Middle Market Growth - Fall 2017

FALL 2017

// THE OFFICIAL PUBLICATION OF ACG

Secret Stash No Longer LivWell Leads a Marijuana Movement

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EXECUTIVE SUMMARY

The Benefits of ACG Membership Are Many

A

J.B. DOLLISON Chairman, ACG Global, and Managing Director, Crutchfield Capital Corporation

s I draft my first message as ACG Global’s incoming chairman of the board, my home city of Houston and the Texas Gulf Coast are surrounded by the devastation wrought by Hurricane Harvey. The storm has taken lives and caused untold damage to local homes and businesses, and to the nation’s economy.

I’m particularly heartened at this time to be part of the ACG Global community, which has come together to offer both financial and emotional support to those braving this historic catastrophe. Such a response is a reflection of the strong network of personal relationships that ACG membership affords.

Turning to Middle Market Growth, our cover story is about a marijuana grower and distributor—a clear sign that change is underway for the agriculture industry. The shifting legal landscape for cannabis is just one of the many forces driving this evolution. New technologies, like gene editing, drones and sensors, are impacting how farms grow and distribute food, and trends like vertical farming are making production possible in urban areas. Disruption creates opportunities for investment, and agriculture is no exception.

Another area worth watching is cross-border M&A between U.S. and European companies—midyear transaction value was the highest in a decade. To capitalize on this trend, dealmakers from across the globe are invited to join ACG in London on Nov. 6–7 for EuroGrowth® 2017.

To ensure deal flow levels remain healthy stateside too, ACG is engaging Congress on important issues, like maintaining the interest deduction on corporate debt, which House Republicans proposed eliminating in their blueprint for tax reform.

Another activity underway at ACG is the search for our new CEO. We’re currently working with executive search firm Heidrick & Struggles to identify the organization’s next leader. We hope to make an announcement early next year.

Finally, we are pleased to announce that we are increasing the publishing frequency of MMG to six issues annually from four, beginning in 2018. Between issues, you can stay current on the latest in middle-​ market M&A at middlemarketgrowth.org, where we’re posting content daily. I look forward to serving as your chairman, and I welcome any feedback you might have concerning ACG’s activities. //

MIDDLE MARKET GROWTH // FALL 2017

1

FROM THE EDITOR

Time to Inhale Without Guilt?

T

DEBORAH L. COHEN Editor-in-Chief, Middle Market Growth

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he mere mention of pot smoking sends many highly accomplished professionals on a sheepish mental journey back to high school or college.

“I didn’t inhale,” conceded former President Bill Clinton when pressed on the issue of whether he used marijuana. Since that quasi admission in 1992, cannabis use—both for medicinal and recreational purposes—has become increasingly less controversial.

Politicians ranging from former President Barack Obama to former New York City Mayor Mike Bloomberg, and even one-time vice-presidential hopeful Sarah Palin, have all fessed up to indulging in a little ganja from time to time.

Whether you’re for or against it, statistics show that marijuana’s acceptance is on the rise. Some 53 percent of Americans say the drug should be legal, compared with 44 percent who prefer it to be illegal, according to a 2015 Pew Research Center poll. That compares with just 12 percent who said they favored legalization in a 1969 Gallup poll.

State law has sanctioned the legal use of pot for medical purposes in 29 states and Washington, D.C.; eight states have given the nod to recreational use.

Continued federal opposition, however, is the main reason that private equity investors remain largely on the sidelines. Companies such as LivWell, a leading Colorado producer and retailer of marijuana for both medical and recreational use and the subject of this issue’s cover story, have typically grown without the backing of third-party private capital.

LivWell complains of an uphill battle for expansion. It is punished at a significantly higher tax rate than other businesses its size, plus it faces challenges associated with cash transactions, marketing and regulatory uncertainty.

A significant portion of its staff—more than 40 of its 600 employees—are dedicated to security and compliance. The company is also media shy, worried that the wrong presentation in the public eye could seriously tarnish the professional business image it aims to uphold.

Our reporter’s access to top executives at LivWell offers a glimpse into an industry with many remaining obstacles but the promise of explosive growth in the near future.

Alcohol once faced similar hurdles—now it’s a $354.2 billion industry in the United States alone.

