in metro Grand Rapids. The state seeks civil subpoenas against Overland Park, Kan.-based Ferrellgas propane company and its Battle Creek-based affiliate, Best Propane, after consumer complaints tied to pricing, The Associated Press reported. The office of Michigan Attorney General Bill Schuette said it has received 65 complaints against Ferrellgas and Best Propane. Dick Haworth, son of the founder of Holland-based office
furniture manufacturer Haworth Inc., has been named the Economic Club of Grand Rapids’ Business Person of the Year. Forbes magazine says the Grand Rapids market ranks seventh on its list of “America’s Most Affordable Cities 2014.” Buffalo, N.Y., topped the list, while Warren rounded out the top 10. The Grand Rapids-Wyoming market ranks 10th on a list of “America’s Fastest-Growing Retirement Places” by NerdWallet, a per-
The March 17 list of bankruptcies listed the wrong filing status for two companies. Associated Community Services Inc., Southfield, filed voluntary Chapter 11. Schulman & Associates PC, Detroit, filed voluntary Chapter 7.
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Merging of Minds
sonal finance website, the Grand Rapids Business Journal reported. NerdWallet divided the number of people 65 and older by the total population in each of the nation’s 75 largest metropolitan areas in 2007 and 2012. The Detroit-Warren-Livonia market ranks fourth. The Ethisphere Institute, an independent research center that promotes corporate ethics and governance, recognized Battle Creek-based Kellogg Co. as a World’s Most Ethical Company, the Kalamazoo Gazette reported. It is the sixth time Kellogg has been given the designation. Los Angeles-based Malibu Media, which goes by the name X-Art.com, has filed a lawsuit alleging that numerous West Michigan residents have illegally shared its products, MLive.com reported. The products: high-definition erotic films and photographs.
Muskegon gon n
CRAIN’S DETROIT BUSINESS
March 24, 2014
House bill powers electric choice Proposal would deregulate rates for Edison, Consumers BY CHRIS GAUTZ CAPITOL CORRESPONDENT
Electric rates in Michigan would no longer be regulated under a proposal aimed at opening up electric choice in the state. The plan contained in House Bill 5184 would apply only to the state’s two largest utilities, Detroit Edison Co. and Consumers Energy Co., and would mean that rates could change
as often and by as much as the market will bear without review or approval by the Michigan Public Service Commission. However, as many customers who wanted could choose other electricity providers. The bill is sponsored by longtime electric-choice advocate Rep. Mike Shirkey, R-Clarklake. He admits the bill is not likely to get very far this year, but he and other proponents see the fact that the issue is
being debated in the Legislature as something of a victory. Michigan law allows customers to choose another electricity provider, but only up to 10 percent of a utility’s Shirkey electric sales. That cap was reached a year after the 2008 law went into effect, and there is a waiting list of more than 11,000 businesses who want to seek another provider. Under 5184, Edison and Con-
sumers would be required to separate electric power generation from sales by putting their generation assets into a subsidiary, by selling them or by some combination of the two. Under the bill, only the two utilities’ distribution systems — electric substations and all non-transmission lines — would be left under state regulation. The bill does not affect the gas business or alternative energy. Utilities have consistently opposed expanding choice in part because they argued customers would See Electric, Page 33
Another football league? Hope springs eternal, Page 4 Company index These companies have significant mention in this week’s Crain’s Detroit Business:
West Village open for business Detroit neighborhood becomes hot spot for restaurants, revitalization BY AMY HAIMERL CRAIN’S DETROIT BUSINESS
fter nearly 18 months of waiting and delays, Sandi Bache Heaselgrave is finally starting the buildout on the West Village outpost of her popular Ferndale café, The Red Hook. Neighbors have been waiting patiently — and sometimes not so patiently — for her to bring coffee and Pinwheel Bakery pastries to a community lacking a place to get a morning cup or an afternoon pickme-up. Problems with funding, zoning and inspections pushed her plans repeatedly, but she finally has a signed lease, a bank loan and an opening scheduled for June. “I almost quit a million times,” said Heaselgrave, 38. That year of waiting brought significant changes to Detroit’s West Village neighborhood. Businesses are opening as entrepreneurs eye the east side communiSee West Village, Page 32
Looking east on Agnes Street, The Red Hook is immediately to the left and the Craft Work restaurant is down the block. The Red Hook’s Sandi Bache Heaselgrave (inset) has endured nearly 18 months of delays to see her cafe slated for a June opening.
Money is the bug that crashes local digital news efforts BY BILL SHEA CRAIN’S DETROIT BUSINESS
The story behind why boutique and hyperlocal digital journalism efforts fail is simple: The money is never enough, and it runs out. That’s what happened to DeadlineDetroit.com, which announced last week it would lay off its entire staff April 4 as it seeks new investors — a development that comes on the heels of Patch.com in January idling most of its staff around the country. They represent a recent trend of digital news
outlets going out of business, or being on the verge of it, because they could not meet operating expenses. “Hyperlocal is a very, very difficult business. There are only a handful of them that appear to be making it,” said Peter Zollman, founder of Florida-based Classified Intelligence, a consulting and analysis company focused on newspaper advertising. Digital ad rates remain a fraction of what newspapers charge for print advertising, making it difficult to fund news-gathering operations like traditional media outlets — which also are strug-
gling with advertising revenue declines that online revenue hasn’t offset.
Anderson Group . . . . . . . . . . . . . . . . . . . . . . . . . . 11 AnnArborChronicle.com . . . . . . . . . . . . . . . . . . . . 31 Atwater Brewing . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Beaumont Health System . . . . . . . . . . . . . . . . . . . . 1 Blackford Capital . . . . . . . . . . . . . . . . . . . . . . . . . 14 Botsford Health Care . . . . . . . . . . . . . . . . . . . . . . . 1 Botsford Hospital . . . . . . . . . . . . . . . . . . . . . . . . . 23 Blue Cross Blue Shield of Michigan . . . . . . . . . . . . 30 Clawson Steak House . . . . . . . . . . . . . . . . . . . . . . 20 Compuware . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 31 Consumers Energy . . . . . . . . . . . . . . . . . . . . . . . . . 3 Conway Mackenzie . . . . . . . . . . . . . . . . . . . . . . . . 11 Council of Michigan Foundations . . . . . . . . . . . . . 19 Craft Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 DeadlineDetroit.com . . . . . . . . . . . . . . . . . . . . . . . . 3 Delphi Automotive . . . . . . . . . . . . . . . . . . . . . . . . . 1 Detroit Economic Growth . . . . . . . . . . . . . . . . . . . 32 Detroit Edison . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Detroit Lions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 DTE Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Edward Lowe Foundation . . . . . . . . . . . . . . . . . . . 18 Energy Choice Now . . . . . . . . . . . . . . . . . . . . . . . . 33 Esperion Therapeutics . . . . . . . . . . . . . . . . . . . . . . 6 Fairway Packing . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Foley & Lardner . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Ford Motor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 General Motors . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Gorno Ford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Hastings Manufacturing . . . . . . . . . . . . . . . . . . . . 11 Hatch Detroit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Henry Ford Hospital . . . . . . . . . . . . . . . . . . . . . . . 23 Hertz Schram . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Holiday Market . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Huron Capital Partners . . . . . . . . . . . . . . . . . . . . . 16 Howard & Howard Attorneys . . . . . . . . . . . . . . . . . 16 Inforum Center for Leadership . . . . . . . . . . . . . . . 24 Inland Industrial Services Group . . . . . . . . . . . . . . 14 McClure’s Pickles . . . . . . . . . . . . . . . . . . . . . . . . . 30 McTevia & Associates . . . . . . . . . . . . . . . . . . . . . . . 1 Michigan Economic Development . . . . . . . . . . 19, 30 Michigan Wheel Marine . . . . . . . . . . . . . . . . . . . . 12 Mopec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 MotorCityMuckraker.com . . . . . . . . . . . . . . . . . . . 31 Oakwood Healthcare . . . . . . . . . . . . . . . . . . . . . . . 1 Patch.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Practice Space . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 PricewaterhouseCoopers . . . . . . . . . . . . . . . . . . . 11 Prime29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Public Sector Consultants . . . . . . . . . . . . . . . . . . . 33 Red Hook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Rivals Professional Football League . . . . . . . . . . . . 4 Strength Capital Partners . . . . . . . . . . . . . . . . . . . 14 Unique Fabricating . . . . . . . . . . . . . . . . . . . . . . . . 14 Villages Community Development . . . . . . . . . . . . . 32 Visteon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Warner Norcross & Judd . . . . . . . . . . . . . . . . . . . . 29 Yessian Music . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Lack of profitability
BANKRUPTCIES . . . . . . . . . . . . . . . . . . 9
DeadlineDetroit.com, which does original reporting and aggregates local news content, launched in April 2012 with an undisclosed amount of seed funding from
BUSINESS DIARY . . . . . . . . . . . . . . . . 28 CALENDAR . . . . . . . . . . . . . . . . . . . . 28 CAPITOL BRIEFINGS. . . . . . . . . . . . . . . 7 CLASSIFIED ADS . . . . . . . . . . . . . . . . 29 KEITH CRAIN . . . . . . . . . . . . . . . . . . . . 8
See Digital, Page 31
LETTERS . . . . . . . . . . . . . . . . . . . . . . . 8 OPINION . . . . . . . . . . . . . . . . . . . . . . . 8
THIS WEEK @ WWW.CRAINSDETROIT.COM
A Detroit love story ... a work in progress Crain’s Amy Haimerl and her husband bought a house in Detroit that needs ... well ... a bit of work. Read about her experience in her blog, at crainsdetroit.com/blogs.
PEOPLE . . . . . . . . . . . . . . . . . . . . . . 27 RUMBLINGS . . . . . . . . . . . . . . . . . . . 34 WEEK ON THE WEB . . . . . . . . . . . . . . 34
March 24, 2014
CRAIN’S DETROIT BUSINESS
Spring football … in Detroit? 2 groups think so BY BILL SHEA CRAIN’S DETROIT BUSINESS
Two groups — one a small local effort led by the grandson of Detroit Tigers great Willie Horton, and the other a California-based endeavor with national aspirations — this year are launching spring professional football leagues that include Detroit as a market. Both ventures say they have the formula for success where so many other leagues have failed, as does a third national spring football project that is avoiding Detroit and other current pro football markets. Trying to buck the trend are the Livermore, Calif-based A11 Professional Football League and the Clinton Township-based Rivals Professional Football League (led by Horton’s grandson Quentin Hines) — both of which have Michigan teams. Not coming to Detroit is the “new” United States Football League led by former longtime National Football League executive Jim Bailey.
Hail Mary? Such spring football attempts are nothing new: The spectacular $140 million flameout of the first iteration of the USFL in the 1980s hasn’t stopped entrepreneurs from investing in subsequent spring pro football leagues, with Detroit often among targeted markets. The history of spring pro football is a graveyard of failed attempts over the past 40 years, but the economic theory behind every spring league effort is the same: American thirst for football is year-round, and there’s money to be made by fielding teams in April through June before the $12 billion NFL and college football dominate the rest of the year. What has doomed spring efforts has been the lack of national television broadcast rights contracts, which provide billions of dollars for the NFL and NCAA; the lack of lucrative corporate sponsorships; and overspending by undercapitalized owners, sports industry ana-
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lysts say. “Devising a business strategy that truly works over time, including how best to break through the clutter and garner meaningful dollars from corporate America, and the media continues to be key fundamental challenges for upstart leagues,” said David Carter, executive director of the University of Southern California’s Sports Business Institute. All of the proposed spring leagues use variations of the same primary cost-control business strategy to try to succeed where other efforts have failed. The model: League ownership of the teams rather than individually owned franchises, known as a single-entity league. (This model is used by Major League Soccer, but not the other four major U.S. pro sports leagues.) A single-entity league allows management to (theoretically) control player costs, the source of fatal overspending in past leagues. Last month, the A11 Professional Football League announced that the seventh of its eight teams will be the Michigan Panthers — using the name, logo and colors of the USFL team owned by Detroit billionaire Al Taubman. “We’ve been close observers of what’s occurred before. The problems are correctable,” said Michael Keller, the A11FL’s president and COO. He was director of football operations for the original Panthers when they played at the Pontiac Silverdome and won the inaugural USFL championship in 1983. “These leagues have failed because of circumstances that could have been eliminated early,” Keller said. “This country loves football, and it’s wide open in the spring.” The A11FL estimates that it needs $50 million in startup capital to operate for three years, at which point it forecasts that the league will be solvent, Keller said. It’s charging $5 million for the rights to a team market, said Keller, who played at the University of Michigan and in the NFL to start a career that’s seen him work for several pro football leagues. The league has said it wants to be in certain former USFL markets to capitalize on the nostalgic popularity of those former teams. The A11FL, which got a flurry of media coverage earlier this year for offering a quarterbacking job to former NFL player Tim Tebow, said Ford Field or the Silverdome are possible homes for the Panthers when the league launches its full schedule in 2015. The NFL’s Detroit Lions confirmed that Keller approached them in March 2013 about the possibility of leasing Ford Field, but no deal was signed. The A11FL’s on-field gimmick is allowing any player on the field to wear an eligible uniform number at any position, allowing for different formations on the field than seen in the NFL or college football. The league has a deal with ESPN2 to air exhibition games on May 17 from Raymond James Stadium in Tampa and June 5 from the Cotton Bowl in Dallas. The full league is scheduled to launch in 2015, and ESPN2 will air two games a week, Keller said. The
COURTESY OF RIVALS PROFESSIONAL LEAGUE
Quentin Hines (center), owner of the Rivals Professional Football League, with the head coaches of the four teams: Wendell Jefferson of the Detroit Cougars, Robert Hunt of the Southern Michigan Mustangs, Matt Griebel of the Chicago Kings and Gary Hutt of the Akron Blaze.
The history of spring pro football is a graveyard of failed attempts over the past 40 years. deal is a barter agreement in which the network gives the league some of the advertising inventory to sell instead of paying it cash. Keller said the deal is immediately profitable for the league, and is the only way a nationwide football league can survive. “The business plan just doesn’t work unless you have a huge TV deal,” he said. “We’re looking at major markets because the TV people want the major numbers.” Other markets include San Francisco, Dallas and Chicago. In addition to Michigan, the A11FL has revived three other USFL team names and markets: the Los Angeles Express, New Jersey Generals and Tampa Bay Bandits. An eighth team, for the 2015 season, has yet to be announced. The A11FL has hired a third-party firm to sell corporate sponsorships to the major national brands in such segments as soft drink, beer, hotels and apparel, Keller said. He declined to disclose details on the sponsorships.
Smaller efforts The more modest locally based effort organizing now is the Rivals League, owned and run by CEO Hines, who was briefly with the NFL’s New England Patriots and is the grandson of Horton, one of the more famous members of the 1968 Tigers team that won the World Series. Hines’ development league has four teams in Michigan, Ohio and Illinois scheduled to begin play in April. The two local teams — the Detroit Cougars and Southern Michigan Mustangs — will play games at Mt. Clemens High School and Gibraltar Carlson High School, he said. Hines said he and several NFL
friends pooled money to start the league, and they have almost the entire $400,000 they need to operate the RPFL its first year. Developmental leagues rely on money players pay to try out for teams, and they’ll be paid a base salary of anywhere from $100 to $350 a game plus incentives, Hines said. Other revenue comes from tickets and merchandise sales. “Our cost is low. We’re not like these other leagues,” he said. We’re not trying to compete with any of those leagues. I want to give guys an opportunity to continue playing football when the door closed for them.”
The ‘new’ USFL The other major national effort at a spring league is the “new” USFL led by former NFL executive Bailey. His San Diego-based league has the rights to the USFL name, but not the old teams, which belong to A11FL. Unlike the other leagues, the new USFL hasn’t announced its markets, team names, schedule or investors yet. The intention is to have enough operating capital in the bank to operate for a couple of seasons first, Bailey said. “We have a fairly sophisticated capitalization plan that we’re at work on the first phase of right now,” he said, without disclosing details other than that he’s seeking individual and corporate investment in two phases before a 2015 kickoff. “We’re working hard to structure a financial package that minimizes the risk to the investors and allocates the rewards,” he said, adding that he expects the league to lose money for a few years until it has the leverage to negotiate TV deals that will make it profitable. Bailey said he’s analyzed why all the other leagues have failed. “I’ve studied those really hard. The common feature is undercapitalization. They tried to start playing before they were capitalized and got deeper in the hole,” he said. “We’re not going to implement anything until we’re real — money in See Next Page
CRAIN’S DETROIT BUSINESS
March 24, 2014
the bank to sustain us,” he said. His other strategy is having the USFL operate as a single-entity league, with owners buying shares that allow them to operate a team. That prevents owners from overspending in a competitive race, he said, which is what doomed major efforts such as the USFL and the World Football League in 1974-75. “That leads down a bad path,” he said. The USFL will target cities that have no NFL or Major League Baseball team, reducing competition for discretionary fan dollars. So no Detroit for the USFL, which Bailey said will be a minor-league developmental league. The new USFL also was dealt a setback when its founder, Jaime Cuadra, pleaded guilty to embezzling more than $1 million and tax fraud in June 2013. Cuadra resigned from the USFL, and Bailey and other league executives re-formed the business as a new entity with no ties to him.
Investor blitz Why do investors keep trying to find a model that works with spring leagues? Analysts say they can’t resist. “America loves football, so (investors) are willing to try it and pour money into it. When they find out after they spend the money is it’s very difficult to create a structure of what is even a shadow of what the NFL is,” said Marc Ganis, president of Chicago-based sports
PASSES AT PRO FOOTBALL LEAGUE ALTERNATIVES Here are some examples of attempted spring professional football leagues or alternatives to the National Football League: 䡲 United States Football League. The 18-team league played a spring schedule in 1983-85, and the Michigan Panthers won the championship in the first season. It had national TV deals with ESPN and ABC, and rosters of former and future NFL stars. Owners began spending beyond the salary cap to remain competitive. A push by New Jersey Generals owner Donald Trump for a fall schedule is usually blamed for the league’s demise, but the USFL’s poor TV rating in the spring of 1985 indicated it was in trouble. Combined USFL team debt in 1985 reached $140 million. 䡲 World League of American Football. The NFL launched this developmental league, later NFL Europe and then NFL Europa, that ran domestically and overseas from 1991 to 2007. 䡲 XFL. This eight-team league with gimmicky rules played February through April 2001 as a 50-50 partnership between pro wrestling impresario Vince McMahon and NBC Sports. Teams, all owned by the league, played 10 games. Although well-capitalized, it lasted one season and reportedly suffered a $35 million loss. Strong TV ratings the first week plunged under intense media and fan criticism, although attendance averaged a respectable 23,500 a game. The average player salary was $45,000. 䡲 Arena Football League. This league, launched in 1987, saw the Mike Ilitch-owned Detroit Drive win four championships from 1988 through 1992 before going out of business in 2009. The league included NFL team owners, former NFL players and rock star Jon Bon Jovi among its investors. After the league’s minor-league consulting firm Sportscorp Ltd. “It is an enormously difficult business to put together logistically. You can do it on a small scale. To try to do it on national scale, where you have to draw fan inter-
affiliate, af2, bought the assets of its parent, the AFL returned in 2010 with a vastly smaller payroll structure and a new broadcast deal with the NFL Network. It has 14 teams today. 䡲 Continental Indoor Football League. This minor league has had a number of Michigan teams since it was founded as the Great Lakes Indoor Football League in 2006. Teams in Detroit, Battle Creek, Saginaw, Muskegon, Kalamazoo, Flint and Port Huron all failed, moved or switched leagues. It has 10 teams now, including Taylor, Port Huron and Saginaw. 䡲 Stars Football League LLC. Stars has four teams in Florida, has been in operation since 2011 and is the brainchild of former player agent-turned-real estate investor Peter Huthwaite of Grosse Pointe. Its players are paid a few hundred dollars a game, and teams rely on tickets, concessions and sponsorships for most revenue. The league buys airtime on local radio stations and sells shares in the single-entity league. 䡲 All American Football League. The six-team league was to have had a team at Ford Field and spent $30 million on startup costs, only to call it quits in March 2008 because the subprimemortgage crisis evaporated the funding of league founder Marcus Katz. The AAFL’s schtick was drafting only players with a college degree. But despite a connection to major sports names, it never played a game. Ford Field attempted via lawsuit to enforce a $1 million contract with the league. 䡲 Spring Football League Inc. This lasted two of a scheduled four-game test season in April-May 2000 despite the involvement of former NFL stars such as Eric Dickerson, Drew Pearson, Bo Jackson and Tony Dorsett. Teams were in
est, it just doesn’t happen. It’s is not practically feasible.” Exacerbating problems for startup leagues are player health concerns and organized labor issues, he said.