Food for thought. //

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FALL 2017

DON’T MISS QUICK TAKES MHT Partners’ Craig Lawson on Vertical Farming 13

A QUALIFIED OPINION Mary Burke, Lakeshore Food Advisors 14

POLICY POINTS

16

ACG’s Ben Marsico on Cyber 32

IN THIS ISSUE Cover and above photos by Stephen Ang/Light Perspectives

Executive Summary 1

GROWTH STORY

Secret Stash No Longer: LivWell Leads a Marijuana Movement One of the largest vertically integrated marijuana distributors in Colorado is growing fast but faces tax and financing hurdles.

From the Editor 2 Midpoints by John Gabbert 8 The Round 10 Vertical View 12 Growth Economy 34

TREND

Agtech Is Growing up, but Is It Too Green for PE? Private equity investors are closely watching

In Focus – An Inside Look at CT Corp. 36 The Portfolio 41 ACG@Work 50

advancement in agricultural technologies such as crop genetics and livestock monitoring tools,

The Ladder 54

eager for ways to jump-start sluggish top-line growth in the ag sector. 24

It’s the Small Things 56

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MIDDLE MARKET GROWTH ONLINE

EDITOR-IN-CHIEF

MMG CONVERSATIONS

Deborah L. Cohen dcohen@acg.org ASSOCIATE EDITOR

Kathryn Mulligan kmulligan@acg.org

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DIRECTOR, CREATIVE AND BRANDING

the latest issue.

RSM’s Brusuelas Upbeat on Middle-Market Outlook RSM Chief Economist Joseph Brusuelas joined the magazine for a live Middle Market Growth

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Conversation on Aug. 2 at ACG Global’s Chicago office. During the broadcast, Brusuelas dis-

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cussed why the middle market continues to

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MIDPOINTS by John Gabbert

Landing the Right Approach to Agtech

A

JOHN GABBERT Founder and CEO, PitchBook

Content Sponsored by

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gricultural technology is a trending area for investment these days, but private equity firms looking to enter the sector successfully may need to tweak their typical strategies.

Broad factors like climate change and population growth create a compelling overall backdrop of increasing demand for ways to use land more efficiently. Shifts in consumer tastes toward healthier, local and organic options are also leading the industry to adopt new technologies—from greener crop-protection solutions to improved traceability of food after it leaves the farm.

Increasing venture capital investment and accompanying financial support for nascent agricultural technologies could result in more opportunities for private equity firms. But ownership and direct management of companies involved in crop production involve particular risks and require specialized skills and experience. For example, owning a milk producer that packages and distributes its own products requires the ability to manage not only facilities but also processing plants and distribution networks.

Private equity funds should be prepared for investment timelines that often exceed their typical holding periods. Exit opportunities vary considerably and can be especially sporadic based on the segment of agriculture, particularly those that rely heavily on natural resources or land use. Seasonality and protracted commodity cycles both play a role in the timing of exits. A good example

is the buyout of Nutrition Physiology Company by The Halifax Group, UNC Kenan-Flagler Private Equity Fund, Salem Halifax Capital Partners and New Canaan Funding. The group held the company for eight years before selling in 2016 for $185 million.

Investing in the supporting ecosystem of agricultural production, as opposed to farm ownership and management, may prove more suitable for private equity managers in the space. From investing in sustainable food chain technologies to providing growth capital for scaling enterprises, there is no shortage of approaches.

These strategies can give investors exposure to businesses that develop the tools and technologies used by agricultural producers. Depending on the size of the enterprises or target markets, companies with more diversified lines of business (think of a farming operation that develops some of its own manufacturing equipment) can also fall within PE investors’ purview.

Business-to-business aspects of the space, such as seed production and equipment, are currently popular among investors. Based on PitchBook data, U.S. PE buyouts in the realm of agriculture and related segments have largely centered in the B2B segment, accounting for 42.7 percent of all activity since 2014. Software suites and services dedicated to agricultural use cases, such as assimilating and applying data generated by livestock monitoring equipment, are also attracting capital. As methodologies and new types of data packages grow more robust and the price of

“INVESTING IN THE SUPPORTING ECOSYSTEM OF AGRICULTURAL PRODUCTION, AS OPPOSED TO FARM OWNERSHIP AND MANAGEMENT, MAY PROVE MORE SUITABLE FOR PRIVATE EQUITY MANAGERS IN THE SPACE.”

Keep Your Finger on the Pulse of the Middle Market.

STAY UPDATED ON THE LATEST

miniature sensors drops, we’ll likely see increased interest in companies employing these technologies to make things like farm management and livestock monitoring more efficient.

Many of the investment themes that are prevalent in today’s private equity landscape carry over to the agtech space as well. Add-ons are common in response to a climate of high valuations. We’re seeing secondary buyouts, too, showing the depth of PE ownership in certain sectors and the segmentation of strategies among smaller firms that pursue small enterprises to build via platform tuck-ins, growing them to a size where larger buyout shops step in.

It’s logical that add-ons or pure growth investments are happening within niches of the agtech space, given the fragmented market for things like tillage systems or monitoring equipment. One relevant example is Tru-Test, which manufactures products for electronic identification and weighing of livestock.

Australian private equity firm Kestrel Capital earlier this year committed additional capital to increase its stake in the company. //

MIDDLE-MARKET TRENDS AT WWW.MIDDLEMARKETGROWTH.ORG

READ MORE Read more about Tru-Test and PE’s role in agtech in this issue’s feature story on page 24.

MIDDLE MARKET GROWTH // FALL 2017

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THE ROUND

Outlook for Global Growth Gets Stronger—Reports

G

lobal economic growth was stronger than expected through the first half of the year, so much so that RSM US LLP revised its forecast upward.

Accelerated growth in advanced economies, a rebound by emerging economies, monetary stimulus in China and stabilizing commodity prices led the tax, audit and advisory firm to forecast 3.3 percent annual growth in the July edition of its monthly “The Real Economy” report. That’s up from a forecast of 2.7 percent growth at the start of the year.

Economic conditions in Europe look positive, too, according to the report’s authors, who include RSM Chief Economist Joseph Brusuelas.

Growth in German manufacturing could help bolster the European Union’s fiscal coffers, and signs of strength across the continent could lead

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the European Central Bank to begin raising rates sooner than originally expected.

The United Kingdom’s growth has been sluggish as it faces rising food and gas prices. Regardless, a July report from S&P Global Market Intelligence showed that foreign private equity investors continue to be active in the country.

In the United States, RSM identified a thriving labor market and low energy prices as forces behind the economic strength this year, even as manufacturing’s modest rebound and a stalled housing market present headwinds.

Uncertainty surrounding legislative reform for health care, taxes and infrastructure is top of mind for the U.S. business community, but the report’s authors expect the middle market to be less vulnerable than their larger counterparts should those issues remain unresolved.

EVENT For more insights into global economic trends, register for EuroGrowth in London, Nov. 6-7, 2017, at eurogrowth.org.

Disruption Presents Both Opportunity and Risk to the Middle Market—Report Nearly 80 percent of midsize companies view disruption as an opportunity rather than a threat, a new study from Capital One asserts.

“However, this optimistic view does not always translate into action; only a small portion of middle-market companies have taken a full range of defensive measures to protect against disruption’s potentially destructive consequences,” Capital One said in a statement announcing the study on June 27.

Attitudes toward disruption also correlate to company size, the bank noted in its report, “Disruption in the Middle Market,” with smaller midsize companies less likely to be prepared for disruption than larger ones.

“Disruptive innovation is affecting companies of all sizes—reframing

opportunities and risk,” said Anat Lechner, clinical associate professor of management and organizations at New York University Stern School of Business.

Among other findings, the study found that middle-market company attitudes toward disruption vary greatly by industry, with financial services and insurance companies being “extremely prepared” for disruption, while the energy, resources and chemicals sectors “are slightly or not at all prepared for a disruptive event.”

The study incorporated the views of 301 senior middle-market leaders.

It defined middle-market companies as those with annual revenue of $100 million to $3 billion.

Read the full survey on the Capital One website (capitalone.com/ commercial/insights/disruptionsurvey).

CRACKING THE COMPLIANCE CODE Become a Member of ACG’s Private Equity Regulatory Task Force

Plenty of Venture Capital Flows Into Agtech An infusion of capital into a young indoor farming company could signal that the first agtech unicorn may not be far off.

The SoftBank Vison Fund in July led a $200 million Series B round for the startup, Plenty, bringing total investment in agtech businesses to $855 million in the first half of the year, according to PitchBook. The investment is the largest round of venture capital funding ever for an agricultural technology startup.

As of July, total agtech investment in 2017 had already exceeded that of 2015 and had nearly reached the $1.16 billion of venture dollars invested last year. If interest among investors

continues, the agtech industry could see a $1 billion valuation in the nottoo-distant future.

San Francisco-based Plenty will use the funding to enhance its vertical farming technology, which helps the company grow food in urban areas closer to consumers. It employs digital tools like machine learning, internet of things technology and big data to produce fruits and vegetables without harmful pesticides, using less water and energy.