Still, under a very narrow set of circumstances, with the right timing and skill, a spring league could work, Ganis said. “There is a gap in the calendar where there could be something
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Houston, Los Angeles, Miami and San Antonio. 䡲 International Football Federation. Singer Dionne Warwick was part of the group that announced the federation in 1999. Detroit was among the 13 teams, but the IFF never got beyond the proposal stage. The February-July league, which couldn’t secure a television deal, was proposed by Dennis Murphy, a co-founder of the American Basketball Association in the 1960s and the World Hockey Association in the 1970s. 䡲 Spring Professional Football League. The 10team league included several future NFL players and former Detroit Lions head coach Darryl Rogers running a team in Arkansas. It got as far as holding training camps in 1992 before folding. The league was a single-entity structure with a $250,000 ownership buy-in fee and a $2 million-per-team payroll. It had no TV deal. 䡲 World Football League. The WFL was a summer-fall effort in 1974 that ended during the 1975 season. It had 13 teams playing a 20game schedule and included some NFL players and owners who paid a $120,000 franchise fee. Among the teams were the Detroit Wheels, who played at Ypsilanti’s Rynearson Stadium and were co-owned by Marvin Gaye and Mike Ilitch, among others. The team was a financial disaster and folded with six games left in 1974. The league had a broadcast syndication deal with TVS Television Network. 䡲 United Football League. The four-team UFL, using former NFL players and coaches, was founded by an investment banker in 2007. Play lasted from 2009 until folding under financial duress four games into the 2012 season. It played in the fall in non-NFL cities. The league bought airtime with CBS Sports Network, HDNet and Versus. put together, but I think it has to be done by the NFL. It’s just so difficult and so expensive,” he said. Bill Shea: (313) 446-1626, firstname.lastname@example.org. Twitter: @bill_shea19
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March 24, 2014
CRAIN’S DETROIT BUSINESS
After positive trial, reports, Esperion plans secondary public offering BY TOM HENDERSON CRAIN’S DETROIT BUSINESS
Esperion Therapeutics Inc., a Plymouth Township-based early-stage pharmaceutical company, is planning a secondary public offering late this year or early next, based in part on results of a 60-patient trial it announced earlier this month. Esperion (Nasdaq: ESPR) raised about $73 million in its initial public offering last June 26. The secondary offering may also be helped along by what have been very strong reports and buy ratings by the four analysts who cover the company. Following news of
the trial results, all issued reports this month predicted the stock to double or more in the next 12 months. The stock was trading at $15.31 Thursday afternoon. Esperion will move its headquarters next month out of the Michigan Life Science and Innovation Center, an incubator facility run by the Michigan Economic Development Corp., to larger space in Ann Arbor. It will retain lab space at the incubator. “This will be a pivotal year for us,” said Tim Mayleben, president and CEO. The June IPO was the second IPO for a drug company called Es-
be a “ This willpivotal year for us.
Tim Mayleben, Esperion Therapeutics Inc.
perion. The first was founded in 1998 to create a drug to raise HDL, the so-called good cholesterol. It
went public in 2000 and was sold to Pfizer Inc. for $1.3 billion in 2004. In 2008, as part of closing its Michigan operations, Pfizer sold the name and rights to some small molecules back to company cofounder Roger Newton, who founded the second Esperion and is now its chief science officer. This Esperion is conducting human trials on a small-molecule drug with the working name of ETC-1002, which lowers LDL, the so-called bad cholesterol, in people who are intolerant to a class of drugs called statins, such as Lipitor and Torvast, which are currently the drugs of choice to lower LDL.
Researchers at the University of Miami Miller School of Medicine, who conducted the Phase 2a study of ETC-1002 in 60 statin-intolerant patients, published their results in the March issue of the journal Arteriosclerosis, Thrombosis and Vascular Biology. Editors felt the results warranted an accompanying editorial. It said the results demonstrated “several results worthy of comment,” foremost that study subjects showed a 43 percent decline in LDL levels without any change in levels of HDL and with minimal side effects. “This degree of LDL reduction is impressive, approaching the effect of high-intensity statin therapy,” said the editorial. On March 5, Esperion reported earnings for the quarter that ended Dec. 31. It had a net loss of $9.7 million for the fourth quarter and a loss of $26.1 million for the year, compared to a net loss of $2.8 million for the fourth quarter of 2012 and of $11.7 million in 2012. Analysts responded with praise. The losses were expected, since Esperion doesn’t generate revenue and had higher trials costs in 2013. What they responded to were the trial results Esperion discussed in the conference call, as well as to news of its plans for larger Phase 2b trials this year. The company is enrolling 320 statin-intolerant patients for one trial and 130 patients in another trial for those who can tolerate some statins but not enough to lower their LDL sufficiently. Mayleben expects results to be back early in the fourth quarter. If they mimic the recent results, “we’ll want to raise more capital,” he said, declining to name an amount. “We want to raise money, but you don’t want to dilute your current investors too much.” He said the secondary offering will fund much-larger Phase 3 studies, involving up to 3,000 patients, in 2015. Based on similar news he told analysts, they subsequently wrote: “We remain buyers of ESPR, remaining among our top picks in our small-cap biotech coverage,” said New York City-based Citi Research’s report, which had a 12month target for the share price of $30. “ESPR’s novel oral cholesterol-lowering drug has several paths to becoming a blockbuster drug in this large and growing cholesterol market.” New York City-based JMP Securities said it expected a “datarich 2014” from the company and gave it a target price of $34. “We remain buyers of the stock,” said its report. Baltimore-based Stifel, Nicolaus & Co. issued a report with a target price of $29 and said: “We anticipate that the combination of positive Phase 2b test results will provide definitive proof that ETC1002 is a highly differentiated compound for the treatment of LDL.” New York City-based Credit Suisse had a target price of $26. “Our positive view on ESPR is based on the large market opportunity and significant scarcity value of its novel oral pill for lowering cholesterol,” said its report. Tom Henderson: (313) 446-0337, email@example.com. Twitter: @tomhenderson2
CRAIN’S DETROIT BUSINESS
March 24, 2014
Lawmakers move on scrap metal, beer tasting After months of negotiations and some lobbying from Detroit Mayor Mike Duggan in Lansing last week, a deal finally was brokered to advance scrap metal legislation to Gov. Rick Snyder’s desk. House Bill 4593, sponsored by Rep. Paul Muxlow, Chris Gautz R-Brown City, would require that all sales of scrap metal of more than $25 would be handled via a check that would be mailed to the seller. Any amount below that would be paid at the scrapyard, but through an encrypted debit card. Cash sales would no longer be permitted. This will help create a paper trail that the supporters say will help deter theft and also help authorities arrest those who are bringing in stolen goods. The idea of creating a database of sellers and the scrap items was included in the bill, but the scrap dealers are not mandated to participate in it. The bill had been caught up in differences between the House and Senate for months, but Duggan and Snyder had been making the case publicly for the legislation in light of increasing concerns over metal theft. Snyder is expected to sign the bill, possibly as early as this week.
Capitol B r i e fi ng s
proved to allow wine tasting at farmers markets, and this week, legislation will be introduced to allow microbrewers to do the same with their products. Rep. Andy Schor, D-Lansing, and Rep. Marcia Hovey-Wright, DMuskegon, are sponsoring the legislation. It would allow the microbrewers to provide up to three 3-ounce servings of beer per cus-
tomer to farmers market customers in a 24-hour period. It would require a $25 permit fee per farmers market at which the microbrewer was offering the samples, as well as the approval of the farmers market and the local police department. “Allowing local brewers to provide their product at a farmers market to a high volume of foot
Comings and goings Tony Stamas, chief of staff to Senate Majority Leader Randy
Richardville, has been hired as the Small Business Association of Michigan to serve as its vice president of government relations. He will begin April 14. Richardville’s deputy chief of staff, Jordan Hankwitz, will be the new chief of staff. Chris Gautz: (517) 403-4403, firstname.lastname@example.org. Twitter: @chrisgautz
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80 employers to be at Ford Field job fair More than 80 Michigan employers will try to fill more than 800 job openings at Pure Michigan DreamJob, which is being billed as the state’s largest matchmaking summit June 13 at Ford Field. The Michigan Economic Development Corp. will work with employers to prequalify applicants for 20minute interviews to happen throughout the day. There will also be booths for each company to meet with walk-up candidates. Participating companies include Quicken Loans Inc., Whirlpool Corp., Bosch, Lear Corp., Delphi Corp., Nissan Motor Co., McCann Erickson, Roush Enterprises and Microsoft Corp. At the all-day event, job seekers will receive information about living in Michigan, tours of downtown Detroit work spaces, and the opportunity to attend a networking reception and a Detroit Tigers game. Learn more at puremichigandreamjob.com.
traffic would create an immediate economic benefit for our state,” Hovey-Wright said in a statement. “Giving these brewers every chance to succeed can do nothing but help Michigan.”
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March 24, 2014
CRAIN’S DETROIT BUSINESS
Mergers answer to ‘No-kill’ policies don’t work health care reform? ast week, three area nonprofit hospital companies announced they would combine to create a new parent company. Crain’s Jay Greene pointed to that possibility a month ago and he broke the story on the merger last Thursday on crainsdetroit.com. It’s big news, but probably not the end of reorganizations in this region. Hospitals need to combine for clout with insurers as well as to help deliver the kind of outcomes demanded by new federal health care payment rules. Which reminds us of the new kind of March Madness underway as insurers and nonprofit health groups push young adults and minorities to sign up for health care coverage by the April 1 deadline. In some states, black churches are hosting talks by physicians; in other states, insurers are staging contests with cash prizes aimed at persuading 20-somethings and college students to sign up. The Congressional Budget Office projected 6 million enrollments by March 31; as we went to press, reported enrollments had topped 5 million. But enrolling is only the first step; are these new-to-insurance people going to pay their premiums? Doctors won’t want to eat the cost of services provided to people who aren’t paying their premiums but are in a 90-day grace period before an insurer cuts them loose. That’s just one of the wrinkles found in the Affordable Care Act. Hardly a day goes by without finding similar wrinkles. Only time will tell if mergers such as the one Beaumont is leading may help to immunize hospital systems from the unintended consequences of federal health care reform.
Use auto fines to fix roads, transit A billion dollars here, a billion dollars there. Pretty soon, you’re talking real money. As Crain’s Chad Halcom reported in February, 14 mostly Japanese auto suppliers in metro Detroit (and a few in Ohio) agreed in 2013 to pay fines of more than $1 billion combined in cases tied to collusion and price fixing. So where does that money go? We are as keen on reducing the federal deficit as anybody, but it’s likely those dollars will not be used to pay debt. So why not be creative? We have seen penalties assessed in other cases distributed back to communities in which those offenses were amassed. So if the Obama administration wants to help Detroit — without a “bailout” — we have a modest suggestion: Use the cash to help with two big transportation problems: Fix the roads or finance regional transit.
Editor: In response to the March 17 letters to the editor “MHS misleads on ‘no-kill’ ” and “MHS needs change”: The Michigan Humane Society deserves the community’s support for providing refuge to every animal in need. In Michigan and across the country, shelters that have succumbed to pressure to enforce “no-kill” policies have quickly discovered these policies are unsustainable and cause more animal suffering. Six months after the Barry County Animal Shelter became “no-kill,” the cat population exploded to more than double the number that the shelter can handle. The state Department of Agriculture intervened, forbidding the shelter from accepting more cats until the population was reduced. After county leaders ordered the Genesee County Animal Shelter to stop euthanizing animals last summer, the shelter was reportedly immediately over capacity for cats. After less than two months of “no-kill” policies that resulted in overcrowding, the inability to accept cats from the public (resulting in an increase in animals being
Crain’s Detroit Business welcomes letters to the editor. All letters will be considered for publication, provided they are signed and do not defame individuals or organizations. Letters may be edited for length and clarity. Write: Editor, Crain’s Detroit Business, 1155 Gratiot Ave., Detroit, MI 48207-2997. Email: email@example.com
abandoned after hours) and the spread of contagious illnesses throughout the facility, officials rescinded the “no-kill” directive. To claim that Michigan doesn’t have an overpopulation of dogs and cats is patently false and shows how deluded “no-kill” extremists are. Just last August, CNN reported that Detroit has an “epidemic” of stray dogs, with tens of thousands of dogs roaming the city’s streets. This crisis will only worsen if more shelters are pressured into enforcing “nokill” policies. The only humane way to become a “no-kill” community is by first becoming a “no-birth” one, through breeding bans and mandatory spay/neuter laws —
and that’s where people who care should focus their efforts. Teresa Chagrin Animal care and control specialist People for the Ethical Treatment of Animals Norfolk, Va.
Column ran off road Editor: I must take exception to some of what was said by Keith Crain in his March 3 column, “The problem is wider than just potholes.” While I agree about the problems that exist and the age of the infrastructure, I disagree on the additional cost and inevitability of more taxes to fix these problems. This state, like all others, has had, and continues to have, a budget to develop and maintain infrastructure. The problem is, these funds have been cut to fund social programs, raided by the Legislature, spent inefficiently and squandered. It’s long past time to cut back on the parasitic and illthought-out social programs in this state and restore proper funding to what was promised and the taxpayers paid for. James Aiello Grosse Pointe Woods
TALK ON THE WEB From www.crainsdetroit.com Re: Letters: MHS misleads on ‘no-kill’ The only way a shelter can be no-kill is if it drastically limits its admissions and doesn’t care it is creating stray animals that will produce more unwanted animals that will have to fend for themselves. These abandoned animals usually suffer a short but painful death. Prevention by spaying and neutering is the only proven method to significantly reduce euthanasia. Julieveggie Yes, we have an overpopulation meltdown. Because a truly openadmission shelter will become inundated with homeless and dumped animals. So, what to do? Limit admissions. Easy peasy. Terryward
Reader responses to stories and blogs that appeared on Crain’s website. Comments may be edited for length and clarity.
Re: Syncora threatens to cancel insurance on Detroit swaps Isn’t the purpose of insurance to cover situations like this? If Syncora cancels its coverage, why would any company want to hire it for coverage, if it’ll just end it when it is needed? I feel like I am missing something here. Aragorn Steiger
Re: Detroit considers deal on Joe Louis Arena’s future So in order for the Wings to get a stadium in which the taxpayers
pay more than half, and none of the revenue flows to the city, and no property taxes flow to the city, the Ilitch family wants the state to pay off any of its unpaid bills to the city for Joe Louis, and wants to make sure the city doesn’t rent Joe Louis to anyone else to earn some money for itself. Yeah, that sounds like a good deal for Detroit. The kind of deals we are used to around here. Sheesh! MikeInMI
Re: Chris Gautz: The state fruit debate Scrappers are literally tearing Detroit to pieces, our roads are a national disgrace and our politicians in Lansing fret over cherries vs. blueberries. Do we need a part-time Legislature? We already have one. Jeffrey Poling
KEITH CRAIN: Don’t be too hasty about the arena deal Everything about the plans for the new location and stadium for the Detroit Red Wings is happening. In a couple of years, we’ll have a new arena to play hockey. But one of the conditions of this deal is that after the Red Wings move to their new, tax-funded arena, no events may be held at Joe Louis Arena. We have to tear it down. Wait a minute. Let’s take a look at the deal and consider whether we really want to tear the arena down without any real conversa-
tion about our options. I would rather see the arena turned over to the regional authority running Cobo Center next door. Let it use the arena as an adjunct to what has become a world-class facility at Cobo. Maybe the folks who run Cobo don’t want it. But let’s not do anything rash without even asking them. Let’s give Cobo the opportu-
nity to decide whether it can take advantage of this convenient facility. There is no doubt that the owners of the Red Wings are getting a sweet deal with the new rink and all the adjacent land that will be developed as well. After taxpayers contributed to Ford Field for football and Comerica Park for baseball, it seems fair that hockey gets its own new facility.
But let’s not trash a facility that isn’t that old — it opened in 1979 — and might have a great value to Cobo. There is still time for the city to put the brakes on any concessions that could have a real negative impact on our convention attraction business. I seem to recall that it wasn’t that long ago when Detroit Zoo leaders were promoting the idea of a worldclass aquarium on the waterfront — by renovating Joe Louis Arena. I’m not sure if the zoo has any inter-
est in that idea today, but I am sure there are plenty of valid uses to consider before we sign on to the wrecking ball. The best idea might be simply to turn the title over to the Cobo authority, which represents the city and all three counties. The authority has been running Cobo to everyone’s satisfaction. We need to ask Cobo whether there’s an interest in taking over “the Joe.” Meanwhile, let’s not be in a rush to give it away or tear it down.
CRAIN’S DETROIT BUSINESS
March 24, 2014
Compuware gets second looks from private equity firms BLOOMBERG NEWS
THE LAST TAKEOVER BID FOR Compuware Corp. ended in a truce and the company remaining independent. But is another takeover attempt in the works? San Francisco-based Vista Equity Partners LLC and Chicago-based Thoma Bravo LLC are reviewing the Detroit-based company’s finances, according to people with knowledge of the matter. The interest doesn’t mean a sale is imminent, and no active talks are underway, the people said, asking not to be named discussing private information. Still, companies such as Compuware (Nasdaq: CPWR) that sell software to businesses have the potential to generate high profit margins, making it a potential turnaround opportunity, one of the people said. Compuware’s margin on earnings before interest, taxes, depreciation and amortization is just over 16.4 percent, compared with an average of 23 percent at 13 of its U.S. peers, data compiled by Bloomberg show. Compuware spurned an offer from activist shareholder Elliott Management Corp. in January 2013 and said it would evaluate any credible bids. None materialized, and it has instead focused on cutting costs and selling or spinning off units including cloud-computing business
BANKRUPTCIES The following businesses filed for protection in U.S. Bankruptcy Court in Detroit March 14-20. Under Chapter 11, a company files for reorganization. Chapter 7 involves total liquidation. TJ America LLC and TJ Associates LLC, 29217 Ford Road, Suite 118, Garden City, voluntary Chapter 11. Assets and liabilities not available. — Anjana Schroeder
Covisint Corp., which conducted an initial public offering in September. Compuware reached an accord with New York City-based Elliott this year that staved off a fight for control of the board, as Chief Executive Officer Bob Paul continues to try to show shareholders that he can increase returns without a takeover. Compuware’s management is continuing to operate under the assumption that no deal will be done because even after several companies expressed interest in the past year, nothing has come to fruition, two people said.
Compuware has “no active buyers interested in the company,” according to Lisa Elkin, a spokeswoman. “The CEO continues to focus on accelerating growth, profitability and shareholder value,” she said in an email. Representatives for Elliott, Thoma Bravo and Vista declined to comment. Bain Capital Partners LLC and Golden Gate Capital Corp., which also explored a deal last year, have decided not to bid, according to the people familiar with the situation. Bain and Golden Gate were viewed as the frontrunners because they
could combine the company with its larger peer BMC Software Inc., which the group bought for $6.9 billion in May Compuware hired Goldman Sachs Group Inc. in 2012 to help it review Elliott’s bid, people familiar with the situation said at the time. The New York City-based bank is still working with Compuware as a financial adviser, the people with knowledge of the situation said. A spokesman for Goldman Sachs declined to comment, as did representatives for Golden Gate and Bain. Elliott offered to buy the compa-
ny early last year for $11 a share, valuing the company at about $2.3 billion, and advocated for it to combine with BMC, which was also put on the block after receiving pressure from Elliott, Paul Singer’s New York-based hedge fund. Compuware closed at $10.56 Thursday in New York, down about 6 percent so far this year. Vista, which manages almost $8 billion in committed capital, invests largely in software and techenabled businesses, according to its website. Thoma Bravo manages about $4 billion in assets.