The company, founded in 2013, previously received funding from investment vehicles run by Amazon CEO Jeff Bezos and Alphabet Chairman Eric Schmidt, among others. //

ACG PERT gathers together CFOs, CCOs and in-house legal counsel of middle-market private equity firms nationwide. As a member of PERT, your firm will join a national network focused on shaping compliance best practices alongside federal regulators.

FOR MORE INFORMATION, CONTACT CHRISTINE MELENDES, AT CMELENDES@ACG.ORG. © 2017 Association for Corporate Growth. All Rights Reserved.

MIDDLE MARKET GROWTH // FALL 2017

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VERTICAL VIEW

Commercial Products Are Potent Fertilizers for the Ag Market Commercial products deals—hydraulics, irrigation equipment, fluid-flow components, etc.—lead the agriculture category, accounting for 64 of 103 deals since 2014, with an aggregate value of $992 million, or about a third of overall deal dollars. F

64

39 ALL OTHER AGRICULTURE DEALS

COMMERCIAL PRODUCTS DEALS

Traditional agriculture deals are second by deal count in the overall space, with 27 deals since 2014 but only $155 million in reported value. That’s because many of the buyouts didn’t disclose specific numbers.

Growth capital in the agriculture sector is chasing smaller speculative concerns such as Chromatin, which develops drought-tolerant sorghum seeds, and Forever Oceans, an operator of sustainable aquafarms.

Agronomy supply is winning in the buyout space, underscored by crop-boosting companies such as Corn Capital Genetics, which Pinnacle Agriculture Holdings bought in 2015.

Corn Capital provides genetic services for more productive strains of corn.

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“

PE INTEREST SEEMS TO BE FOCUSED PRIMARILY ON INDUSTRIAL AGRICULTURAL APPLICATIONS, WHICH MAKES A LOT OF SENSE SINCE THOSE ARE THE MOST RELATIVELY RISK-FREE INVESTMENTS.” Henry Apfel, PitchBook analyst

QUICK TAKES

Vertical Farms Are Sprouting up in Cities Worldwide

P CRAIG LAWSON Craig Lawson, CFA, is a co-founder of middle-market investment bank MHT Partners in San Francisco.

E Putting available space to work

ick any decent-size city in the United States and you may well find a vertical farm, its crops stacked in racks inside LED-lit warehouses or multistory buildings.

Vertical farming is a method of agriculture that holds tremendous longterm promise because it could disrupt and transform agribusiness much the way the internet has upended the retail industry.

Someday, vertical farming, along with other alternative agriculture techniques, could go a long way toward helping to end world hunger.

Seriously.

How? Vertical farming delivers extended or continuous growing seasons, more harvests and higher yields.

Crops are grown closer to end markets, significantly reducing the supply chain and shipping costs.

Much less water is used and less, or no, soil or fertilizer is needed. The chances of drought and freezes are eliminated and pest infestations are substantially reduced.

Vertical farms, which were pioneered in such places as Japan and the Netherlands, have sprouted up globally and can be found in cities throughout North America, Europe and Asia. (Japan, in particular, remains a leader with its “plant factories.”)

Venture capital and early-stage investors—including investment arms of strategic players—have been the most frequent investors in the space, with a few later-stage private equity firms entering the field so far.

Still, the sector has yet to attract

significant sophisticated institutional capital in volume.

Scalability is by far the largest challenge. A vertical farm must produce enough crops at a cost structure that enables a profitable sale price to large grocery chains and not just to highend restaurants and premium neighborhood markets.

So far, a handful of substantial capital raises have been completed.

Most notably, perhaps, is AeroFarms, a Newark, New Jersey-based grower operating a 69,000-square-foot warehouse facility. It raised $30 million from Goldman Sachs, RBH Group and Prudential Financial a year and a half ago in a partnership that also included the City of Newark.

Late last year, TruLeaf Sustainable Agriculture in Bedford, Nova Scotia, closed an $8.5 million equity financing round for an indoor multilevel farm. The Canadian company also develops sustainable farming systems that can be built anywhere and grow nutrient-dense, pesticide-free crops all year.

Infarm, a Berlin-based startup that has partnered with large German grocery corporation EDEKA, recently raised 4 million euros from Cherry Ventures, Quadia, LocalGlobe, Atlantic Food Labs, Ideo and Demand Analytics.