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NOMINATE FOR 40 UNDER 40 Since 1991, Crain’s Detroit Business has gathered 40 of the community’s overachievers for a special salute. Past winners have started companies, found success at a young age at established businesses and made nonprofits stronger. Crain’s is seeking nominations for the 2014 class of 40 under 40, which recognizes young achievers based on factors such as financial impact and community leadership. Winners will be profiled in the Oct. 6 issue of Crain’s Detroit Business and will be honored at the awards event in November. With more than 640 alumni invited, the annual event brings together the current class with colleagues, clients, family and friends to celebrate this achievement. To be eligible, nominees must be 39 or younger as of Oct. 6, 2014. Nominations must be received by April 14. For questions regarding the nominations, contact Bill Shea at firstname.lastname@example.org or (313) 4461626. For technical questions regarding the nomination form, contact Ashley Henderson at email@example.com or (313) 446-1685.
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CRAIN’S DETROIT BUSINESS
March 24, 2014
A CONVERSATION WITH
Ray Telang, Pricewaterhouse Coopers LLP
M&A Awards In December 2012, Ray Telang was named managing partner for the Michigan market for PricewaterhouseCoopers LLP. Telang, who joined PwC in 1988, discussed with Crain’s reporter Tom Henderson an economic report by PwC on global megatrends.
Tenacious at the table but mellow in manner, Anderson Group co-founder Barry Shapiro puts his skills to good use as a self-described ‘deal junkie’
The report lists five megatrends. What are they? They are a continuing shift in economic power, climate change and scarcity of resources, accelerating urbanization, demographic shifts and technology breakthroughs. Organizations that will succeed are those that most adapt. In the past couple of years, we’ve been seeing increased urbanization here. Young people are moving back. As soon as a condo project comes on line or an old office building gets rehabbed as apartments, they fill up. In 2008, about 50 percent of the world lived in urban centers. That’s expected to grow to 70-75 percent in 25 years. Workers and young people don’t want that commute, which lends itself to redeveloping the core. Vacancy rates are 3, 4, 5 percent at most. Demand is high. Technology will certainly solve some of the problems created by other megatrends in unknown ways. Megatrends create problems, but they create opportunities, too. We’ll see relationships develop between traditional manufacturers and technology companies. Technology will drive spending in R&D and will drive M&A activity. Think of health care. Now, patients get off-the-shelf orthotics like knees and hips. Soon, we’ll have 3-D printers creating orthotics that are specific to each patient. The established G7 countries had $29 trillion in combined GDP in 2009 and will have $69.3 trillion in 2050. The emerging economies of China, India, Russia, Indonesia, Mexico, Turkey and Brazil had $20.9 trillion in 2009 and are expected to have $138.3 trillion in 2050. This will have a major impact. One interesting thing is as these economies grow, their populations will become consumers. They won’t just be making things and shipping them. Companies here will open plants there to be close to their customers. We’ve called you Ray in past stories but your business card says Ramesh. Which do you prefer? Ray. I put Ramesh on my cards as a promise to my father. He didn’t understand why I would anglicize my name. I go by Ray, but I told him I would use Ramesh on my business cards and formal documents.
If you know someone interesting in banking, finance, technology or biotechnology whom Tom Henderson should interview, call (313) 446-0337 or write thenderson @crain.com.
“I can’t picture myself retiring,” says Barry Shapiro, who has worked for nearly 30 years in M&A. NATHAN SKID/CRAIN’S DETROIT BUSINESS
A talent for value BY TOM HENDERSON CRAIN’S DETROIT BUSINESS
C LIFETIME ACHIEVEMENT WINNER
ory Gaffney, a partner in Bloomfield Hills-based private equity firm The Anderson Group LLC, says an unusual combination of skills has driven the success of company cofounder Barry Shapiro. “Barry is a combination Bob Marley and pit bull. He’s absolutely tenacious when negotiating deal points, but at the same time, he’s super relaxed, as mellow as it gets, never flustered,” Gaffney said. The Rastafarian/pit bull model is one that has served Shapiro well since he turned the family business into a private equity company in the mid-1980s. Shapiro, 71, will receive the
lifetime achievement award at the April 16 M&A Awards program of Crain’s Detroit Business and the Detroit chapter of the Associa-
can Stock Exchange, out
of bankruptcy. Hastings was a well-known manufacturer of automobile parts that began making oil pumps and piston rings in 1915 but had fallen on hard times. It showcased Shapiro’s dogged determination to negotiate the best deal possible, but in such as way as to make friends, not enemies, said Charles Moore, a senior managing director of Birmingham-based turnaround firm Conway MacKenzie Inc., which led Hastings through its bankruptcy.
Crain’s Detroit Business, in partnership with the Association for Corporate Growthtion for Corporate Growth. Detroit Chapter, holds its seventh annual His most recent deal, M&A Awards 5-9 p.m. closed on March 14, was April 16 at the Troy Marriott, Troy. Tickets an acquisition of a are $75 for ACG Springfield-Mo.-based members or nonmembers in company, Red Monkey groups of 10 or more, Foods, a manufacturer or $80 for individual and distributor of organ- sales to nonmembers.
ic spices to supermarkets across the nation. Perhaps the best deal Shapiro has done in nearly 30 years of M&A was the 2005 acquisition of Hastings-based Hastings Manufacturing Co., a public company on the Ameri-
In addition to lifetime achievement winner Barry Shapiro, the other 2014 winners, profiled by category on the following pages, are: Deal over $100 million Winner: Aquilex Holdings LLC, Centerbridge Partners LP/Inland Industrial Services Group LLC, Page 14 Deal under $100 million Winner: Blackford Capital LLC/Mopec Inc., Page 14
See Shapiro, Page 12
Finalist: Unique Fabricating Inc./Taglich Private Equity LLC, Page 14 Dealmaker adviser Winner: Joseph DeVito, Howard & Howard Attorneys PLLC, Page 16 Dealmaker, buyer/seller Winner: Huron Capital Partners LLC; Brian Demkowicz, Mike Beauregard, John Higgins, Peter Mogk, Page 16
More information: crainsdetroit.com/events | Questions? (313) 446-0300 or firstname.lastname@example.org | Twitter: Join the conversation with #crainsma.
March 24, 2014
CRAIN’S DETROIT BUSINESS
Finance: M&A Awards
Shapiro: Self-described ‘deal junkie’ has a talent for value ■ From Page 11
“It was a difficult deal with a lot of complex issues, but he put a plan together and he stuck with it,” said Moore. “Barry is very relationshiporiented, which is very helpful with the kinds of troubled deals he gets involved with, creating value with struggling companies.” Not only did the Anderson Group save Hastings and its 250 jobs, but it ended up being the M&A equivalent of a bases-loaded home run. Last May, Hastings was sold to RFE Investment Partners, a Connecticut-based private equity firm. The sale price wasn’t disclosed, but Shapiro said it was his firm’s best exit ever, bringing more than a 40 times return on investment. Although the payoff was dramatic, a successful turnaround at Hastings was anything but a given, except to Shapiro. “Conway MacKenzie had been shopping Hastings for a long time, and no one saw much value in the company,” said Tom Gaffney, Cory’s father, who co-founded the Anderson Group. “A lot of people had looked at this company and had taken a pass. Everyone else was saying, ‘There are too many issues, I’m not getting involved,’ ” said Gaffney. After being approached by Conway MacKenzie, Shapiro toured the Hastings plant. As soon as he left, he called Gaffney and said, “ ‘Tom, this is a really good opportunity. We have to get it,’ ” recalled Gaffney. “I was totally smitten with this disgusting, dirty plant that had so many issues,” said Shapiro. “It was horribly managed, but it had a
great name. It was a great brand. If you had a 1932 Buick and needed a piston ring, they had it.” A week before the Anderson Group’s stalking-horse bid prevailed at the bankruptcy auction, Shapiro took another tour of the plant, this time with Fred Cook, the CEO recruited to run it. Cook had been running a die-casting company in New York. “In 45 minutes of walking the floor of a 150,000-square-foot plant, he saw tens of thousands of dollars of opportunity at every stop,” said Cook. “He could see past the asbestos and the clutter and unmotivated employees.” Cook is now CEO of another Anderson Group turnaround portfolio company, Las Vegas-based Cole Kepro International LLC, a maker of slot machines.
A family business Shapiro got his start in his father’s business. In 1950, Shapiro’s father, William, was shopping for a large metal fuel tank. Like many homeowners then, he was converting his home from coal heat to oil, and stopped by a company called Anderson Tank in Flint. There were people waiting in line and production was back-ordered. Shapiro said his father thought if there was that much demand, he wanted to get into the business as an owner, not consumer. “He bought half the business from Johnny Anderson for $6,000 and later bought Johnny out for
another $6,000,” said Shapiro. Barry joined the company in 1964 after graduating as a finance major from Babson College in Boston. “I thought I was a hot shot, but I started out licking postage stamps in the mailroom.” By the time Barry joined the business, the company’s name had been changed to Anderson Safeway Guard Rail Corp., diversifying away from fuel tanks to making guardrails for the fast-growing national highway system. Shapiro soon graduated to hitting the road as a salesman, then into operations as manager of a plant in Evansville, Ind., that made bolts and galvanized parts for highway bridges. “I loved the plant floor,” said Shapiro. “I’d go in there at 2 in the morning and watch the night shift work. I couldn’t get enough of it. “My dad was a man without ego. He’d thrust me into positions of responsibility I wasn’t ready for,” said Shapiro. “I’d say, ‘Dad, I’m gonna screw this up,’ and he’d say, ‘Don’t worry about it. You don’t learn from the things you do right. You learn from what you don’t do right.’ ” By 1985, the interstate highway system was built, and Anderson’s sales had leveled off at $30 million. The Shapiros sold the company to Dallas-based Trinity Industries Inc. Shapiro’s dad died last June at age 97 and wasn’t formally involved in the Anderson Group, but was active until the end. “A few hours before he died, he was on the phone quizzing me about one of my investments,”
Jaffe + Strength Inland Industrial Services a Strength Capital portfolio company has been acquired by Deer Park, Texas-based Aquilex HydroChem a wholly-owned subsidiary of Aquilex Holdings LLC. Jaffe represented Inland and its equity holders in the sale. This marks the third consecutive year that Jaffe clients have topped the Crain’s Deal of the Year charts— a tribute to the successes and achievements of our clients.
Crain’s Best Deal over $100 Million
on the successful sale of Inland Industrial Services to Deer Park, Texas-based Aquilex Holding Company.
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Shapiro said. “He’d call me from the bathtub at 6 in the morning: ‘I’m reading the Wall Street Journal, and there’s an article on one of your companies you need to read.’ ” In 1987, Shapiro met Tom Gaffney, who had been doing acquisitions for Bill Davidson’s Guardian Industries as an executive vice president. Gaffney helped Shapiro and some other investors put a deal together to buy WWJ-AM, now owned by CBS Radio from The Gannett Co. Gaffney and Shapiro did more deals on an ad hoc basis well before the Anderson Group was formally created. The first was in 1986 to buy Theodore Bargman Co., a Coldwaterbased maker of RV parts. “We grew the hell out of it and sold it six years later. It did really well,” Shapiro said. “Before you knew it, we were doing some more stuff.” In 1990, the partnership hit a hiatus when Tom moved to Florida. In 2001, Tom Gaffney and Shapiro were skiing out West. “I said, ‘We gotta get back into it, again,’ ” said Shapiro. “And we did.” The Anderson Group was created. By 2006, business was heating up. “The recession was an opportunity for us. We do much better in a poor economy than a good one,” Shapiro said.
Avoiding limited partners Shapiro and Gaffney put in their own money or money from friends and family. Not having limited partners frees the firm from the time restraints a limited-partner fund has for returning money to investors. The company uses a national network of bankruptcy specialists, turnaround specialists, brokers and investment bankers to source deals. “Five deals a day come through here. We look at 200 deals to do one. We’re very content to say ‘no,’ ” said Shapiro. Half the acquisitions require immediate or eventual change in management. The others involve creating better processes or adding management help. A recent divestiture was an example of the latter. Eight years ago, after an introduction by an investment banker, the Anderson Group bought a majority stake in La Bella Sausage LLC, a company founded in Brooksville, Fla., in 1992 by a retired New York sanitation worker, George Kurppe. Kurppe needed financing to fund growth and help to manage it. “I can’t say enough good about them,” said Kurppe. “I couldn’t have had a better partner over the years. At the time, I was a one-man band and I needed help. They sat me down and explained to me what I needed to do and how I needed to add to the management team.” In October, La Bella was sold, at a substantial profit, to Premio Foods Inc. of Rochelle Park, N.J. If Hastings was their grand slam, Shapiro and Gaffney have had a few strikeouts, too. In 1989, they bought Traverse City-based Burwood Industries, a maker of clocks and wall decor, out of bankruptcy. But they couldn’t save it. Shapiro said the company couldn’t compete with cheaper overseas manufacturers
ANDERSON GROUP’S PORTFOLIO 䡲 Aerial Wireless Services LLC, Mansfield, Mass.; provides infrastructure and maintenance services for the wireless communication industry 䡲 Alliance Food Equipment Holdings LLC, Northvale, N.J.; makes equipment for making, packaging and storing ice cream 䡲 Cole Kepro International LLC, Las Vegas; makes slot machines 䡲 Latina Boulevard LLC, Tonawanda, N.Y.; distributor of specialty foods to retail markets, pizzerias and restaurants 䡲 Michigan Wheel Marine, Grand Rapids; makes marine propulsion systems 䡲 Oberfields LLC, Columbus, Ohio; makes concrete blocks and other masonry and landscape products 䡲 Perfect Fit Industries LLC, Charlotte, N.C.; makes bed pillows, mattress pads and electric blankets 䡲 Quality Logging Inc., Midland, Texas; provides exploration services to the oil and gas industry 䡲 Red Monkey Foods, Springfield, Mo.; distributes organic spices to supermarkets 䡲 TecArt Inc., Farmington Hills; makes point-of-purchase and backlit signs 䡲 Thayer Power and Communication Line Construction Co. Inc., Fairview, Pa.; provides utility line engineering, wiring and construction services for the power and communication industries 䡲 Valley International Cold Storage LLC, Harlingen, Texas; provides cold-storage, packaging and logistics services and eventually was liquidated. Another strikeout? Horton Manufacturing of Akron, Ohio, a maker of high-end crossbows for hunters. Anderson Group bought the company just before the recession hit and the market for high-end equipment evaporated. It too was liquidated. Either way, it’s part of the fun. Shapiro is a self-described deal junkie. “I can’t picture myself retiring. I don’t know what I’d do with myself,” he said. “I haven’t seen anyone in retirement that gets the stimulation I get doing deals.” Which isn’t to say Shapiro is a workaholic. He’s happy to get away from the office, and when he’s away, he’s away. He’s not responding to emails 24/7. He is an avid golfer, horseman and backcountry skier, with a second home in Aspen, Colo., that puts him on the mountain slopes frequently. But when he’s in town, the office is where you’re most likely to find him. Photos of him in cowboy gear or skiing down deep powder after getting helicoptered in are prominent in his office, as are photos of one of his heroes, Muhammad Ali, in the midst of pulverizing George Foreman in the 1974 “Rumble in the Jungle” heavyweight title fight. “Barry’s an incredibly hard worker. He’ll put in 18-hour days if a deal is going on,” said Cory Gaffney. “I hate to use the phrase, but Barry will probably die at his desk. He loves his job.” Tom Henderson: (313) 446-0337, email@example.com. Twitter: @tomhenderson2
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March 24, 2014
CRAIN’S DETROIT BUSINESS
Finance: M&A Awards WINNER: DEAL OVER $100 MILLION Aquilex Holdings LLC, Centerbridge Partners LP/Inland Industrial Services Group LLC, Detroit ADVISERS
Aquilex, Centerbridge: Kirkland & Ellis LLP, Houlihan Loke Capital, PricewaterhouseCoopers LLC Inland: PricewaterhouseCoopers, Jaffe Raitt Heuer & Weiss PC The sale of Detroit-based Inland Industrial Services Group LLC was a great exit for Birmingham-based Strength Capital Partners LLC but one
that was a long time in the making, thanks to the Great Recession. In 2005, Strength Capital bought 80 percent of the company from Anthony Soave, president and CEO of Detroit-based Soave Enterprises LLC. Strength Capital then split it into two businesses: Inland Industrial Services and Inland Pipe Rehabilitation, which is now based in The Woodlands, Texas. Strength then brought in a new management team and began growing its operations nationally. The recession delayed the timing of an exit — which, when the time
was right, was a complicated deal to get done, involving the two largest companies in the industry. It also got done just under the wire — New Year’s Eve — to qualify for this year’s M&A awards. Inland was bought by Houstonbased Aquilex Holdings LLC through its wholly owned subsidiary, Aquilex HydroChem LLC, a provider of industrial cleaning solutions to the petrochemical production, oil refining and other energy-related businesses. New York City-based Centerbridge Partners LP and its affiliates are majority owners of Aquilex Holdings.
In addition to Strength Capital and Centerbridge, there were more than 20 minority investors and 17 legal entities in the transaction. As if that didn’t make the deal McCammon complicated enough, Mark McCammon, Strength’s managing partner, said it was further complicated by new and expanded regulatory and com-
pliance issues. The trouble was well worth it. The sale price for 30-year-old Inland, while not disclosed, is thought to be north of $150 million. HydroChem has promised to remain a major presence in Detroit. “It was a great deal with a nice return. It put a smile on our faces,” McCammon said. Strength is raising its fourth fund this year. A sale of Inland’s size, which meant a substantial return to the firm’s limited partners, will make fundraising all the easier. — Tom Henderson
WINNER: DEAL UNDER $100 MILLION Blackford Capital LLC/Mopec Inc. ADVISERS
Blackford Capital: Miller,
Canfield, Paddock and Stone PLC; Barnes & Thornburg LLP; Crowe Horvath LLP The acquisition in June of Oak Park-based Mopec Inc., a maker of pathology and mortuary equipment, was a small deal for Grand Rapids-based Blackford Capital LLC and its Michigan Prosperity Fund, but it was tactically crucial. The sale price wasn’t disclosed but is less than $20 million. Yet the
deal showed that Blackford and its new fund would have statewide reach — a reach that founder and Managing Director Martin Stein reinforced in February Stein when he met with high-net-worth individuals in Birmingham to continue raising what is targeted to be a $20 million fund. Mopec was the second acquisition for the Michigan Prosperity
Fund and is the first company in Southeast Michigan that the fund has managed. Mopec was founded in 1992 and has about 75 employees at its 60,000-square-foot facility. Customers include the Mayo Clinic, Duke University Medical Center and the Cleveland Clinic. One of Blackford’s investors, Terry O’Rourke, came in as CEO of the company, which remained in Oak Park. He is the former president of Caledonia-based Aspen Surgical Products. The deal had a turbulent history. It was originally supposed to close in 2012, with Mopec’s
founders retaining management. Eventually, they wanted out of management altogether and wanted the deal to be all cash, a different structure from what had been negotiated. The deal blew up on Christmas Eve, just four days before the scheduled closing, with Blackford forced to return the equity that investors had put up. Unwilling to give up, Blackford remediated an all-cash transaction and recruited O’Rourke as CEO. Blackford recently invested in new equipment, which is expected to mean more manufacturing jobs at Mopec.
Blackford Capital was founded in Santa Monica, Calif., where it still has an office. Stein, a native of Grand Rapids, moved the headquarters to Michigan in 2010. The Michigan Prosperity Fund was launched in 2012 to help what was perceived as a void in local private equity Comerica Bank and Cincinnatibased North Creek Mezzanine Fund I LP provided financing for the Mopec deal. Buyer advisers included Miller, Canfield, Paddock and Stone PLC; Barnes & Thornburg LLP; and Crowe Horvath LLP. — Tom Henderson
F I N A L I S T: D E A L UNDER $100 MILLION
Ranked as a Top 3 Fairness Opinion Advisor in the United States for the second year in a row*
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*2013 rankings are based on number of transactions. Source: Thomson Reuters M&A Financial Advisory Review. SRR is a trade name for Stout Risius Ross, Inc. and Stout Risius Ross Advisors, LLC, a FINRA registered brokerdealer and SIPC member firm.