These numbers may seem seedsmall at present. But keep in mind that this is a rapidly growing industry with the potential to address numerous global issues and for which, literally, the sky is the limit. //

MIDDLE MARKET GROWTH // FALL 2017

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A QUALIFIED OPINION

Mary Burke Partner, Lakeshore Food Advisors LLC Mary Burke is a founding partner of Lakeshore Food Advisors LLC, a Chicago-based boutique investment banking firm focused exclusively on the agribusiness and food space. Prior to Lakeshore, she worked for a variety of companies in the food sector and has more than 25 years of investment banking experience in the food industry.

“THERE ARE MORE PEOPLE EATING, AND WHAT THEY ARE EATING IS CREATING OPPORTUNITIES.”

Q

What types of deals are you seeing in the agriculture space, particularly in the middle market?

We are seeing deals involving precision agriculture, the intersection of farming and technology, different forms of food production being implemented closer to populations, organic farming practices and efficient waste-management systems.

A

Q A

What is happening internationally?

The good news for all of agriculture is people continue to eat. There are more people eating, and what they are eating is creating opportunities. Foreign-owned companies are purchasing more U.S. companies, and with the weakening of the U.S. dollar, it is slightly easier for them now. Additionally, there has been very little top-line growth for many of the sectors within ag, so U.S. companies have looked to acquire companies; the purchase of a foreign business can bring diversification of customers and technology.

MORE ONLINE Read more from this interview at middlemarketgrowth.org.

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Q

Are you seeing more direct investment in the ag space by family offices and sovereign wealth funds?

Family offices have always been active in the space, but we are

A

now seeing even more of them investing. Many of these assets are wellsuited for long-term holders because inevitable commodity swings, weather and potential geopolitical trade issues do not always allow for the maximum return in a tidy five-to-seven-year time horizon.

Q A

How is traceability/transparency affecting the market? Is this an area for opportunity?

This is definitely one of the major themes throughout agriculture, from the field to the dinner table. Consumers want to know where their food comes from and what’s in it. Most companies are looking to simplify their labels and use clean, easy-to-pronounce ingredients.

All of this creates opportunity.

Q A

Where are valuations headed?

For base commodity agriculture, multiples have been steady, but as soon as there is value added, then the multiples rise and have continued to rise. In the areas of healthier ag and better-for-you, direct-from-thefarmer, those multiples continue to be strong and to increase. //

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Secret Stash No Longer LivWell leads a marijuana movement

BY S.A. SWANSON

H The LivWell team: Dianne Brown, Neal Levine, Michael Raisch and John Lord

L

ivWell has all the trappings of a typical retailer, with sales for Mother’s Day and Father’s Day, and loyalty points for customers. But the atypical parts are hard to miss. It took six years to find a bank that would work with the company—credit card companies still won’t—and executives say LivWell’s effective tax rate is well above 50 percent. That’s because LivWell’s product is marijuana. More than half of U.S. states have legalized pot in some form, but the U.S. Drug Enforcement Administration sees things differently. It gives cannabis Schedule 1 classification in the Controlled Substances Act, putting it in the same drug category as heroin.

According to Arcview Market Research, U.S. legal marijuana sales increased 37 percent in 2016, reaching $5.9 billion. With estimated illegal sales at $41.5 billion last year, that puts total market sales at roughly $47.4 billion. In this burgeoning industry, LivWell sits at the forefront. With 14 locations in Colorado, it defies the brick-and-mortar retail slump—revenue increased about 30 percent in 2016. That economic opportunity requires adherence to frequent regulatory shifts. Of LivWell’s 600 employees, more than 40 work on the security and compliance team to follow rules that include inventory control at the business’s dispensaries and 200,000-square-foot cultivation facility.

“We’re creating a new industry, and we’re the most mature market that’s doing it,” says Neal Levine, the company’s senior vice president of government affairs. LivWell makes that clear with a tagline on its website: More than a cannabis dispensary—leading a marijuana movement.

MIDDLE MARKET GROWTH // FALL 2017

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A CONTROVERSIAL CROP In the early 1990s, John Business: Among the largest Lord was a New Zeavertically integrated marijuana land dairy farmer with no growers and sellers in Colorado plans to grow a controFounder: John Lord, a former versial crop. He left the New Zealand dairy farmer milk business to launch a baby-products manuFootprint: 14 retail dispensaries, facturer in 1995, which 200,000-square-foot cultivation sold items such as safety center and 22,000-square-foot seats and crib accessories R&D site to Walmart and Target.

Employees: 600+ Seeking a better location to expand his company, Lord Annual revenue: Estimated moved to Colorado in 1998; $100 million* 10 years later, he sold the *Source: Cannabis Business Executive Denver-based business. In 2010, he leased the building to tenants with a medical marijuana dispensary called Beyond Broadway. Lord formed a partnership with them and ultimately took full ownership to found LivWell.