ATLANTA BALTIMORE CHICAGO CLEVELAND DALLAS DETROIT HOUSTON LOS ANGELES NEW YORK
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Unique Fabricating Inc./ Taglich Private Equity LLC ADVISERS
Taglich: BDO USA LLP, Plante Moran PLLC
American Capital: Donnelly
Penman & Partners Inc., Hilliard Lyons Often, there’s a fine line between surviving and thriving. Auburn Hills-based Unique Fabricating Inc. went on life support during the economic collapse in 2008, causing its private equity lender, American Capital Ltd., to take control of the fabricator in a debt-for-equity swap. Under a new leadership team, Unique Fabricating averaged 10 percent to 12 percent year-over-year growth. But opportunities arose for nonorganic growth, which called for a new financial backer. New York City-based Taglich Private Equity LLC teamed with Unique management to structure a $41.5 million acquisition in March 2013 — and an exit for American Capital. “We knew from the beginning we were going to right the ship, grow the company, then find a different financial partner,” said John Weinhardt, president and CEO of Unique, who joined the comWeinhardt pany from American Capital in 2008. American and Unique “agreed we needed to find a more aggressive partner for the fuSee Unique, Page 16
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March 24, 2014
CRAIN’S DETROIT BUSINESS
Finance: M&A Awards WINNER: DEALMAKER BUYER/SELLER Huron Capital Partners LLC, Detroit Brian Demkowicz, Mike Beauregard, John Higgins, Peter Mogk
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It was another busy year in 2013 for what is consistently the state’s most active private equity firm. And with it came a third straight award this year as dealmaker of the year. The year began with the official closing in January of the firm’s fourth and biggest fund, the Huron Fund IV LP, which had targeted $400 million and ended up oversubscribed at $500 million. That made it the second-largest private equity fund in state history, trailing only the $865 million raised in 1999 by Southfield-based Questor Management Co. LLC. That was just the prelude to 12 months of wheeling and dealing that saw 10 acquisitions and three recapitalizations that returned profits to investors. Huron created two platform companies into which it plans to roll future acquisitions. The first came with the acquisition in January of Scottsville, N.Y.-based Six Month Smiles, a provider of cosmetic orthodontic products. The second was the forming in July of Sarasota, Fla.-based Dynamic Dental Partners Group, a particularly complicated deal that involved bringing together five dental businesses representing 31 practices in Florida, Arizona and Virginia. Huron also did four add-on acquisitions for current platform companies: 䡲 In March, International Blends Coffee of Clinton, Mo., and in No-
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vember, Muskogee, Okla.-based Henderson Coffee Corp., both being folded into Ronnoco Coffee LLC of St. Louis. 䡲 In July, Fort Wayne, Ind.based Kodiak Fire & Safety Consulting, a provider of fire investigation and safety consulting services, as an add-on for Baltimore-based Hughes Associates Inc., a fireprotection engineering consultant. 䡲 In October, Denver-based Lange Graphics Inc. as an add-on for Chicago-based OneTouchPoint Corp., a document and digital media management company. In addition, Huron was able to leverage increased earnings and the availability of bank debt to recapitalize three of its portfolio companies, allowing it to return capital to investors in its second and third funds. Those investors included the state of Michigan, the University of Michigan and Michigan-based pension funds and families.
According to Chicago-based William Blair & Co., a financial services firm, M&A activity in the U.S. was off 20 percent last year, but Huron managed to increase its deal flow for the fourth straight year. It also hired five investment professionals in the year for a total of 23. “We got right out of the box with the closing of our big fund and the closing of a platform deal, so we started the year with Demkowicz a lot of momentum,” said Brian Demkowicz, Huron Capital’s managing partner. “It was a very active year on both the investing and harvesting sides, and I was thrilled to bring five investment professionals to Michigan.” — Tom Henderson
WINNER: DEALMAKER ADVISER Howard & Howard Attorneys PLLC, Royal Oak Joseph DeVito Transactions in Southeast Michigan manufacturing are often multinational, and multicultural, in complexity. When German-based industrial conglomerate ThyssenKrupp AG sought to sell its stake in the TWB Co. LLC joint venture in Monroe to a Chinese buyer last year, the deal got hairy. Joseph DeVito, a partner and head of the corporate law team at Royal Oak-based Howard & Howard Attorneys PLLC, saved the $100 million-plus deal, which closed in July. ThyssenKrupp, which DeVito represented and previDeVito ously served as its assistant general counsel in North America, owned 55 percent of TWB and Ohio-based Worthington Industries Inc. 45 percent. Problems arose when Worthington wanted to become the majority shareholder to safeguard its investment from the Chinese buyers, Wuhan Iron and Steel (Group) Co., De-
Vito said. “Worthington’s negotiation style was ‘my way or the highway,’ ” DeVito said. “It wasn’t working and the Chinese wanted out.” DeVito stepped up to mediate between Worthington and Wuhan, hoping the deal could get done for his own client, ThyssenKrupp. DeVito was able to get both parties back to the table and persuade Wuhan to agree to a deal in which it would take 45 percent and Worthington 55 percent. Also in 2013, DeVito led three other sales that were each near $100 million: 䡲 Several subsidiaries of MAG IAS LLC in Sterling Heights to Paris-based Fives Group. 䡲 Family-owned, Warren-based Paslin Co. to the Connecticut-based private equity firm Tower Three Partners. 䡲 A minority interest in Wixombased Plasan Carbon Composites Inc. to Japan-based Toray Industries Inc. Quarterbacking deals is about understanding people as much as numbers, DeVito said. “Deals are part science and part art,” he said. “As a dealmaker, you have to have a good sense of where the edge is and when you’ve pushed the other side to it.” — Dustin Walsh
Unique: M&A finalist Huron Capital Partners, LLC Winner, Dealmaker of the Year Buyer/Seller
Honigman provided counsel on more than 150 corporate transactions including 85 + private equity and venture capital transactions - that closed in 2013.
Blackford Capital, LLC Winner, Best Deal of the Year Under $100 MIllion
■ From Page 14 ture ... as the next logical step was to diversify into other industries and technologies through M&A.” BDO USA LLP and Plante Moran PLLC were advisers for Taglich. Donnelly Penman & Partners Inc. and Hilliard Lyons advised American Capital on the deal. Taglich approved Unique’s plan, and it went on the hunt. Nine months later, Unique closed on a $16 million deal to acquire Louisville, Ky.-based PrescoTech Industries Inc. in December. That allowed the automotive
supplier to diversify into home and commercial heating, ventilation and air conditioning. Unique’s customer makeup is 95 percent automotive and PrescoTech’s is 90 percent nonautomotive, but the manufacturing processes are similar, Weinhardt said. Unique’s plant in Guadalupe, Mexico, provides ample growth opportunity for the PrescoTech line, Weinhardt said. The combined companies expect revenue of $130 million in 2014. — Dustin Walsh
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March 24, 2014
CRAIN’S DETROIT BUSINESS
Lowe Foundation’s next stage: New priorities, mission BY AMY LANE SPECIAL TO CRAIN’S DETROIT BUSINESS
Through programs aimed at entrepreneurs, the Edward Lowe Foundation has built a mission and reputation for helping second-stage businesses grow. Over the past year, it’s also been looking to its own next stage and adjusting parts of its own portfolio. The foundation has pulled back in some areas — like diminishing its participation in Companies to Watch awards programs and transferring a research operation focused on high-growth companies to the University of Wisconsin, where it is run by Lowe’s former executive director. But it also has pushed forward in others, including a new format for its peer-to-peer CEO roundtables and online articles profiling entrepreneurs as “Second-Stage Rock Stars.” It has redesigned YourEconomy. org, a website of geographic business composition and activity data, to be easier for economic development professionals to use. And it has tightened the process in which entrepreneurs gain personal assistance through experts at the National Center for Economic Gardening. Leaders say it’s not an identity crisis; it’s a refinement of the private foundation’s core missions of supporting entrepreneurship and maintaining the foundation’s 2,600-
we were becoming really “ We found involved in every state program we were in. We decided that it was time to shift a lot of those responsibilities back onto the host organization.
Penny Lewandowski, Edward Lowe Foundation
acre Big Rock Valley campus in the Southwest Michigan town of Cassopolis and supporting its secondary mission there: land stewardship.
Looking inward Reviewing the business model means being smart about money and resources, said Penny Lewandowski, vice president of entrepreneurship and strategic direction. “You’ve got to look at your organization just like a business does,” she said. Lewandowski said 2013 was a year of focus on second-stage programs and a “look at all under a magnifying glass.” Lewandowski was one of two Lowe executives made foundation co-leaders in late 2012 with the resignation of then-
Executive Director Mark Lange. Also part of that shift: more delegating. One move has been to shift Companies to Watch management responsibilities to the organizations that Lowe licenses to operate them. The programs, launched in Michigan in 2005 and conducted in states including Indiana, Colorado and Florida, assess growing companies for past and projected growth and other factors and recognize entrepreneurs in awards ceremonies and activities. The programs were time-consuming for staff, Lewandowski said. “We found we were becoming really involved in every state program we were in,” she said. “We decided that it was time to shift a lot of those responsibilities back onto the host organization.”
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With this May’s Companies to Watch awards, part of the broader Michigan Celebrates Small Business annual awards program, the awards’ managing partner, the Michigan Small Business Development Center, has been responsible for providing the computer technology that supports the awards nomination and application process, selecting judges, retaining a firm to perform due diligence on the competition’s 50 finalists and three reserve companies, and overseeing a magazine profiling winners. Lowe remains a founder of Michigan Celebrates Small Business and will continue to “have a voice in the major decisions pertaining to Michigan Celebrates and moving forward,” said Jennifer Deamud, associate state director of the Michigan SBDC. The awards program is May 6 at the Breslin Center in East Lansing. The foundation will continue to offer Companies to Watch alumni retreats on its campus as part of program licenses. And it has signed a new licensee: the Baton Rouge Area Chamber, which will operate Companies to Watch in that Louisiana metropolitan area.
lished by the foundation and supported by a three-year grant that expired at the end of 2013. The institute, which houses and creates data sets used by researchers to study the performance of high-growth companies, has moved to a University of Wisconsin-Extension division headed by former Lowe executive Lange. Lange, executive director of UWExtension’s division of entrepreneurship and economic development, said the move not only enables the University of Wisconsin system’s 13 universities and 13 colleges to tap into the institute’s data, but it Lange also elevates the institute’s “stature in the academic world,” which could attract more researchers and grant-funded projects. Under a memorandum of understanding, the foundation will remain a part of the institute and have access to its data and researchers.
On to Wisconsin
There’s also been change at the Institute for Exceptional Growth Companies, a research initiative estab-
At the National Center for EcoSee Next Page
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CRAIN’S DETROIT BUSINESS
March 24, 2014 From Previous Page
nomic Gardening, which the foundation runs with center founder and economic gardening pioneer Chris Gibbons, internal refinements have been made. There, teams of specialists from around the country work with CEOs to identify and address issues that are hindering growth, in areas such as strategy and management, market research and geographical information systems data. Changes in scheduling and procedures have enabled the center to work with more organizations and annually serve more companies. Susan Holben, economic gardening program administrator with the Michigan Economic Development Corp., said improvements in the process mean that the MEDC, which contracts with the center to send through select companies, is kept well-informed on companies’ progress. The MEDC expects to spend $400,000 this year to place at least 75 companies in six- to eight-week individualized engagements with center experts, Holben said. A new twist will be to feed some of the graduates from the program into another Lowe program: peerto-peer CEO roundtables. The PeerSpectives roundtables bring together small groups of CEOs from diverse industries to meet regularly and discuss often-common issues and share experiences. It’s a model that the foundation designed and licenses to organizations and individuals to run. The roundtables primarily target second-stage businesses — those beyond the startup stage and growth-oriented. But the foundation this month is adding a second format designed for business owners who have three to nine employees and $500,000 or more in annual revenue. That’s smaller than what the foundation generally considers second stage: 10 to 99 employees and revenue of $1 million to $50 million.
A directive to help Through such programs, the foundation derives revenue that helps cover costs. This year, entrepreneurship program revenue — including economic gardening, Companies to Watch and PeerSpectives licenses, subscriptions to YourEconomy.org and leadership retreat fees — is projected at $1.3 million, compared with $2.5 million in expenses. The revenue model balances cost recovery with charitable mission, and programs are subsidized by the endowment. “We’re a foundation. We’re not a for-profit organization,” Lewandowski said. The foundation, created by Kitty Litter inventor Edward Lowe and his wife, launched in 1985 as a grant-making institution but changed its structure in 1991 to be an operating foundation that would create and run its own programs. The foundation’s $100 million endowment was supplied by Lowe and wife Darlene, who became chairman and CEO upon Lowe’s death in 1995. The organization has 36 fulltime and 13 part-time employees and assets of $105.2 million that include investments, land and buildings. Since the late 1990s, the founda-
tion has concentrated on secondstage entrepreneurs. One Michigan official familiar with the foundation who asked not to be identified said they face a challenge in being effective, “given how big their entrepreneurial mission is.” Rob Collier, president and CEO of the Council of Michigan Foundations, is among those who see the foundation making an impact. “Having the Edward Lowe Foundation as a partner for the Collier state has been extremely helpful in their efforts
to really change not just the public perception but change the perception within the business community that this is a state where entrepreneurs can not only start but thrive,” said Collier, who also sits on the MEDC’s executive committee. Jeffrey Finkle, president and CEO of the International Economic Development Council in Washington, D.C., said that through its emphasis on entrepreneurship and secondstage compaFinkle nies, the foundation has made a difference in how
Page 19 people think about economic development and growth companies. “They’ve changed a number of minds even within my board leadership and membership,” he said.
The valley Finkle is also among those to hold leadership retreats at Big Rock Valley — a campus that began with a 160-acre parcel that Lowe purchased in 1964 and that has both a business and environmental function. Although the foundation’s secondary emphasis on land stewardship isn’t as well known throughout the state, it has a long roster of environmental assets. Big Rock Valley includes woodlands, farmlands, wetlands and
prairie and serves as a biodiverse laboratory for academic researchers and environmental organizations to study animal and botanical life. Research projects have included the rare eastern massasauga rattlesnake, bioenergy crops and the ability of insects like bees to recover in prairies that have been harvested for biofuels. Big Rock Valley is also a center for foundation initiatives like woodland management demonstration plots, prairie restoration, creation of ponds that support amphibian reproduction and a species inventory that has grown to more than 700 varieties of plants, more than 100 species of birds and more than 30 species of reptiles and amphibians.
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March 24, 2014
CRAINâ€™S DETROIT BUSINESS
For beef lovers, the unkindest cut of all Suppliers, restaurants, grocers adjust as prices rise BY DAVID HALL CRAINâ€™S DETROIT BUSINESS
Drought in key cattle-producing regions of the country and weather that has complicated beef delivery are resulting in some tough deci-
sions for local restaurants and grocers. With retail beef prices climbing to a record high of $5.28 a pound in the past month, John Alexopoulos, owner of the Clawson Steak House, is evaluating when he will need to
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change the prices on his menu. â€œI would raise the price before shrinking portion sizes; thatâ€™s what weâ€™re known for,â€? said Alexopoulos. â€œWhen beef prices start to get higher, Iâ€™ll feature other items. Although weâ€™re a steakhouse, we sell a lot of fish, pork, chicken and pasta dishes.â€? Although sales are good, Alexopoulos said, heâ€™s still taking a 5 percent cut into his profit margin. But he wonâ€™t raise steak prices until that reaches 8 percent. â€œBeef would have to go up an additional 5 to 7 percent over current levels before I raise my prices,â€? Alexopoulos said. â€œWe have a long history and loyal customers, so the pressure on me is not as great as a new restaurant.â€? Alexopoulosâ€™ father opened the steakhouse at 56 S. Rochester Road in 1958. Alexopoulos and other metro Detroit restaurateurs, retailers and wholesalers will have to juggle prices and margins as beef prices remain above $5 a pound in 2014. The U.S. Department of Agriculture Economic Research Service reports February 2014 retail beef prices of $5.28 a pound, up from $5.04 a pound in January. Februaryâ€™s national beef price is 6.9 percent over the 2013 annual
ANNUAL BEEF RETAIL AVERAGES 2008: 2009: 2010: 2011: 2012: 2013: January 2014: February 2014: *Updated by USDA March 18 Source: USDA Economic Research Service
average of $4.94 a pound. The USDA predicts overall beef and veal prices in 2014 will rise 3 percent to 4 percent above 2013 because it costs farmers more to raise cattle, causing prices to rise through the supply chain from the ranch to the restaurant. Darren Tristano, executive vice president at Chicago-based food market research firm Technomic Inc., said the rising cost of feed is a main contributor for increased costs of raising cattle. â€œThere have been multiyear droughts. And when grass isnâ€™t growing, farmers have to buy feed from secondary sources, which raises the prices for consumers,â€? said Gino Baratta, head of sales and marketing and co-owner of Detroit-based Fairway Packing Co.
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The attitude is, â€œ if Iâ€™m going to spend the money on beef, Iâ€™ll spend it on the best stuff on the market. Shoppers say itâ€™s pricey, so they buy less.
Jim Buckley, Holiday Market
â€œIâ€™m seeing federal beef prices going up 20 to 30 cents a week.â€? Fairway Packing has been supplying family farm-sourced beef to area restaurants for more than 55 years, specializing in dry-aged Kobe, Piedmontese and USDA prime beef. Although demand for prime beef hasnâ€™t let up, Baratta said, heâ€™s bringing in cuts Fairway didnâ€™t use before because some restaurants are looking for more value cuts to curb costs. He said some talented chefs can substitute a New York strip with a less-costly hanger steak or even a cut from chuck roast, which is normally used for ground beef. On the other hand, steakhouse owners may see substitutes as a sacrifice on quality, and use other tactics to offset beef prices. Restaurant owners are faced with the option of raising menu prices or shrinking portion sizes. Prime29 opened in July 2012 in West Bloomfield, featuring primegrade aged beef. General Manager Stoli Liti said the restaurant is not changing steak prices as it launches a new spring/summer menu that focuses more on fish and seafood. â€œWeâ€™re a more contemporary steakhouse, and we have the ability to make other dishes that donâ€™t have the same margin as steak,â€? Liti said. â€œWe even have a vegan menu. Of course, steak is our focus, but weâ€™re trying to be approachable to more customers.â€? Although diversifying the menu may offset high beef prices in the short term, Liti said Prime29 is weighing the options of either raising prices or lowering portion sizes if the market continues to rise in the second half of 2014. Customer buying habits are another part of the equation. Some retailers have seen lean fish and poultry take center stage over red meat as customers take a more health-conscious approach to shopping. Tom Violante Jr., CEO of Royal Oak-based specialty grocery store Holiday Market, said he believes â€œpeople are less price-sensitive to beef as they become more sensitive to their overall diet, and in effect, eating less beef.â€? â€œThe days of steak twice a week, hamburger for lunch and pot roast filling the gaps are gone,â€? Violante said. â€œChicken rules the meat counter, with people selectively See Next Page
CRAIN’S DETROIT BUSINESS
March 24, 2014
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Emmet Baratta (left), co-owner of Fairway Packing Co. in Detroit, holds a dry-aged Wagyu Kobe beef rib worth about $500. Gino Baratta (right), another co-owner, holds a dry-aged Wagyu Kobe bone-in New York strip, also worth about $500. From Previous Page
sprinkling in a steak to treat themselves once a month.” Holiday Market’s meat manager, Jim Buckley, said he’s seen the high prices cause a decline in choice and select-grade beef sales, while customers are turning to the more expensive all-natural beef. “The attitude is, if I’m going to spend the money on beef, I’ll spend it on the best stuff on the market,” Buckley said. “Shoppers say it’s pricey, so they buy less. But we know our margins, and I know I have to raise prices.” Baratta expects prices will remain high for the rest of 2014 until ranchers can catch up. He said farmers have had to liquidate cattle, and continued dry conditions this summer could lower the cattle supply even more. “It could be two or three years for prices to level out, but it all depends on the weather,” Baratta said. “For now, we’re trying to absorb cost by working on slimmer
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Beef dry-ages on a shelf at Fairway Packing in Detroit’s Eastern Market. Co-owner Gino Baratta said U.S. beef prices have risen up to 30 cents a week.