By 2016, the company had acquired 11 more Colorado cannabis dispensaries. Many decided to sell, says Lord, because they couldn’t turn a profit due to the tax burden of Internal Revenue Code Section 280E. Originally intended for illegal drug traffickers, 280E prevents cannabis businesses from deducting ordinary business expenses such as rent and utilities (this applies only to “plant-touching” businesses, which grow, “WE OPT FOR A process or sell marijuana).

That means the effective CLEANER LOOK tax rate can exceed 50 perTHAT EVOKES THE cent—LivWell contends its INTERIOR OF AN 2016 rate was just under UPSCALE RETAILER OF 80 percent.

“We learned very quickly TRADITIONAL GOODS, that if you’re not running LIKE COSMETICS OR at some sort of scale, you JEWELRY.” simply cannot effectively operate under the severe tax penalty of 280E,” DIANNE BROWN Lord says. After expenses, Senior Director of Sales, LivWell

LIVWELL

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LivWell reinvests nearly all of its profits into the company’s growth.

Lord notes many small dispensaries exited because they struggled with industry regulations. Oddly enough, baby-product manufacturing prepared Lord for cannabis. That’s because his company had ISO 9001 certification, a widely used quality management standard that requires documentation. “I was accustomed to operating in a highly compliant industry, and it was not as large a leap for me compared to some others in the industry at the time.”

But he wasn’t accustomed to running a cashonly business. Banks didn’t want clients with product deemed illegal by the federal government. To pay the company’s taxes one year, Lord carried a duffel bag filled with about $2 million to an IRS office. Lack of banking also created vendor problems. “I would specifically ask these companies if they take cash, and they’d always say, ‘Yes, of course!’ Then I’d show up, and my duffel bag filled with cash that smelled like cannabis was no longer appealing,” Lord says.

“Back then, most companies simply would not accept our cash.”

LivWell uses checks now—it opened accounts with a local bank and local credit union in 2015.

But customers must pay with cash or debit card because credit card companies still won’t work with marijuana businesses.

MARKET STOKED, BUT POLICYMAKERS STILL HESITANT When the company formed in 2010, Colorado was one of 13 states that had legalized medical marijuana, and legal recreational marijuana didn’t yet exist. Fast-forward to 2017: Eight states have approved legalization of recreational marijuana, and states with legalized medical marijuana have more than doubled to 29 at press time.

This does not surprise LivWell’s Levine. He joined the company about two years ago but has worked on marijuana policy since 2003. During those early years, he saw a pattern emerge while lobbying for medical marijuana. “You’d have these state legislators who would treat you like

their marijuana priest and would start confessing their college stories before they told me how they couldn’t vote for my bill,” Levine says. “I started to suspect that the opposition is really a mile wide but an inch deep. We’re not creating new cannabis consumers, we’re taking people out of the criminal market.”

LivWell has four locations for medical marijuana only, three locations for recreational and seven that sell both—including two new Denver spots, opened last year, which both measure nearly 7,000 square feet. The stores’ aesthetic bears no resemblance to the original LivWell shop’s decor of velvet curtains and unframed Bob Marley posters. “We opt for a cleaner look that evokes the interior of an upscale retailer of traditional goods, like cosmetics or jewelry,” says Dianne Brown, senior director of sales. “People have long assumed that cannabis consumers were primarily 20-something-year-old guys. Today, our fastest-growing consumer demographics are women and adults aged 45 and older.”

In 2016, roughly 79 percent of LivWell’s revenue came from recreational marijuana, a market that’s less than four years old. LivWell and other Colorado dispensaries started recreational sales in January 2014, after the state’s voters chose legalization in 2012. That year, Colorado and Washington became the first U.S. states to approve recreational marijuana, and they demonstrate how much state regulations can diverge. Take vertical integration: While Washington businesses are licensed either to grow or sell (but can’t do both), Colorado chose the opposite approach. The state required all cannabis businesses to grow at least 70 percent of their inventory. That changed in October 2014—Colorado’s recreational sellers don’t need to follow the 70 percent rule but medical sellers still do.