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March 24, 2014
CRAIN’S DETROIT BUSINESS
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The withdrawal of new proposed rules for charity poker games last week followed the introduction of a bill that would, among other things, legitimize permanent charity poker rooms in Michigan. Michigan Sen. Rick Jones, RGrand Ledge, introduced SB 878 to amend the Traxler-McCauley-LawBowman Bingo Act. Eleven senators from both parties were cosponsors. The bill would provide for the licensing of permanent poker rooms, recognizing them as part of the charitable gaming business, Jones said. It would also codify the licensing of dealers and suppliers assisting charities in running the games and establish that charities are legitimate. “It has become very obvious from the remarks from the (Michigan Gaming Control Board) that they intend ... to make it impossible to operate a poker room in Michigan,” Jones said. Over the last decade, the number of poker rooms has grown to provide a service for charities, he said. Right now, the state is operating under a set of rules that “the gaming commission feels (it) can just change willy-nilly and destroy
these small businesses,” he said. “What I want to do is to codify into law what’s been going on for the last 10 years: that poker rooms and suppliers can exist and be licensed in the state of Michigan.” Jones said he has no problem with the state going after bad actors, but it should be done through a set of rules everyone can follow and not put the rooms out of business. Charity poker games are “the only way charities can raise a substantial amount of money,” Jones said. “They cannot do it by bingo or selling cookies. ... I don’t want to see this source go away.” More than 50 representatives of charities, millionaire party suppliers and permanent poker rooms opposed to the rules testified before the Joint Committee on Administrative Rules last week, said Aubree Krause, director of constituent relations for Sen. John Pappageorge, R-Troy, who chairs the committee. “This became a much bigger issue than we expected,” Krause said. The strong opposition and concerns through the House and Senate led the Gaming Control Board to withdraw the proposed new rules, with the idea of possibly resubmitting later.
CRAIN’S DETROIT BUSINESS
March 24, 2014
New HFHS unit aims for higher quality and better biz model BY JAY GREENE CRAIN’S DETROIT BUSINESS
Henry Ford Hospital in Detroit is pushing the limits of medical specialization with its new dedicated bronchoscopy suite — one of the largest multiroom units in the nation. “Most hospitals have bronchoscopy suites as part of endoscopy and only devote about one-sixth of the space to bronchoscopy,” said Michael Simoff, M.D., director of the hospital’s interventional pulmonology program. Simoff “We have a dedicated unit with pre-op and postop with our own nursing staff,” said Simoff, who has worked at Henry Ford since he began a pulmonary and critical care fellowship in 1993. Simoff trained under pulmonologist Paul Kvale, M.D., who introduced flexible bronchoscopy to Henry Ford in 1971, laser bronchoscopy in 1982 and rigid bronchoscopy in 1983 for the therapeutic management of malignant airway obstruction, among other innovations. The 4,000-square-foot suite replaces a 30-year-old, 700-squarefoot unit. It features eight patient bays, two isolation rooms and Internet access to stream medical consultations from other sites. The typical hospital endoscopy department performs a variety of medical procedures, including bronchoscopy, colonoscopy, gastroscopy, endoscopic ultrasound and cystoscopy (bladder), said David Feller-Kopman, M.D., president of the American Association of Bronchology and Interventional Pulmonology. “It is unusual what Henry Ford is doing, but fabulous” if a hospital has the volume and resources, said Feller-Kopman, who also is director of bronchoscopy and interventional pulmonology at Johns Hopkins Hospital in Baltimore. Johns Hopkins has a combined endoscopy suite with 19 rooms, including two rooms used exclusively for 1,350 bronchoscopy cases last year, Feller-Kopman said. Pulmonologists in bronchoscopy suites also commonly examine and test for lung diseases, including lung cancer, chronic obstructive pulmonary disease, asthma, emphysema, pneumonia and pleural effusions, or excess fluid that collects between fluid-filled spaces surrounding the lungs. “There are pros and cons in everything you do,” FellerKopman said. “The benefit is he has full control over the suite, but you lose interaction with gastroenterologist colleagues.” Simoff said interaction with gastroenterologists hasn’t been a problem because Henry Ford does only about four procedures a year that require the collaboration of gastroenterologists. “It is really rare that we need them during a procedure or they need us,” Simoff said. “In those cases, they are a speed dial away (and 100 yards). They come to us or we go to them. We can also live stream to them with our new tech-
Pulmonologists in bronchoscopy suites commonly examine and test for a variety of lung diseases.
HENRY FORD HEALTH SYSTEM
Henry Ford’s new bronchoscopy suite runs 4,000 square feet and features eight patient bays, two isolation rooms and Internet access to stream in medical consultations.
nology so they can watch what we are doing.” Simoff said the biggest problem with having a dedicated unit is bronchoscopy procedures are paid about half the reimbursement that gastroenterologists or cardiologists earn for hospitals. “Hospitals don’t want to spend $250,000 on equipment, maintain it, staff it and have zero reimbursement,” Simoff said. The hope is that the movement to pay for performance — where doctors and hospitals are financially rewarded for higher quality — will result in higher reimbursement. “The better you are, the better
you are paid. We expect to receive higher reimbursements for higher quality,” said Simoff, adding that some hospitals send more difficult cases to Henry Ford. Botsford Hospital, a 330-bed osteopathic hospital in Farmington Hills, also has a dedicated bronchoscopy room for its pulmonology interventional program. Philip Kaplan, D.O., head of Botsford’s program, said Henry Ford has the state’s pre-eminent dedicated bronchoscopy suite. Kaplan, who is Botsford’s only board-certified interventional pulmonologist, performs 300 procedures a year there.
“Henry Ford is more sophisticated, but ours is state-of-the-art,” said Kaplan, who also practices with Pulmonary & Critical Care Specialists in Novi. “Over time, we have become quite comprehensive and have the ability to treat complex airway diseases.” Kaplan said Botsford can do some similar procedures as Henry Ford, including flexible bronchoscopy, transbronchial lung biopsy, endobronchial biopsy and linear and radial endobronchial ultrasound. He said the hospital will add bronchial thermoplasty this year. Henry Ford’s bronchoscopy suite includes 10 full-time registered nurses, including a head nurse and research nurse, plus a desk coordinator and maintenance employee, Simoff said. The unit also will be hiring a medical assistant. The old unit had two nurses and a part-time medical assistant, he said. “We have a staff of 25 staff physicians, including three interventional pulmonologists,” Simoff said. Only four physicians do not per-
form bronchoscopy procedures. In 2013, when the new unit opened, Henry Ford performed 1,400 interventional pulmonology procedures, a 20 percent increase from 2012. Simoff projects a similar increase this year. He attributed the growth to several reasons, including the ability to perform procedures that couldn’t be done before and an increase in physician referrals. For example, interventional pulmonologists now can evaluate patients with advanced-stage head and neck cancer to help oncologists and surgeons decide whether radiation treatment or chemotherapy should be performed before surgery. “We see things now we never did before,” Simoff said. “The technology keeps moving. We can get patients screened for cancer that we couldn’t do before. We are using lasers and cutting tools to go into the lungs for cancer. “The next stage is electronic navigation procedures, where you look at submicroscopic levels to look through the airways to see how deep the cancer is and where the damage is.” Henry Ford also now has more than 1,500 referring physicians in Michigan, Ohio, Indiana, Alabama, Florida and several countries, Simoff said. Jay Greene: (313) 446-0325, email@example.com. Twitter: @jaybgreene
CRAIN’S DETROIT BUSINESS
March 24, 2014
Author-exec aims for more women on boards BY ANJANA SCHROEDER CRAIN’S DETROIT BUSINESS
Author and executive Betsy Berkhemer-Credaire said she knows what it takes to get onto a corporate board. After all, she’s been there, written about that. BerkhemerCredaire, president of Berkhemer Clayton Inc., a Los Angelesbased executive search firm, is keynote speaker at an upcoming workshop presented by the BerkhemerDetroit-based InCredaire forum Center for Leadership. The April 4 workshop is part of the Inforum BoardAccess initiative, designed to develop women candidates for seats on for-profit public and private corporate boards of directors. “We know that the topics she addresses — building a strategic network and the visibility that leads to for-profit corporate board service — is a topic of vital importance and is the No. 1 way women
Visteon to sell Korean JV stake
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Visteon Corp. is continuing its interiors divestment by selling its remaining stake in Korean joint venture Duckyang Industry Co. Ltd. The Van Buren Township-based supplier is selling its 50 percent stake to Duckyang’s management for $24.1 million, or 25.9 billion Korean won. Visteon also expects to receive $5.9 million in dividends from the transaction. The deal, announced last week, is expected to close in April. Visteon reduced its majority ownership of Duckyang in 2012. In January, Visteon said it would divest from the automotive interiors business completely in separate deals with three different buyers. The Duckyang deal represents the first deal; the other two are being negotiated. While Visteon attempts to unload its interiors division, it continues to build up another core business: electronics. In January, Visteon announced the $265 million acquisition of Johnson Controls Inc.’s electronics unit — which makes instrument clusters, infotainment displays and body electronics. The deal, expected to close in the first half of the year, is expected to grow Visteon’s electronics operation to annual sales of $3 billion. The deals are the latest in Visteon’s turnaround effort since exiting Chapter 11 bankruptcy in 2010. The last seven quarters have shown improvement: The supplier posted net income of $513 million, or $1.02 per share, on revenue of $1.96 billion for the quarter that ended Dec. 30. Korean automaker Hyundai-Kia accounted for 35 percent of Visteon’s 4Q revenue. North America accounted for 17 percent of Visteon’s business. — Dustin Walsh
ABOUT THE WORKSHOP The Inforum BoardAccess workshop featuring author and business owner Betsy BerkhemerCredaire is 9:30 a.m.-1:30 p.m. April 4 at the Westin Book Cadillac Detroit. Cost is $150 for Inforum members and $175 for nonmembers; lunch is included. The cost to attend only the lunch program is $40 for Inforum members and $55 for nonmembers. A similar workshop is scheduled for April 3 at the Cascade Hills Country Club in Grand Rapids. To register for the workshops or for more information, visit inforummichigan.org. land corporate board seats,” said Inforum CEO Terry Barclay. Berkhemer-Credaire was inspired to create more genderbalanced boardrooms 15 years ago when she and eight other women, all members of corporate boards, met regularly for lunch to talk about how few women were on boards — and what to do about it. “Back then, boards used the excuse there weren’t enough qualified women to serve,” she said. “Now the pipeline is bursting with
women of all expertise that would bring value.” And that expertise has broadened beyond the role of the CEO, she said. Berkhemer-Credaire said boards are now considering candidates who work in social media, cybersecurity risk, information technology and human resources. During the workshop, Berkhemer-Credaire will share advice on how to network as a tool to pursue corporate board service. “I hear most often that women don’t know where to start, and they don’t realize until they sit down and think about it that they already have friends and contacts who serve on public and private boards,” she said. “Tell them you are interested in serving on corporate boards and really work the network. Propel and sponsor one another. Men do a good job networking on the golf course — it’s a natural instinct to help other men up the ladder.” Berkhemer-Credaire is the author of The Board Game: How Smart Women Become Corporate Directors, which includes a chapter on retiring University of Michigan President Mary Sue Coleman.
CRAIN’S DETROIT BUSINESS
March 24, 2014
Ford dealers: Cost of body shop for aluminum F-150 may top $70K BY BRADFORD WERNLE CRAIN NEWS SERVICE
Ford dealer Ed Jolliffe has been calculating the cost of getting his body shop ready for the 2015 aluminum F-150 pickup and finds the numbers sobering. “It’s going to cost anywhere from $50,000 to $100,000. That’s a hell of a chunk,” said Jolliffe, who owns G o r n o F o r d in Woodhaven. “I don’t think it’s for the faint of heart. All the small shops won’t be able to touch it.” He figures it could take five to seven years to Jolliffe recoup that investment, which he deems essential to stay in the body shop business. Ford Motor Co. is targeting dealers with large body shops as it tries to organize the F-150 aluminum body repair system. For those dealers, the investment will exceed the $30,000 to $50,000 that Ford has cited for a single repair bay. Like Joliffe, many dealers say the cost could be $70,000 or more. Ford’s effort is creating the Ford National Body Shop Network of dealers and independent shops capable — Ford shies away from the term “certified” — of large structural repairs. The network, whose members have the proper tools and training, will be Ford’s conduit for insurance company repair referrals. Ford wants to assure customers and insurance companies that collision repair rates will be competitive with rates on the current steel-bodied truck. Those dealers and independent repair shops who invest in equipment and training can hang a Ford National Body Shop Network sign in their showrooms and will be listed on a body shop locator on ford.com. By year’s end, Ford wants a network of about 1,500 aluminumcapable body shops, including its 460 dealerships and more than 1,000 independent shops. Collision shops need separate tools and work areas for aluminum to prevent aluminum dust from getting on steel parts, which causes corrosion. Ford officials say most dealers still will be able to repair routine fender benders. Dealers are not required to join the network. “We’re looking for the guys who are really in the body shop business,” said Paul Massie, Ford collision marketing manager, speaking of the prime candidates for the repair network. The $30,000 to $50,000 amounts to a starter kit for aluminum repair. It includes a rivet gun, metal inert gas welder, hand tools, a vacuum cleaner for aluminum dust and curtains or walls to separate the steel and aluminum work areas. That’s necessary because aluminum and steel do not mix. If minute amounts of aluminum dust end up on a steel body part in a paint shop, galvanic corrosion occurs, eventually causing rustlike spots to bleed through the paint. Mitchell Dale, owner of McRee Ford in Dickinson, Texas, says the investment is going to be higher than he had expected —
about $70,000. “But it’s something we’ve got to do,” he said. “For shops like us, we’re not looking at just one workstation. Down the road, I see us having two or three workstations. Jim Farley, Ford Motor Co.’s executive vice president of global marketing, sales, service and Lincoln, said Ford is about halfway to the goal of 460 dealership body shops. Ford wants the dealer network to be in place by Oct. 31. Independent shops have until year’s end. The 2015 F-150 is scheduled to arrive in showrooms late this year. From Automotive News
A DENT IN DEALER BUDGETS Equipment that Ford recommends dealers and independent shops buy to repair the aluminum F-150: 䡲 Rubberized curtains to isolate work area: $1,678 䡲 MIG (metal inert gas) welder: $7,994 䡲 Fume extractor: $3,329 䡲 Dust collection system: $10,125 䡲 Aluminum spot weld station: $7,950 䡲 Aluminum rivet gun: $7,729
Because aluminum dust causes corrosion on steel, the section of a body shop that works on the aluminum Ford F-150 must be isolated from the rest of the shop. BRADFORD WERNLE/CRAIN NEWS SERVICE
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CRAIN’S DETROIT BUSINESS
March 24, 2014
PEOPLE CONSTRUCTION Michael Webb to account manager,
Rudolph/Libbe Inc., Plymouth, from project manager, Walbridge Aldinger Co., Detroit.
CONSULTING Michael Motte to Webb
senior project manager, Profes-
sional Engineering Associates Inc., Troy, from project manager, Atwell LLC, Southfield.
EDUCATION Michelle Franzen Martin to director of marketing and communications, University Liggett School, Grosse Pointe Woods, from editor and senior communications officer for alumni relations, Wayne State University, Detroit.
Affinity Group Credit Union, Pontiac, has named Carma Peters its president and CEO. Peters had been executive vice president and COO. She succeeds previous CEO Glenda West, who retired. Peters, 50, is the former CEO Peters of Wy-South Federal Credit Union, Wyandotte, which merged with Affinity Group. She has worked in credit union management more than 24 years in areas including branch operations, lending and collections, member services and call center. Peters earned an associate degree in general studies from Monroe County Community College, Monroe, and has maintained National Association of Federal Credit Unions compliance officer certification since 1999.
Laura Ferich to corporate controller, Palace Sports & Entertainment LLC, Auburn Hills, from vice president of finance and support services, Pentastar Aviation LLC, Waterford Township. Also, Richard Haddad to vice president and general counsel, from director, business affairs; Luke McMunigal to senior financial analyst, from senior financial analyst, General Motors Financial Co. Inc.; Erica Neitzer to manager, promotions, from public relations and marketing account manager, DMC Huron Valley-Sinai Hospital, Commerce Township; Dave Logan to premium partnership sales manager, from managing director, Dynamic Advisory Solutions, Troy; and Steve Duffy to premium partnership sales manager, from suite sales director, Florida Panthers, Sunrise, Fla.
Scot Hinshaw to partner, labor and employment department’s wage and hour matters practice group,
Honigman Miller Schwartz and Cohn LLP, Detroit,
regional vice president of sales, Southerland Inc., Mira Loma, Calif. Allen Coleman to executive vice president, Strategic Staffing Solutions Inc., Detroit, from COO. Also, April Donaldson to executive vice president, from vice president; Carl Bentley to executive vice president, from manager and executive vice president; Shalini Lawson to Detroit branch manager, from service delivery manager; and Bob Zhang to director, customer care and contact services, from IT manager.
MANUFACTURING Chris Villavarayan to president, Americas, Meritor Inc., Troy, from vice president, global manufacturing and supply chain management.
Offering more financing
SOLUTIONS than ever before.
Slobodan Pavlovic to vice president of engineering, In-
Villavarayan tegral Technologies Inc., Canton Township, a subsidiary of ElectriPlast Corp., from vice
to director of public relations,
from chief communications officer, Capital Area Michigan Works, Lansing. Cindy Myers to director of physi-
SERVICES Dan Thigpen to
from senior associate, Vedder Price PC, Chicago.
Andrea Kerbuski Olympia Group LLC, Dearborn,
marketing and sponsorship director, The Mall at Partridge Creek, Clinton Township, from marketing strategist, Meijer Inc., Walker.
president of global high-voltage/highpower systems and components, Lear Corp., Southfield.
Melissa Morang to
from senior recruiter, MedAscend, Clarkston.
Dreams LLC, Rochester, from western
cian recruiting, Anesthesia Staffing Consultants Inc., Bingham Farms,
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Cynthia Johnson to vice president, corporate affairs, Community Living Services Inc., Wayne, from partner, Couzens, Lansky, Fealk, Ellis, Roder and Lazar PC, Detroit. Keegan Mahoney to program officer, Hudson-Webber Foundation, Detroit, from program fellow.
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Represented Michigan manufacturer of office furniture, equipment and home furnishings in its acquisition of a New York-based supplier of performance-driven textiles for commercial interiors ($156 million).
Represented Michigan manufacturer of medical device products in its sale to a leading global surgical implant company ($135 million).
Represented global manufacturer of high tech solutions for the automotive, furniture and appliance markets in a joint venture with a billion-dollar global manufacturer.
Cascade Partners LLC, Southfield,
from director of business development, Case Management Consultants LLC, Troy. Scott Petree to IT consulting manager, Plante Moran PLLC, Southfield, from senior manager, Deloitte LLP, Detroit. Also, David Womack to consulting manager, from operations value stream manager, Physio-Control Inc., Redmond, Wash.
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March 24, 2014
CRAIN’S DETROIT BUSINESS
CALENDAR TUESDAY PLATINUM STANDARD FRACTIONAL CTIONAL AND MANAGED BUSINESS AVIATION PROGR PROGRAMS. SERVING ALL SOUTHEASTERN MICHIGAN.
EXECUTIVE CALENDAR Regional event dates, locations and contacts, all in one place.
MARCH 25 Open Office Hours: Ladies-Only Edition. 8 a.m.-noon. TechTown Detroit, Michigan Women’s Foundation. Targeting female entrepreneurs working on tech or retail businesses. Mentors from both hosting organizations will discuss attendees’ business questions, providing opinions on ideas and giving direction on securing funding, lining up resources and making connections. TechTown Detroit, Detroit. Free. Contact: (313) 879-5250; email: email@example.com; website: techtowndetroit.org.