By next year, LivWell expects to grow 80 percent of the product it sells. Executives also say they have the only dispensaries in Colorado where consumers can purchase cannabis flower

E A LivWell retail space with a cleaner, upscale look

MIDDLE MARKET GROWTH // FALL 2017

19

“WHILE OUR REVENUE MIGHT BE HIGH, WE’RE JUST COLLECTING ALL OF THAT REVENUE AND HANDING IT TO THE IRS.” NEAL LEVINE SVP of Government Affairs, LivWell

E LivWell’s extensive LED-

products from the brands of rapper Snoop Dogg (Leafs By Snoop) and country singer Willie Nelson (Willie’s Reserve).

equipped growing facilities

THE COSTS OF BEING LEGAL Approximately one-third of the company’s revenue is spent on cultivation-related costs.

In addition to its main production center, LivWell has an R&D facility measuring about 22,000 square feet. As with all other Colorado licensed growers, every plant in its cultivation facility requires an RFID tag—part of what’s called “seed-to-sale tracking.” To provide more efficient lighting for its plants, LivWell invested more than $1.5 million in an LED system that helped it achieve the highest energy savings for a single lighting project in Colorado for 2016.

“That’s the difference between regulation and prohibition. A drug cartel won’t invest in LED green technology,” Levine says. He notes other differences: LivWell provides all employees with 401(k) plans and fully paid health insurance. It also contributed to the $200 million in

20

middlemarketgrowth.org

taxes collected from Colorado’s marijuana sales last year.

According to Cannabis Business Executive, LivWell had $100 million in revenue for 2016 (executives won’t confirm whether that figure is accurate). Last year, the company landed on an Inc. list of “marijuana moguls,” a label that infuriates Levine. “There’s a common misperception that we’re all rolling in money,” he says.

Although LivWell became “marginally profitable” in 2012 and stayed that way, Levine notes that the company would have “good profit margins” without the 280E tax burden. “While our revenue might be high, we’re just collecting all of that revenue and handing it to the IRS.” LivWell has specific lobbying goals that don’t include legalization. Levine says the priority is a level playing field for the industry, meaning fairer taxation and better banking access.

In addition to representing LivWell, he’s also a board member of the National Cannabis Industry Association and chairman of the board for the New Federalism Fund, which supports state-based regulation and the removal of 280E from the tax code. Bipartisan legislation is under consideration to address 280E, including the Small Business Tax Equity Act, co-sponsored by Republican Sen. Rand Paul.

GROWTH IMPEDIMENTS LivWell CFO Michael Raisch says 280E has limited the company’s ability to open new stores and attract potential investment partners.

“There’s very little money left after tax to reinvest in the business. Which makes it difficult, even when you’re looking at friend-and-family kind of capital,” he says. “Everybody wants a return on capital and it’s hard for us to pay a

Continued on page 23

GIVING POT THE GREEN LIGHT Since the first LivWell shop

MEDICAL MARIJUANA ONLY

opened in 2010, the legalization

RECREATIONAL AND MEDICAL MARIJUANA

landscape has shifted dramatically. One of the most significant changes happened last year: Before the November 2016 elec-

2009

tion, four states had legalized recreational marijuana. After November, that doubled to eight, with the addition of California, Massachusetts, Nevada and Maine.

Most U.S. states now have

Washington, D.C.

some form of marijuana legalization, although it’s worth noting that of the seven states bordering Colorado, only two have legalized medical marijuana (Arizona and New Mexico).

States often take very different approaches to regulation—for example, Florida’s legislation for medical marijuana does not allow smoking, but edibles and vaping are okay. And in California, mar-

2017

ijuana regulation and licensing are handled by the Department of Food and Agriculture.

29

Washington, D.C.

STATES WITH SOME FORM OF MARIJUANA LEGALIZATION AS OF 2017

MIDDLE MARKET GROWTH // FALL 2017

21

A CELEBRITY RAPPER’S BUDDING PURSUIT Of four partners behind

delivered within 20 minutes

cannabis-focused Casa

(Snoop Dogg is no stranger

Verde Capital, only one lacks

to tech investing—he’s also

a degree in finance or eco-

provided funding for Reddit

nomics: Calvin Broadus. He

and Slack).

does have plenty of notable

“These companies aren’t

credentials, considering

burdened with the same reg-

he’s sold millions of albums

ulations that cultivators and

worldwide and now co-hosts

dispensaries are (facing),”

a cooking show with Martha

Wadhera says.