Passing the Leadership Baton. 8:30 a.m.-3:30 p.m. Council of Michigan Foundations, Wayne State University. Geared to provide entry- and mid-level professionals interested in philanthropy and the nonprofit sector an opportunity to learn more about the field from seasoned leaders, network with like-minded individuals and increase diversity within the sector. McGregor Memorial Conference Center, Wayne State University, Detroit. $20. Contact: Melissa Freye, (616) 850-2126; website: michiganfoundations.org. Detroit: What Happens Now? Noon1 p.m. Mt. Clemens Public Library. Veteran journalist Jack Lessenberry, area head of journalism faculty, Wayne State University; contributing editor and columnist, Metro Times, Traverse City Record-Eagle and The Blade, Toledo; and political commentator, Michigan Radio, will discuss Detroit’s future after bankruptcy. Mt. Clemens Public Library, Mt. Clemens. Free. Contact: Deborah Larsen, (586) 469-6200; email: firstname.lastname@example.org; website: mtclib.org.
WEDNESDAY MARCH 26 Commercial Real Estate Opportunities in Affordable Housing. 8-10 a.m. Commercial Real Estate Women Detroit. With moderator Rochelle Lento, affordable-housing attorney, Dykema Gossett PLLC; Tahirih Ziegler, executive director, Local Initiatives Support Corp. Detroit; Martina Orange, contract administrator, Detroit Housing Commission; Kathy Makino-Leipsitz, president, Shelborne Development Group Inc.; and Burney Johnson, deputy director, Michigan State Hous-
CRAIN’S PRESENTS M&A AWARDS Join Crain’s Detroit Business and the Association for Corporate Growth – Detroit Chapter 5-9 p.m. April 16 for the Crain’s M&A Awards, honoring companies and executives in the following categories: Best Small Deal of the Year, Best Large Deal of the Year, Dealmaker of the Year – Adviser, Dealmaker of the Year – Buyer/ Seller and Lifetime Achievement. Select award winners will share best practices and inside stories from their top deals. The event is at the Troy Marriott, Troy. The title sponsor is Honigman Miller Schwartz and Cohn LLP, Detroit. Tickets are $75 for ACG members or nonmembers in groups of 10 or more, or $80 for individual sales to nonmembers. For ticket information, call Kacey Anderson at (313) 446-0300, email her at email@example.com or visit crainsdetroit.com/events. Join the conversation with #crainsma. ing Development Authority. Troy Marriott, Troy. $40 CREW members, $75 nonmembers. Contact: Norma Beuter, (248) 646.9629; email: firstname.lastname@example.org; website: crewdetroit.org. Entrepreneur-You Women’s Entrepreneurship Conference. 9 a.m.-3 p.m. Walsh College, Michigan Women’s Foundation, Inforum. With keynote speaker Alyssa Martina, founder, Metro Parent magazine. Walsh College Troy Campus, Troy. $35 students and partners, $45 general admission. Contact: Jan Hubbard, (248) 823-1392; email: email@example.com; website: thewalshinstitute.com.
Women’s Business Forum. Noon-6:30 p.m. Women in Defense, Michigan chapter. Focus is on best practices for women in the workplace, communicating a professional profile, wealth management and other topics. With keynote speaker Terry Barclay, CEO, Inforum; Nancy Salvia, senior financial adviser, Merrill Lynch; others. Troy Marriott, Troy. $50 members of government, $75 WID members, $95 nonmembers; special rate for full-time students. Contact: (248) 643-6590;
email: firstname.lastname@example.org; website: wid-mi.org.
THURSDAY MARCH 27 Inside the CEO Mind. 8-10 a.m. Detroit Regional Chamber. With Sandy Pierce, CEO, FirstMerit Bank. REDICO Conference Center, Southfield. $20 DRC members, $50 nonmembers. Contact: Marianne Alabastro, (313) 596-0479; email: email@example.com; website: detroitchamber.com.
UPCOMING EVENTS A Look at the 2013-14 Detroit Red Wings. 11:30 a.m.-1:30 p.m. April 1. Detroit Economic Club. With Ken Holland, executive vice president and general manager, Detroit Red Wings, and Mike Babcock, head coach. Players and other coaches scheduled to attend. Presiding officer: Christopher Ilitch, president and CEO, Ilitch Holdings Inc. MotorCity Casino Hotel, Detroit. $45 DEC members, $55 guests of members, $75 nonmembers. 11:30 a.m. speaker reception open only to board, life and gold members. Contact: Detroit Economic Club, (313) 963-8547; email: firstname.lastname@example.org; website: econclub.org.
Downtown Detroit Partnership Annual Meeting and Luncheon. Noon-2 p.m. April 4. Downtown Detroit Partnership. With Dave Blaszkiewicz, DDP president and CEO, providing an update on the organization’s activities and downtown development. Cobo Center, Detroit. $100. RSVP by March 24. Contact: Maryann Listman, (313) 566-8250; email: maryann.list email@example.com; website: downtowndetroit.org.
Engineering and Technology Spring Job Fair. 2-7 p.m. April 7. Engineering Society of Detroit. Applicants can meet with representatives from DTE Energy Co., Denso International America Inc., Consumers Energy Co., Magna Powertrain Inc. and other companies. Suburban Collection Showplace, Novi. Free to ESD members; $15 nonmembers registered by March 28; $20 others. Registration includes oneyear ESD membership (first-time members only). Contact: Della Cassia, (248) 353-0735, ext. 112; email: firstname.lastname@example.org; website: esd.org.
BUSINESS DIARY ACQUISITIONS
Penske Automotive Group Inc., Bloomfield Hills, acquired BMW of Greenwich, Greenwich, Conn. The company
TI Automotive Ltd., Auburn Hills, a
Michigan Business and Professional Association, Warren, launched the
estimates the dealership will generate about $190 million in revenue annually. Website: penskeautomotive.com.
CONTRACTS Frimo Inc., Wixom, part of Frimo Group GmbH, Lotte, Germany, a provider of manufacturing systems for plastic components, has new contracts with tier-one suppliers using Pure Liner, a semipermanent mold liner made of self-releasing plastic compound, for support with interior components to be used in upcoming vehicle projects for Ford Motor Co. and Mercedes-Benz AG. Website: frimo.com. Practice Transformation Institute, Troy, a provider of continuing medical education and customized learning programs, was awarded a contract from the Michigan Primary Care Transformation Project, a three-year statewide program aimed at improving health in Michigan, to develop and implement a learning collaborative for its participants. Websites: trans formcoach.org, mipct.org.
global supplier of automotive fluid systems, dedicated a new fuel tank systems production plant in Guangzhou, China. The 67,000-squarefoot plant produces blow-molded plastic fuel tanks for Nissan Motor Co., Toyota Motor Corp., Peugeot Citroen and Qoros and is the company’s second fuel tank production plant in China. Website: tiautomotive.com. Western Wayne Family Health Centers, a federally qualified health care center with offices in Inkster and Taylor, added a location at 25650 W. Outer Drive, Lincoln Park. Telephone: (313) 3831897. Website: wwfhc.org. Finn Partners, New York City, a public relations and digital communications firm, opened an office at 1528 Woodward Ave., Fourth Floor, Detroit. Telephone: (313) 687-4970. Website: finnpartners.com.
MOVES C/D/H, a technology consulting firm, moved from 306 S. Washington Ave., Suite 212, Royal Oak, to 1500 Woodward Ave., Suite 400, Detroit. Website: cdh.com.
Health Care Reform Connect App on iTunes to assist its members with issues related to the implementation of the Affordable Care Act. The app is available as a free download from apple.com/itunes. Website: michbusi ness.org.
NEW SERVICES Gale Group Inc., Farmington Hills, part of Cengage Learning Inc. and a publisher of research and reference resources, began providing science, technology, engineering and mathematics e-book collections from Springer, part of Springer Science + Business Media LLC, Berlin, and Elsevier BV, Amsterdam, through the Gale Virtual Reference Library. Website: gale.cengage.com. Altair Engineering Inc., Troy, and Altair Partner Alliance announced the addition of material-failure prediction software DigitalClone by Sentient Science, Buffalo, N.Y. DigitalClone will allow HyperWorks users to better control product life cycles by predicting failure probability throughout the design process. Website: altairalliance.com/digitalclone.
CRAIN’S DETROIT BUSINESS
March 24, 2014
Delphi: Supplier’s fate in liability case could be matter of timing ■ From Page 1
ity of federal investigations, bankruptcy, etc. “A lot of facts that are going to come out; it’s not as simple as it seems,” Aiello said. Delphi, along with GM, may have protection under Chapter 11 because the issues allegedly occurred before it emerged from bankruptcy on Oct. 6, 2009, but the laws are too ambiguous to predict what will occur, said Judith Elkin, partner at New York City-based law firm Haynes and Boone LLP. “This case is interesting, and the laws have always been murky in product liability,” Elkin said. “There’s no question that Delphi will argue that they are free of any liability that happened before or during its bankruptcy proceeding, but that doesn’t necessarily mean they are protected.” Elkin was involved in the 1990s bankruptcy of drywall manufacturer National Gypsum Co. and the subsequent asbestos liability litigation that ensued. She represented the entity that emerged from
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bankruptcy after a successor company acquired National Gypsum’s assets. Despite no definitive link to liability, the new Gypsum ended up paying into a trust fund in 2004 to settle the case, Elkin said. “There was never a finding of successor liability or an acknowledgement of any liability,” Elkin said. “It just came time to be done with the litigation and move on.” Elkin also represented Highland Capital Management LP in its unsuccessful bid to buy Delphi during its Chapter 11 case. GM CEO Mary Barra said she would likely testify before Congress; the hearing is set for April 1. It’s unclear whether Delphi executives will testify. The crux of the issue for regulators and Congress will be timing. Did Delphi, or GM, commit fraud by not informing regulators of the ignition defect, which caused cars to shut off during operation? If so, regulators could make them pay. Toyota Motor Corp. last week an-
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public, Reuters reported. Delphi’s bankruptcy could also be reopened if the company is found to have deceived its judge about the issue as well. Elkin said that is unlikely to happen, but an appeals court could reopen the cases. The issue could also play out in the state court system, said Richard Levin, partner at New York City law firm Cravath, Swaine & Moore LLP. “When a claimant tries to pursue a liability claim, they do it in state court, not bankruptcy court,” Levin said. “State courts haven’t always been as friendly to the free and clear ruling of bankruptcy court.” In the meantime, Clarence Ditlow, executive director of the Washington, D.C.-based Center for Auto Safety, has asked GM to set up a fund to resolve claims over the ignition defect, according to Bloomberg News. If GM pays any claimants, Delphi or its suppliers may come un-
der target from the same claimants, said Tom Manganello, partner at Warner Norcross & Judd LP in Southfield. In this scenario, GM would likely Manganello settle with claimants on the condition they agree not to sue any of GM’s suppliers, including Delphi, Manganello said. In turn, GM may seek to share the costs of the settlement with Delphi. “GM’s goal is to put this issue behind them, and the only way to do this via the settlement route would be to require all claimants to sign a waiver releasing GM and its entire supply chain,” Manganello said. Dustin Walsh: (313) 446-6042, firstname.lastname@example.org. Twitter: @dustinpwalsh
SAP Supply Chain Consultant for Raynet Americas, Inc. in Rochester Hills, MI. Duties: implement & improve SAP-based supply chain processes & flows, inc’l disseminating funct’l & dev specs. 15% travel, both domestic & int’l. Full duties at www.araymond.com. Req. Bach Deg in Comp Sci/IT, or Mech’l, Industrial, Mfg, or Electronics Eng’g or for’gn equiv; 5 yrs exp in SAP supply chain analysis pos’n. Exp. must inc’l: end-to-end SAP project implementation, inc’l configuring & customizing SAP PP, QM, MES, & S&OP modules, & providing post-project support; change mgmt & organizational dev for SAP-based logistics sys, inc’l providing training & audit compliance; data conversion & external app interfacing w/ LSMW & ASAP methodologies; implementing SAP Demand Mgmt, inc’l forecasting processes through custom LIS info structure designs; root cause analysis of automotive logistics-related issues, inc’l value stream & process mapping of supply chain ops w/ lean principles; total cost-basis optimization of automotive logistics ops, inc’l OEE & accounting for variations resulting from internal customer RFQs, eng’g changes, & deviations. Exp. can be acq’d concurrently. Resumes: Fanny.Leydier@araymond.com. EOE.
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nounced it would pay $1.2 billion to avoid criminal prosecution for hiding information during its rapid acceleration recalls. The belief among attorneys is that if GM pays out, Delphi will follow suit, either in civil cases or after GM seeks a payout for the defective part Delphi supplied. Civil plaintiff attorneys’ first line of attack against GM is to ask U.S. Bankruptcy Judge Robert Gerber to lift the liability discharge for GM on the grounds that the automaker knowingly deceived the judge by not informing the court about the ignition defect. A proposed class action was filed last week in a federal court in California asking a judge to permit plaintiffs to sue GM “because of the active concealment by Old GM and GM,” Reuters reported. The lawsuit alleges that prebankruptcy GM knew about the ignition problems as early as 2001, continued to use the defective part until 2007 and that post-bankruptcy GM continued to deceive the
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ASSOCIATE DIRECTOR Institute of Continuing Legal Education, Ann Arbor, MI The Institute of Continuing Legal Education (ICLE) at the University of Michigan seeks an Associate Director responsible for overseeing the successful development and marketing of ICLE’s content, translating strategic direction into effective implementation, and directing the efforts of the Education Director; Publications and Online Content Director; and the Communications, Design, and New Development Assistant Director. The ideal candidate will have significant law practice experience and understand the practice needs of lawyers; be passionate about creating great practical law content and education; be an excellent communicator and negotiator, be efficient at operations; be capable of developing and monitoring budgets, have the ability to understand and apply technical concepts; and have marketing savvy and experience including a proven ability to craft marketing messages and strategies. Demonstrated experience in legal practice, operations management, budgeting, and staff management is required. Must understand how to bring out the best in talented, well-educated staff operating in a collaborative, high-tech team environment. Experience leading teams to implement change initiatives is a plus. ICLE is a non-profit continuing legal education organization and a leader in its field. The University of Michigan is an equal opportunity employer. Salary range is $140,000-$160,000, commensurate with skills and experience. Applicants are required to take a work sample administered by ICLE.
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Crain’s Detroit Business is seeking an experienced Account Executive to join their dynamic sales team. This position is the ideal next step for the self-motivated and driven sales professional who loves customized selling based on value and to represent an established, respected yet evolving brand that business owners and agencies respect. This is a fast moving role within the competitive media Àeld. Lucky for you, our solutions include print, online and event sponsorships. This position will generate advertising revenue via new business with a strong focus on digital and growing a current base of advertisers. Our staff of veteran sales people has been at Crain’s Detroit for an average of 12 years and describes their jobs as the “best kept secret in media sales in Detroit”. Come and grow with us in a collaborative, team based role that boasts a base plus uncapped commission structure. I Bachelor’s degree required I 5+ years of successful solutions based sales experience,
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March 24, 2014
CRAIN’S DETROIT BUSINESS
SXSW: Brands and bands Hospitals: Seeking strength in unity ■ From Page 1
to brew 100,000 barrels a year. The facility is scheduled to open during the first quarter of 2015. Rieth said Atwater beers are now stocked in more than 300 stores across Texas, including Whole Foods and H-E-B, which Rieth calls the Meijer of Texas. “I think it will move us from being able to sell 5,000 barrels in Austin to 40,000 in our first year there,” Rieth said. “It’s that big of a deal. It puts you on the map and makes you a viable brand. It catapults you to a whole different level.” Rieth said the company spent about $20,000 on products and travel for SXSW, but that the exposure was worth it. “The ripple effect is now bars and cool places are ordering Atwater beer,” he said. “I met with the CEO of Stubb’s BBQ to talk about collaborating with us in the future. I want to bring that spirit of collaboration back to Detroit.” Atwater was the beer sponsor for the closing SXSW event at Stubb’s BBQ, a multiuse space that is part concert venue, part barbecue restaurant. Stubb’s is known to house some of the biggest music acts during the festival. This year, Lady Gaga performed for a crowd of about 2,000. “Words don’t explain the amount of exposure we got from a branding standpoint,” Rieth said. “We are bringing Detroit to Texas through our beer, and the Detroit story resonates with people.”
McClure’s sends Bloody Mary mix Joe McClure, co-owner of Detroitbased McClure’s Pickles, said he was asked by San Francisco-based Internet lodging site Airbnb to provide a palette, 60 cases, of its Bloody Mary mix to serve during SXSW for free. McClure said it cost about $2,000 to produce that much of the mix, which, at $8 a jar, retails for about $6,000. “I have never been (to South by Southwest), so I don’t know exactly what goes on, but people say it’s a great branding opportunity,” McClure said. “We didn’t sell anything there, so we weren’t making any money, but we want to expose people to our Bloody Marys.” McClure said he hasn’t landed new clients from the Airbnb deal, but the benefit of giving away products during SXSW is that people who have never heard of McClure’s will be exposed to it and might become customers down the road. “I think we would do this again,” he said. “The thing is, you have to be selective. I won’t do this for just anyone who asks. It has to make sense.” McClure said it was the first time the company has done a free promotion on that large of a scale. “We’ll find out if it worked,” McClure said.
Musicians spend to network Michael Yessian, president of Farmington Hills-based Yessian Music, said the company spent $25,000 on a party for 450 people during the technology-focused part of SXSW. The festival also has sections devoted to music and film; each section has parties, events, panel discussions and exhibits. It was the second time the com-
■ From Page 1
pany has entertained at SXSW. “It is the most strategic time for us to throw a party because it’s one of those rare times when people come together from all over the world,” Yessian said. “For us, it’s about getting the word out there about us as a company to potential clients.” Was the cost worth the exposure? “Was it worth it? Yes,” he said. “We will definitely do it again next year.” Yessian composes original music scores for TV, film and advertisements. It worked on the sound track to this year’s Bob Dylan Super Bowl ad. Detroit hip hop artist James Jones III, who goes by the name Boldy James, made the trip to Austin with a small crew for a 30-minute performance. But that performance was opening for rap legend Nas and people started lining up to get into the venue many hours before the show, snaking down the street in opposite directions. James declined to say how much he spent at SXSW. “We blew the bankroll out to get out there, but we made some money back off of merchandise, but the real benefit was meeting executives,” James said. “It takes money to make money.”
Exposure worth expense Howard Hertz, co-founding partner of Bloomfield Hills-based Hertz Schram PC, spent about $3,000, excluding food and drink, to send his up-and-coming entertainment attorney Joe Bellanca to Austin for SXSW. Hertz said that while he does not consider that a lot to spend, the networking alone is worth the expense. “We don’t get the opportunity like lawyers in L.A. or New York to network and build relationships with record labels and publishers,” Hertz said. “That’s the most valuable thing in my line of business both for getting new clients and helping existing ones widen their network.” Leslie Hornung, senior vice president of marketing, communications and public relations for the Michigan Economic Development Corp., said the MEDC spent about $200,000 from its business attraction campaign to have a booth on the conference floor during the technology-focused days at SXSW. Hornung said more than 1,000 young professionals visited the MEDC exhibit, many of whom were interested in learning about working in Detroit. “Detroit has a certain cachet as a cool place to be and a place where young people want to live. We wanted to talk about that,” she said. “There are thousands of young people at that conference and we wanted to tell them that we have the things that they are looking for.” Hornung said the money spent was a small cost for access to a targeted demographic. “Think about it; we spend millions in advertising,” she said. “But getting one-on-one time with such a specific group of people is more valuable than someone seeing an ad somewhere.” Nathan Skid: (313) 446-1654, email@example.com. Twitter: @NateSkid
Royal Oak-based Beaumont reported $108.6 million in net income on $1.92 billion in revenue in 2012, followed by Dearborn-based Oakwood with $39.6 million in net income on $1.2 billion revenue. Botsford Hospital, a 305-bed osteopathic hospital in Farmington Hills, earned net income of $4.1 million on $564 million in annual revenue in 2012. Beaumont and Botsford are rated A1 and stable by Moody’s Investment Services. Oakwood has an A2 stable rating from Moody’s. In a telephone news conference last Friday, the system CEOs insisted that the creation of the new health system should be considered an affiliation, not a merger, because the three legacy organizations will become members of a new nonprofit company. “We will have a parent and three children,” said Michalski, who will become the interim CEO of the new, as of yet unnamed, health system. “All the health systems will have tax IDs from Medicare and Medicaid. They have separate provider contracts, and they all credential doctors differently,” he said. Michalski, Connolly and LaCasse will serve on the newly formed CEO Council, which is designed to oversee the transition and implementation of the new system, according to the statement. Michalski will chair the council. Connolly and LaCasse will remain as president and CEO of their respective organizations during the transition. Connolly will also serve as transition executive on behalf of the CEO Council. John Lewis, Oakwood’s chairman, will serve as the new system’s initial chairman. Connolly said the combination is an affiliation because there will be no surviving entity. “We are coming together in a new health system. It is not a merger,” he said. But the systems’ press release described the combination as a “new, $3.8 billion health system that would combine assets, liabilities and operations under unified executive and board leadership.” “It sounds like a merger to me,” said McTevia. “What other option do these local hospitals have than to be strong and large enough to be able to compete with” larger health systems and reduce costs? “It will only be a matter of time when (Southeast Michigan) will have a couple of large hospital conglomerates,” McTevia said. “There is only so much money to go around in a hospital system now that the federal government has made it so difficult with Obamacare.” Joshua Nemzoff, president of Nemzoff and Associates in New Hope, Pa., said the Beaumont-Oakwood-Botsford alliance will be better able to compete against two other large systems in metropolitan Detroit — Detroit Medical Center and Henry Ford Health System. “The reasons to do something like this is to get some economies of scale, to reduce expenses, thereby becoming more profitable and gain access to capital,” said Nemzoff, who advises nonprofit hospitals on mergers and acquisitions.
MERGER BY THE NUMBERS Beaumont, Oakwood and Botsford would become Southeast Michigan’s largest health care system. Market share Revenue Inpatient days Beaumont Health System 17.8% 18.9% Oakwood Healthcare Inc. 9.7% 11.1% Botsford Hospital NA NA Total for new unnamed system 27.5% 30% Henry Ford Health System St. John Providence Health System Detroit Medical Center (Tenet)
22.8% 16.1% 15.9%
18.3% 17.6% 15.8%
Top health care systems ranked by total revenue Henry Ford Beaumont St. John DMC St. Joseph Mercy Health System (Excludes St. Joseph Mercy Hospital, Port Huron) Oakwood Botsford
2012 revenue $2.46 billion $1.92 billion $1.74 billion $1.72 billion $1.6 billion $1.2 billion $564 million
Source: Michigan Health Market Review 2013, Allan Baumgarten, Minneapolis, and hospital systems
“Something that doesn’t get often mentioned is the (improved) negotiating leverage for managed care” with private payers, Nemzoff said. Daniel Loepp, CEO of Blue Cross Blue Shield of Michigan, said he wasn’t surprised by the proposed merger or affiliation, given the cost pressures on hospitals under health care reform. “Blue Cross has tremendous respect and strong relationships with these three communitybased hospital systems, and we are working with all three on our new, value-based approach to hospital reimbursement,” Loepp said in a statement. Nancy Schlichting, Henry Ford’s CEO, said hospital mergers aren’t easy to accomplish. “I wish them well. It is a challenging time in this industry, but scale does matter,” said Schlichting, who was involved in an illfated merger attempt with Beaumont last year. “It will be a significant challenge to bring three organizations together.” Schlichting said Henry Ford continues to look for opportunities for merger partners. However, the Detroit-based system has been spending more time improv-
ing its internal operations and expanding its 30-center ambulatory care network. Nemzoff said combining three hospital organizations into a single entity is more difficult than when two organizations merge. “What happens a lot in nonprofit mergers is they say they are affiliating, but it is in name only,” Nemzoff said. “Nobody is fired, and they don’t eliminate any services. The only way to really reduce costs is through labor — that is called firing people. They want to make everybody happy. Then why merge?” Michalski said the three systems will begin discussing ways to reduce costs. He cited cutting costs in information technology, supply purchases and efficiencies and by using best clinical practices. But Connolly said none of the eight hospitals that will be part of the new system will close. “We will do an inventory on the facilities we have,” noting the plant age and locations, said Michalski. “We will have a team review that to see what opportunity exists” to reduce costs. Jay Greene: (313) 446-0325, firstname.lastname@example.org. Twitter: @jaybgreene
IS YOUR PLACE A COOL PLACE TO WORK? TIME TO NOMINATE Crain’s biennial Cool Places to Work in Michigan awards returns this year, and once again Crain’s is working with Best Companies Group of Harrisburg, Pa. The competition has two parts: one questionnaire for employers, another for employees. The combined, weighted results will determine who qualifies for Cool Places designation. Best Companies supplies all participating companies — regardless of whether they win the Cool Places recognition — with a Best Companies Group employee feedback report based on employee responses to the 72-question survey. The report can help company executives identify strengths and weaknesses in their company culture and practices. To be considered for Cool Places to Work in Michigan, companies must register at www.coolplacestoworkmi.com by April 18. Other important dates, samples of the surveys and other information are on the website. Businesses and nonprofits can apply. Applicants must have a minimum of 15 employees working in Michigan and have been in business at least one year, among other criteria. Companies pay a fee based on company size to Best Companies to cover survey costs. The cost ranges from $610 to $895 for online surveying, and $765 to $1,660 for paper surveying.
CRAIN’S DETROIT BUSINESS
March 24, 2014
Digital: Money is the bug that crashes hyperlocal news efforts ■ From Page 3
The Patch failure Editors at Patch.com, which includes 30 hyperlocal news sites in Southeast Michigan, received word on Jan. 29 of immediate companywide layoffs. It had roughly 15 employees in Michigan. A small cadre of editors, with volunteer help, now handles content for all of the sites, and much of the same content is shared across
all of the sites. Patch began operations in 2007 and was bought by AOL Inc. in 2009 for a reported $7 million. It grew to a network of about 900 news sites across the country. Plymouth Patch, Rochester Patch, Birmingham Patch and St. Clair Shores Patch were among the first to launch in Michigan in 2010. Earlier in January — following a year of layoffs and the shutdown of sites across the country — AOL sold its majority stake in Patch to Hale Global, an investment holding company that specializes in turning around troubled technology companies. Hale Global hasn’t disclosed plans for the sites. Patch has lost $200 million to $300 million since its launch, The New York Times reported earlier this year. The sites never generated the expected ad sales, even after shifting focus to seek national advertising. As it tried to sort itself out, Patch became too cookie-cutter with content, meaning it tried to use “evergreen” information and news across groups of its sites, rather than most of it being unique to that city, Zollman said. “I don’t think anyone has figured out hyperlocal on a macro scale,” he said. “Bloomfield Hills is very different from Ann Arbor. If you try to cookie-cutter a business model into both of those, they’re too different. “The content has to be different. It’s a fallacy to think you can find one formula that works everywhere if what you’re trying to do is find what works specifically for X market.”
HuffPost huffs along Huffington Post Media Group, the New York-based digital media company formed when AOL Inc. acquired The Huffington Post, in November 2011 launched the hyperlocal news and opinion website HuffingtonPost.com/Detroit. AOL, which at the time owned Patch.com, acquired the Huffington Post in March 2011 for $315 million. Financials have not been disclosed for HuffPost and its local sites, but AOL saw its 2013 fullyear revenue grow 6 percent over 2012 to $2.3 billion — but net income for the year plunged 91 percent to $92 million. The sharp year-over-year dropoff is because AOL in 2012 had sold nearly $1 billion in patents to Microsoft Inc., so that money was off the books last year.
The frugal business model One local digital media outlet is carrying on despite a dearth of revenue. Former Detroit Free Press reporter Steve Neavling, with the help of girlfriend Abigail Shah, has run MotorCityMuckraker.com since 2012 from their Detroit apartment. He hustles between city council meetings, fires, and crime scenes and does investigative reporting work as well. A handful of others contribute content, and the site had nearly 80,000 unique visitors in February. MotorCityMuckraker.com, which this year began seeking local advertising, earned about $4,000 last year via Google AdSense, Neavling said.
At one point, he sold his baseball card collection to keep the site going. “You have to be willing to make huge sacrifices without investors,” he said. “There is no quick money solution to this.” This year, the site has sold a few local banner ads to offset expenses, which are under $1,000 a month, Neavling said. The goal is to reach $30,000 in revenue. For now, he isn’t seeking investors or the type of foundation money that some digital media outlets have tapped. To bolster income, Neavling writes for other sites, and is selling $25 MotorCityMuckraker.com Tshirts via fundraising site Booster.com. He also seeks donations.
Victory in Ann Arbor? Former Ann Arbor News business editor Mary Morgan and her husband, Dave Askins, launched AnnArborChronicle.com in September 2008 — and they say it’s profitable. The onlineonly Chronicle focuses on government coverage and civic affairs, and does in-depth longform reporting. It’s aimed at the educated residents of a major Askins university town. The site has generated about $100,000 in annual revenue the past two to three years, Askins said. That covers operating expenses and is enough to live on, he said. Startup costs were about $15,000, and all contributors, such as author John U. Bacon, are paid. About 40 percent of revenue is from voluntary donations, which Askins said is the result of the comprehensive specialized reporting the Chronicle does. “If we were writing traditional news stories about our local government, we would not inspire that kind of devotion and loyalty among a core group of readers,” he said. “We’re offering something that nobody else in the market is offering.” The site, which says it averages 30,000 unique visitors a month, offers three monthly banner ad rates: $200, $300 and $500. The voluntary subscriptions, which are basically donations, begin at $10 and are limited to $500 per individual annually. Donor names are listed by month on the website as part of a transparency initiative by the newspaper, and the list going back to 2009 is long. “Within the first six months we were at a point it was clear we were going to cover expenses,” Askins said. “It’s not lucrative. It works because we put every waking moment into this enterprise. I take my vacations in increments that are minutes long.” On the other hand, the site doesn’t have significant revenue growth potential because it’s a long-form nontraditional newspaper, Askins said. “It also has a limitation. We don’t appeal to the broad masses, and that’s fine with us,” he said. The Chronicle predates The Ann Arbor News closing in favor of a digital-print hybrid, with a muchreduced staff, in 2009.
Changing business Even traditional journalism’s flagship has struggled with making money online: The New York Times Co. saw its digital advertising revenue fall 4.3 percent in 2013 to $162.9 million, versus $170.3 million for 2012. Digital dollars continue to lag behind the main legacy form of advertising: Print advertising among all U.S. newspapers fell to $18.9 billion in 2012 from $44.9 billion in 2003, according to the State of the News Media 2013 annual report from the Pew Research Center’s Project for Excellence in Journalism. During that same time period, online ad revenue increased to $3.3 billion from $1.2 billion. Digital advertising can be a challenge for small news outlets, especially as heavy-volume advertisers, such as car dealerships, have grown more sophisticated in their buying, thanks to tools that measure return on investment, Zollman said. “They are much more focused on how to spend their money wisely,” he said. “It’s much harder for an ad sales rep for a local site to
walk into a dealership and say, ‘Here’s why you should spend your money with us,’ ” he said. On the other hand, there are still smaller and mom-and-pop companies that don’t delve into advertising analytics and still spend in traditional ways. “A lot of advertisers still don’t know where their leads are generated and where their customers are coming from,” he said. And those advertisers can still be tapped for money. “Some sites, hyperlocal or otherwise, can super-refine the people who are going to see your ad and can charge for high-dollar value. But it’s a very narrow slice (of advertisers),” he said. In the end, success or failure can be a crapshoot for small online news efforts. “As a digital site, where the business model is either unproved or changing, especially at the local or regional level, you’ve just got to keep trying new things,” Zollman said. Bill Shea: (313) 446-1626, email@example.com. Twitter: @bill_shea19
INTELLECTUAL PROPERTY ATTORNEYS
Compuware Ventures LLC, the investment arm of Detroit-based software maker Compuware Corp. Compuware also provided office space and equipment. But the website was never able to generate more than a handful of banner ads, which wasn’t enough to pay the bills, especially wages and benefits for full-time staffers. “Revenues, while growing, are not yet able to support operations. We have no choice but to reorganize while we keep the site going and work to attract investors who can help us reach profitability,” DeadlineDetroit.com founders Allan Lengel and Bill McGraw said in a statement published on DeadlineDetroit’s website. McGraw deferred additional comment to Lengel, who didn’t respond to requests to talk about the website. DeadlineDetroit.com, which didn’t disclose any financial details, said it has attracted more than 330,000 unique visitors a month. “We continue to talk to people about investing and hope we can recall our talented staff and continue to grow,” Lengel and McGraw said in the statement. Site management and the chief ad salesperson will run DeadlineDetroit without salary while seeking investors, the site said. DeadlineDetroit.com will, it said, “undergo a reorganization next month that includes layoffs and payless paydays as it continues to talk to investors.” In February 2013, DeadlineDetroit.com and the other companies in the portfolio of Compuware Ventures, which invested in startup technology companies, were told that it had halted its investment activities and wouldn’t be participating in their future funding rounds. That stemmed from Detroitbased Compuware Corp.’s fight for control with a New York City hedge fund, Elliott Management Corp. The halt in activity by Compuware Ventures came after the parent company announced a three-year, $60 million cost-cutting campaign. McGraw is a former longtime Detroit Free Press reporter and columnist who was hired as Compuware’s director of media relations in 2009; Lengel is a former Detroit News and Washington Post reporter who edited ticklethewire.com, a federal law enforcement news site. Compuware Ventures was launched in April 2011 to fund local early-stage technology startups with a Detroit or Michigan connection. DeadlineDetroit.com was McGraw’s brainchild; he told Crain’s in January 2012 that he took it to Compuware founder and Executive Chairman Peter Karmanos Jr., who bought into the idea.
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CRAIN’S DETROIT BUSINESS
When Heaselgrave first contemplated expanding her business into Detroit’s leafy West Village community in late fall 2012, there was a sense of energy and momentum, a belief that the neighborhood’s retail and restaurant strip could be revived. The Detroit Economic Growth Corp.’s Revolve Detroit program had hosted a successful pop-up program along Agnes Street. Revolve Director Michael Forsyth and Brian Hurttienne from The Villages Community Development Corp. worked with building owners in the Parkstone Apartments and West Village Manor to allow small businesses, such as cafe Coffee and (____) and clothier Pramu, to open temporarily in shuttered retail spaces as a way to prove the neighborhood’s latent demand for services. The response from residents was strong, proving to Forsyth and Hurttienne that people wanted to shop and dine in the neighborhood. After all, the community has been one of Detroit’s more stable neighborhoods, abutting the wealth of Indian Village. The historic district is filled with well-kept apartments and single-family homes from the turn of the century, and nearly threequarters of properties are inhabited. Only two houses are listed for sale in the neighborhood, which is bounded by the Detroit River to the south, Kercheval Street to the north, Parker Street to the east and Seyburn Street to the west. “There have always been a lot of great reasons to want to live in the villages,” said Forsyth. “We wanted to show that there are more and more reasons to do business in the
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1. Parker Street Market 2. 1417 Van Dyke (Practice Space) 3. Tarot & Tea 4. The Red Hook 5. Detroit Vegan Soul 6. Craft Work
villages as well. “You are starting to see market demand really pick up. Entrepreneurs are looking for move-in ready space; they are looking for that next frontier. There is tremendous opportunity in the neighborhoods.” Heaselgrave saw that opportunity and was interested — but hesitant. “The first time I looked at the space, the neighborhood was so quiet, I thought, ‘There is no way I can make any money here,’ ” she said. But Yaro, who was seriously considering a space a few doors down for Craft Work, told her he wanted The Red Hook as his neighbor. He was planning to divest himself of his other two restaurants — Commonwealth Café in Birmingham and Ronin Sushi in Royal Oak — and go all-in with Detroit. “I don’t know if it was the historic nature of the area, being in close proximity to the water, the homes … but there is something about the area and the architecture that really drew me in,” said Yaro, 40. “And there is a thriving community.” Heaselgrave applied for a permanent spot on the Agnes strip, and Revolve chose her as one of the winners, along with Detroit Vegan Soul, Tarot & Tea and Craft Work. By that spring, she had put a sign in the window and was expecting to open. Then the delays started. First there was a struggle to find financing for a business that wanted to expand but hadn’t yet been open two years. Then it took months to change the zoning to accommodate the new businesses planned for the Agnes Street strip. Then there were long waits for the building owner to get the necessary city inspections. But Heaselgrave is pleased with what has evolved during her absence. The neighborhood seems more viable, and she was buoyed by Craft Work’s success since it opened in January. The restaurant has hourlong waits on the weekends, and tables turn over two to three times as diners flock to its menu of French dips, fried chicken and ribs for $15-$20 a person. “That really sealed the deal for us,” Heaselgrave said. It took Yaro a year and $260,000 to get open, but he never worried about being one of the first restaurants to return to the neighborhood, which once boasted the Harlequin
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Marketing & Sales Executives of Detroit (MSED) - The FIAT Storyscape Story is the key ingredient for connecting brands and consumers. Stories are patterns that help us make sense of the world and these patterns are wired into our brains. Casey Hurbis, head of FIAT Brand Communications & Advertising, FIAT USA, will take us through the Storyscape for the hugely successful launch of the FIAT Brand, focusing on the role social media played in bringing the brand to life. In addition, Hurbis will discuss how a strong brand Storyscape empowers social media to create brand stories on par with—or stronger than—other traditional branding channels. For questions, call Meeting Coordinators at (248) 643-6590. April 16 • 6 - 8 p.m. Golling FIAT - Birmingham, 34500 Woodward Avenue, Birmingham Members: $20 • Non-members: $60 Registration: msedetroit.org
Worth the wait
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7th Annual Opening Day Party at the Gem Theatre benefiting Winning Futures Get your limited ticket to this invite-only private party, and watch the game in comfort on the theater screens while having beer, wine and food all day (included). Have game tickets? Come and go all day. This is the place to be on Tiger’s Opening Day! Hosted by Bernard Financial, Farm Bureau Insurance, Fifth Third Bank, and O’Keefe March 31 • 11 a.m. - 5 p.m. The Gem Theatre, 333 Madison, Detroit Tickets: $150; discounted packages available for 10+ tickets Tickets must be purchased in advance. Registration: winningfutures.org
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Southfield Restaurant Week Southfield Restaurant Week highlights locally-owned and operated restaurants. This delicious culinary event unites the city’s diverse range of cuisines. Participating restaurants will offer prix fixe dinners, which includes appetizer, entree and dessert choices. No tickets or passes are required. Food lovers may simply dine out at as many participating restaurants as they like during Southfield Restaurant Week. March 30 – April 4 Fixed-Price Dinners: $25 - $35 Information: southfieldchamber.com/restaurantweek
ty with desire. Hugh Yaro, for example, finally opened his new American restaurant, Craft Work, on Agnes Street next door to the recently arrived Detroit Vegan Soul and Tarot & Tea. Just north of that strip, David Kirby and his girlfriend, Caitlin James (coowner of juice shop Drought), are opening a small organic grocery, Parker Street Market, in April. The Detroit Lions teamed up with Hatch Detroit to invest in Detroit’s neighborhoods, and the organizations are making a six-figure investment in the West Village’s infrastructure. The Villages Community Development Corp. is spending $2.83 million rehabbing five properties in the neighborhood. Practice Space, a Detroit-based incubator for architectural projects, is judging applications from business owners seeking to open in a live/work space along Van Dyke Street, near the new restaurant row. “We are excited about what is happening over there,” said Charlie Beckham, director of Detroit’s newly created Department of Neighborhoods. “This is a type of model of what we’d like to see in a lot of neighborhoods: revitalization of the residential community along with commercial redevelopment. Craft Work, Detroit Vegan Soul — these are the kinds of small business that the mayor is talking about for commercial redevelopment.”
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West Village: A neighborhood model? rn ybu Se
March 24, 2014
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Café (in the space where Craft Work is located) and the high-end French restaurant Van Dyke Place that now sits vacant and decaying. In its heyday, Van Dyke Place was a frequent haunt for Detroit society, including Arthur Herzog Jr., who lived in the neighborhood and co-wrote with music great Billie Holiday. Coming in early also helped Yaro’s bottom line. He negotiated with his landlord for structural upgrades as well as free rent until he opened — giving him seven months without significant overhead. “He was very reasonable and understood the risk we were taking,” Yaro said. And it’s paid off, he added: “I’m thrilled. Sales have been good and getting better.”
Success breeds more interest Early investments such as the pop-ups and Craft Work have sparked new interest from other businesses considering locating outside the core of downtown and Midtown. Kirby and James, for example, first heard about the West Village through Yaro. So when they were looking for a neighborhood to call home, after Kirby relocated from Brooklyn, they chose the West Village. That was in the glorious fall weather of last October, and the two walked the streets looking at Georgian Revivals, Tudors and a passel of other historic properties tucked away in the area. In their ramblings, they came across a commercial space at Parker and Kercheval streets. “There used to be an old party store in it, and we kept looking at that space and saying, ‘Oh damn, that would be such a great spot for a more upscale bodega like you see on every corner in New York,’ ” said Kirby, 26. And since Drought goes through three tons of organic produce a week, the two knew they’d have access to excellent fruits and vegetables to build a market/bodega around. (Bodega equals party store in the local parlance.) Kirby and James started rehabbing the space in November — using $1,200 worth of credit card points James traded for Lowe’s gift cards — and are planning a soft launch party April 3. As they make plans for their See Next Page
CRAIN’S DETROIT BUSINESS
March 24, 2014 From Previous Page
grocery, a recent open house drew more than 20 people to 1417 Van Dyke St., all of whom were hoping that their business would be selected to move into the location. “Things have evolved here,” said Hurttienne of The Villages CDC. “That evolution has led us to the point where 1417 Van Dyke can do an RFP for a business to move in. That feels like a huge thing. It’s just tremendous.” That property is owned by Alex Howbert, a third-generation West Village resident. He is working with Practice Space to find the right business tenant for the Victorian house, which once housed a grocery that his father and uncles frequented. “We always had retail kind of coming and going; it was never really a concentrated effort, though,” said Howbert, who coowns Detroit Institute of Bagels and Detroit River Sports. “Recently, there is just so much more. I think in large part it’s due to Brian’s work at the CDC. He’s basically a force working to put together projects and build excitement and get it out there that things are happening.” The property, which offers first floor commercial space and second floor apartments, needs a major overhaul, but the bones are good. There is a potential live/work option, plus a backyard to sweeten the deal for the right business. “The No. 1 attractor of the space has been the live/work option,” said Austin Kronig, cultural development director for Practice Space. “But people are seeing the West Village as a more walkable urban neighborhood that is rejuvenating.” Practice Space, The Villages CDC, Revolve and Howbert are currently reviewing the materials and plan to announce finalists in April.
Infrastructure improvements The Detroit Lions and Hatch Detroit plan to make the area around Agnes Street even more pedestrian friendly this summer. Last year, the Lions’ Living for the City initiative partnered with Hatch to start investing in Detroit neighborhoods. The two organizations initially focused on the Avenue of Fashion at Livernois Avenue and Seven Mile Road, but they are now turning their attention to the West Village, where they will be making a “six-figure investment.” They will be improving the lighting around the commercial building at the corner of Van Dyke and Agnes streets and repairing the original gas lamps along the strip. “You know the space behind the businesses, there is only like two crappy lights up there and it’s really dark,” said Vittoria Katanski, executive director of Hatch Detroit. “We are looking to improve that.” Additionally, they will be installing bike racks and signs for the new businesses, both of which will be fabricated by the Detroit Design Center, which is owned by Erik and Israel Nordin. The big project, however, is a facade improvement for the for-
We always had “retail kind of coming and going; it was never really a concentrated effort.
Alex Howbert, Detroit Institute of Bagels and Detroit River Sports
mer liquor store on the corner, which will eventually house the offices of The Villages CDC. “We like the fact that we’re doing this kind of simultaneous with other initiatives that are happening within this area,” said Ben Manges, director of corporate communications for the Lions. “That makes it that much more impactful. The Lions recognize that it’s important for the resurgence and revitalization of Detroit that the neighborhoods are a part of the focus, not just downtown.”
Rehabbing homes, too While the Lions and Hatch are working on the commercial strip, the CDC will be saving five properties in the neighborhood: three single-family homes along Seyburn Street and two duplexes on Van Dyke Street. The total project will cost $2.83 million, which is coming from Neighborhood Stabilization Program 3 money from the U.S. Department of Housing and Urban Development. “They were all vacant,” said Hurttienne. “They were all in various states of repair. The duplexes had already been gutted and were started to be rehabbed, but stopped midway. Two of the houses we bought just before they went to auction; they were in the best condition. But there are holes in the roofs; porches are falling off. But the wood floors are intact and the woodwork will be maintained.” Grosse Pointe Farms-based Christian & Associates LLC is the architect on the project, while Warren-based Oak Hills Construction will be doing the actual site work. The properties are expected to be completed by late 2014. The duplexes will become low- to moderate-income rentals for the CDC, while the houses will be sold via application to similar income residents. It’s a time of celebration for Hurttienne, who joined the CDC three years ago. At the time, the board of directors’ goal was to spur commercial revitalization; they expected property acquisition and rehabilitation to happen much, much later. “I am actually very surprised that we have accomplished what we have in three years,” said Hurttienne. “I know that this is leading to other things, especially on Kercheval Street and East Jefferson Avenue. “What Craft Work and Detroit Vegan Soul did was set a level of business that would work in the villages and therefore actually work in other areas of the city.” Amy Haimerl: (313) 446-0416, firstname.lastname@example.org. Twitter: @haimerlad.
Electric: Relaxing rules ■ From Page 3
leave for another electric provider so they could escape the higher costs in their bills that help pay for investment in new electric generation. Shirkey’s bill is intended to negate that argument by encouraging the utilities to buy more power from outside sources. Under HB 5184, Consumers and Edison would purchase power wholesale for retail sale to customers from Midcontinent Independent System Operator Inc., which can transmit electricity throughout the Midwest and Manitoba, Canada. Power the utilities create through a subsidiary could be sold to other utilities or to the retail subsidiary of their parent company.
Bringing rates down Shirkey and others argue that open choice is necessary because the state’s current electric rates are high compared with nearby states and that choice and deregulated rates will help correct that. According to the Energy Information Administration, the average price per kilowatt hour for all sectors in Michigan in 2013 was 11.26 cents. In Ohio, it was 9.16 cents, Indiana was 8.63 and Illinois was 7.99. Illinois and Ohio offer full electric customer choice. Utilities argue that change would create more volatility in pricing and likely higher rates. Alejandro Bodipo-Memba, manager of media relations for DTE Energy Co., said the Detroit-based utility opposes the bill even though it could raise rates daily or weekly rather than annually under state oversight, because it feels operating in a regulatory framework is best for customers and the company. “In terms of predictable rates, we think that makes more sense,” he said. Patricia Poppe, vice president of customer experience, rates and regulation for Jackson-based Consumers Energy, concurred, saying it is likely customers would see higher prices under the proposal. Without MPSC oversight on rates, Ken Sikkema, a senior policy fellow at Lansing-based Public Sector Consultants, said the price customers would pay for electricity would be dictated by the wholesale market. Public Sector has done reports on deregulation in other states paid for by Detroit Edison and Consumers. “In a deregulated market, anything goes,” Sikkema said. Sikkema said in states like Pennsylvania that are under a deregulated system, customers are complaining about price spikes. In February, Pennsylvania Attorney General Kathleen Kane announced her office had received hundreds of calls and complaints from customers who had switched to variable-rate pricing for electricity. Some, Kane said then, came from customers who saw prices spike by as much as 300 percent over the winter months. Wayne Kuipers, executive director of East Lansing-based Energy Choice Now, said customers could choose to enter into long-term contracts with a new energy provider to ensure a predictable energy bill, or they could opt to pay monthly. “It’s up to the customer to de-
cide,” he said. Energy Choice Now is a coalition of businesses barred from leaving their utility, companies that want to provide power to businesses and other groups.
Assets plan If the bill were to become law, one of the last acts of regulatory power by the MPSC would be to approve the plan each utility comes up with to separate itself from its generating assets, whether it’s through a sale or on the company’s organizational chart. Poppe and Bodipo-Memba said their utility hasn’t thought through whether to sell assets or create a subsidiary. But BodipoMemba said selling assets outright would have a significant impact, because power generation is a significant source of revenue. “If we do that, we are going to devalue large companies in our state,” said Jason Geer, director of energy and environmental policy for the Michigan Chamber of Commerce. “We want strong hometown utilities.” Greg Gordon, senior managing director and head of the New York City-based International Strategy and Investment Power & Utilities Research Group, testified last week that generating companies that remained a subsidiary under a corporate parent in deregulated states have higher investment ratings than pure generating companies because the subsidiaries are supported by the parent’s cash flow.
Chances of passage If the bill were to be approved in the House, Senate Majority Leader Randy Richardville, R-Monroe, said he is not interested in taking it up. “Let me think of how to say this in a nice way,” Richardville said. “I believe there are enough choices out there. … If you want to invest into something that has that kind of an investment need, you’re going to have to prove that you have the volume sustained over a long period of time into the future. So if you throw choice out there, as prices go up and down, you’re not investing into your state and into your infrastructure.” Shirkey has also acknowledged his chances of getting approval this year are low because some members might want to wait until 2015, when the renewable entergy mandate is due for extension and/or change and other energyrelated issues are up for consideration. The issue does not seem to be high on Gov. Rick Snyder’s agenda, either. When he delivered his special message on energy and the environment in November 2012, he didn’t mention electric choice. “It was a little frustrating,” Kuipers said. But Kuipers believes having the conversation, and combating the defensive position of the utilities, will eventually lead lawmakers to understanding the benefits of moving to electric choice. Chris Gautz: (517) 403-4403, email@example.com. Twitter: @chrisgautz
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March 24, 2014
CRAIN’S DETROIT BUSINESS
RUMBLINGS Hot dog fans roar over add to Tigers menu he humble hot dog made for a footlong of headlines last week. News broken by Crain’s last week that the Detroit Tigers this season will sell poutinecovered hot dogs at Comerica Park got a lot of media and Twitter attention. Local news outlets, along with USA Today, ESPN and Fox Sports, cited our report by enterprise editor and business-of-sports reporter Bill Shea about the $7 Ball Park franks drenched in gravy, cheese curds and fries. Just like your Canadian-American grandma never used to make! Just how many Poutine Dogs will the Tigers and their concessionaire, Sportservice, sell in 2014? About 130 a game, said Robert Thormeier, Sportservice’s general manager at Comerica Park. That includes three other specialty dogs being rolled out this season: the Late Night Dog (fried egg, bacon and cheddar cheese); Pork & Beans Dog (baked beans, cheddar cheese and bacon); and Slaw Dog (coney chili and cole slaw). So by ballpark-napkin math, that’s 130 dogs over 81 home games to total 10,530.
Home run for B Spot? As far as we’re concerned, burger vs. hot dog tastings could be the next big thing for baseball fans. Iron Chef Michael Symon’s
B Spot Burgers is closing in on its early April opening in Rochester Hills. And, yes, a location near Comerica Park could be the next B Spot to open, Frank Ritz, general manager of B Spot Burgers, told Crain’s. This isn’t your average burger. Symon won the Food Network’s eighth annual South Beach Wine & Food Festival’s Burger Bash in February, his fourth such title in a row. Food reporter and multimedia editor Nathan Skid considers Symon the “real” burger king. What’s so special about these burgers? Think Roast cuisine for a budget-conscious foodie ($10 burgers). B Spot will open next month in the Village of Rochester Hills outdoor shopping center, located at Adams Road and Walton Boulevard, across from Oakland University.
Documentary screening In honor of the United Nation’s International Women’s Day, the University of Michigan at Dearborn will host a free screening of a new documentary film, “Honor Diaries,” which shows the painful reality of so-called “honor violence” such as honor killings and forced child marriages, against Muslim women and girls around the world. The screening is at 5:30 p.m. Thursday at the House of Maize and Blue in the Student Union on the Dearborn campus. Attending will be Muslim women from the
WEEK ON THE WEB FROM WWW.CRAINSDETROIT.COM, WEEK OF MARCH 15-21
film and Karen Davidson, widow of Detroit Pistons owner Bill Davidson.
More space for Inforum Inforum, Michigan’s professional women’s alliance, this week is making the move to larger offices in the Renaissance Center, courtesy of General Motors Co. and General Motors Foundation President Vivian Pickard, the group’s immediate past board chair. The 4,000 square feet of office space on the 21st floor of Tower 400 will triple Inforum’s former Orchestra Place address on Woodward Avenue — and give it a view of the river. Microsoft Corp. donated technology for the new offices, Herman Miller Inc. and Steelcase Inc. provided furnishings at no cost, and the Birmingham Bloomfield Art Center is providing rotating original artworks by women artists in Michigan that are for sale.
BITS & PIECES 䡲 Crain’s Detroit Busi-
ness was named one of the best-run businesses in Michigan by students in the Eastern Michigan University College of Business at its inaugural Business of the Year Awards on March 14. Crain’s was named the best medium-sized business in the state, joining Ford Motor Co. (best large business) and Bearclaw Coffee Co. (best small business) as the overall winners. Other winners were: Blue Cross Blue Shield of Michigan; Con-way Inc.; Compuware Corp.; Kelly Services; Meijer Inc.; Plante Moran PLLC; Pure Visibility Inc.; Quicken Loans Inc.; St. Joseph Mercy Health System; and Valassis Communications Inc. Students selected 42 nominated companies and winners based on profitability, strategy and level of social responsibility, among other factors.
BEST FROM THE BLOGS READ THESE POSTS AND MORE AT WWW.CRAINSDETROIT.COM/BLOGS
Fixing up a Detroit house
Why, you ask, would we invest our life’s savings, plus an ungodly amount of debt, in a house that is nowhere near appraising for what we’ll have put into it? That’s a good question.
Entrepreneurship Editor Amy Haimerl’s blog is at www.crainsdetroit.com/section/blogAmyHaimerl
Sports Business Week kicks off
Interested in networking among professionals in the sports industry, especially those working for teams and media? Then this is your week to network — but don’t bring a resume.
Bill Shea’s “Shea’s Stadium” blog on the business of sports is at www.crainsdetroit.com/sheasstadium
Judge ends ban on same-sex marriage in state
U.S. district judge struck down Michigan’s ban on gay marriage, the latest in a series of decisions overturning similar laws across the country. Federal Judge Bernard Friedman ruled Friday, two weeks after a trial. State Attorney General Bill Schuette filed an emergency request for stay and appeal of the ruling.
ON THE MOVE 䡲 Ora Pescovitz, CEO of
the University of Michigan Health System and executive vice president for medical affairs, is stepping down June 1. Emory University otolaryngology professor Michael Johns, who completed his residency at the UM Health Center and was a research fellow at the UM Muscle Mechanics Laboratory, will be interim executive vice president. 䡲 Livonia-based Citizens Research Council of Michigan appointed Daniel Krichbaum, former Michigan Department of Civil Rights executive director, as president. Krichbaum, 71, succeeded Jeffrey Guilfoyle, who left to become vice president of public finance at Lansing-based Public Sector Consultants. 䡲 Chet Decker, executive director of Hope Center in Macomb, plans to leave the Fraser food pantry May 6 to become dean of administration at Nazarene Theological Seminary in Kansas City.
COMPANY NEWS 䡲 Bloomfield Hills-based
Taubman Centers Inc. entered an agreement with London-based Merlin Entertainment plc to bring a 35,000-square-foot saltwater aquarium to Great Lakes Crossing Outlets in Auburn Hills in spring 2015. 䡲 Detroit-based Greektown Holdings LLC closed on $425 million in senior secured notes due in 2019 and said in a U.S. Securities & Exchange Commission filing that it used most of the proceeds to purchase its outstanding 13 percent senior secured notes, repay amounts under its existing loan facility, and pay related fees. 䡲 Bloomfield Hills-based manufacturer TriMas Corp. acquired the remaining 30 percent interest in Arminak & Associates LLC, an Azusa, Calif.-based manufacturer of cosmetic and household product sprayers and
pumps. Financial terms were not disclosed. 䡲 Ann Arbor-based Tectum Holdings Inc. acquired bed liner and tonneau cover manufacturer Laurmark Enterprises Inc. of San Fernando, Calif. Terms were not disclosed. 䡲 Farmington Hillsbased H.W. Kaufman Financial Group, parent company of broker and underwriter Burns & Wilcox, acquired L&L Auditing Services, a Coral Springs, Fla.-based premium auditor. 䡲 The University of Michigan Health System expanded its Physician Organization of Michigan ACO by adding more than 2,900 physicians and four medical groups across Michigan, bringing its total to 5,700 doctors, nurses and other health care providers. 䡲 Ikea’s Canton Township store is expanding nearly 44,000 square feet, bringing total space to 355,000 square feet. Construction will begin this fall, with expected completion in spring 2015. 䡲 Plymouth-based Absopure Water Corp. has contracted with Pure Michigan to showcase the state’s natural beauty on its packaging starting this month.
OTHER NEWS 䡲 Organizers of the De-
troit Institute of Music Education opened the school at a temporary location on Woodward Avenue. Its permanent space is to open this fall in the Dan Gilbertowned Bamlet Building on Griswold Street and Grand River Avenue. 䡲 Metro Detroit’s median home sale prices in February increased by 33.8 percent over 2013, although sales were down 13.6 percent for Wayne, Oakland, Livingston and Macomb counties, said Farmington Hills-based Realcomp II Ltd. 䡲 The price of a Detroit parking ticket would increase under recommendations by bankruptcy restructuring consultants who say the changes could bring the city an additional $6 million a year. Tickets that range from $20 to $100 would increase to $45-$150, The Detroit News reported. 䡲 Detroit’s proposal to pay $85 million to cancel interest-rate swaps that cost taxpayers more than $200 million, part of the city’s attempt to trim debt in bankruptcy, won’t be in final form until this week, Bloomberg reported. 䡲 The Detroit Zoo had a $100.2 million economic impact on metro Detroit in 2013, down slightly from the $104.6 million impact the zoo reported in 2012, according to a study by
Texas-based Conventions, Sports & Leisure International. 䡲 Seats and other items from the Pontiac Silverdome will be sold by owner Triple Investment Group LLC in an online auction May 12-16. See rjmauctions.com/silverdomeseats11.html 䡲 A proposed lease before Detroit City Council would prevent ticketed events from being held at city-owned Joe Louis Arena after the Detroit Red Wings stop playing there, AP reported. 䡲 Workers began installing 103,000 square feet of Kentucky bluegrass at Comerica Park in the first full re-sod of the Detroit Tigers’ ballpark since 2007. The grass, shipped from Fort Morgan, Colo.-based Graff’s Turf Farm, is expected to be ready for Opening Day March 31, when the Tigers host the Kansas City Royals. 䡲 Gov. Rick Snyder confirmed that a financial emergency exists in Royal Oak Township, AP reported. Community officials had seven days to select options, one of which was to be assigned an emergency manager. 䡲 Michigan Attorney General Bill Schuette, 60, plans to kick off his re-election campaign at a series of stops across the state this week, AP reported. 䡲 Michigan will join Iowa and Tennessee as the first states to pilot a new U.S. Chamber of Commerce Foundation initiative to help military veterans find jobs, Gov. Rick Snyder said at his economic summit in Grand Rapids. 䡲 Hundreds of thousands of low-income adults will be eligible for health insurance starting April 1 under Michigan’s expansion of Medicaid, AP reported. 䡲 Fueled by robust investment returns and higher interest rates, funding levels of the largest U.S. corporate pension plans surged in 2013, Towers Watson & Co. said. Business Insurance reported that the New York City-based benefit consulting firm’s analysis of financial statements filed by sponsors of the 100 largest pension programs found that plans on average were 91.2 percent funded at the end of 2013, up from 2012’s average 77.9 percent funded level.
OBITUARIES 䡲 Frank Hagerty, a Detroit native who co-founded the Traverse City-based Hagerty Insurance Agency LLC, one of the nation’s largest collector car and boat insurers, died March 18. He was 79.
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For the second consecutive year and fourth time in the competition’s seven-year history, a Walsh team has won the Association for Corporate Growth (ACG) Detroit Cup, a mergers and acquisitions case competition among business graduate students. We think that says a lot about our students. We applaud the efforts of teams from Michigan’s most respected business schools, including the University of Michigan and Michigan State University. walshcollege.edu/ACG ®The yellow notebook design is a registered trademark of Walsh College. And the campaign is a creation of Perich Advertising + Design. Thanks to the ﬁne folks at Walsh for letting us say so.
Southeast Michigan's premier business publication, issue for week of March 24, 2014.