Stewart. Most people know

Compliance in this highly

him as rapper Snoop Dogg.

regulated industry represents

“I think even his mom calls

the main challenge for most

him Snoop,” says Karan

so-called plant-touching

Wadhera, a Casa Verde man-

businesses. Casa Verde

aging partner. Before a stint

looks for technology compa-

at Goldman Sachs, Wadhera

nies that can help. Consider

worked at Doggy Style

two 2017 investments: Green

Records, the label Snoop

Bits, which provides point-

founded (another Casa Verde

of-sale software for dispen-

partner, Ted Chung, served

saries; and Trellis, which

as president).

handles inventory manage-

Founded in late 2015,

ment for growers.

Casa Verde has provided seed or Series A funding

What draws other inves-

for eight companies as of

tors to plant-touching

moment, before federal pro-

E

July 2017—typical invest-

businesses: Wadhera notes

hibition ends, there are some

Snoop Dogg

ments run about $500,000.

that the majority of cannabis

decent margins and yields to

has his own line of

Wadhera explains the firm’s

industry investors are high

be made on both the cultiva-

pot products

approach.

net worth individuals and

tion and dispensary side.”

Why Casa Verde doesn’t

sations, there’s almost a more

How the investment out-

invest in growers and dis-

visceral understanding of

look has changed: “There

pensaries: The firm focuses

growing or selling cannabis

are more and more firms

on ancillary businesses,

than there is in the part of the

coming all the time, definitely

companies that support

industry that we focus on,” he

more than two years ago,”

marijuana growers and sell-

says, drawing comparisons

Wadhera says. “Is it like

ers, such as FunkSac, which

to the U.S. ban on alcohol

traditional VC—are there a

provides child-resistant

during the 1920s. “They think,

thousand cannabis inves-

and odor-blocking bags for

‘As cannabis becomes legal, I

tors? No. But I’d say that for

marijuana. Other investments

want to be either growing or

the number of firms looking

to date have been tech-​

selling it.’”

to commit capital, there

family offices. “In my conver-

focused, including Eaze, a

22

Wadhera says the

are probably three times

website and app that allows

wholesale prices of cannabis

as many as there were two

medical marijuana to be

are still fairly high. “For the

years ago.”

middlemarketgrowth.org

current return because of that tax burden.”

Some investment firms are dedicated to the cannabis industry —including Los Angeles-based Casa Verde Capital, founded by Snoop Dogg—but they typically don’t invest in growers and retailers. Instead, they focus on ancillary businesses that support the cannabis industry with products and services.

That’s true at the Arcview Group, a marijuana angel-investment network. Although plant-touching businesses have received about half of Arcview investors’ funding, it’s mostly from high net worth individuals, says John Downs, Arcview’s director of business development. Of the network’s approximately 600 investors, fewer than 15 percent are institutions such as private equity or venture capital. “But we are seeing a strong uptick in interest from them, especially family office managers,” Downs says. “Professional investors generally focus on ancillary companies because that’s where you get venture-scalable-type returns, the 100times.” He says plant-touching businesses produce healthy cash flow, but returns are typically in the three-times range.

Downs says some investors worry about how the Trump administration will affect the marijuana industry. Their concerns mainly involve U.S. Attorney General Jeff Sessions, who has said, “Good people don’t smoke marijuana.”

Meanwhile, President Trump has stated his support for medical marijuana, including in a February interview during which he said, “I’m in favor of it a hundred percent.” In May, he signed a bill that controls federal spending through the end of September. It includes a provision that blocks the Justice Department from using funds to go after medical marijuana programs that follow state laws. But it does not protect recreational marijuana, and the administration’s plans for that market remain unclear.

When CFO Raisch joined LivWell a couple of years ago, he began attending meetings for a local group of financial executives. Early on, Raisch asked the group’s leader, “Should I tell people what I do? Should I be coy about it?”

The response: Absolutely tell them.

“He said, ‘Quite frankly, a lot of them would like to do business with cannabis companies at the appropriate time.’” When the group hosted a panel discussion about cannabis in 2016, Raisch says it was the year’s most-attended event.

At LivWell, sales have reached record highs during the first half of 2017, with revenue up 25 percent compared with the same period last year. “We are very optimistic, despite headwinds that we face,” Raisch says. “We think it’s a good possibility we could be in five to seven states in the next two to three years, and that could involve as many as 25 to 35 new stores on top of ones we already serve.”

Levine says bans on marijuana won’t last.

“Prohibition is essentially the Wild West. It gives an exclusive market to criminals, and we are occupying that space with legitimate, transparent, compliant businesses. People want that.” //

E Lord and Raisch in the growing facility

S.A. Swanson is a business writer based in the Chicago area.

MIDDLE MARKET GROWTH // FALL 2017

23

Agtech Is Growing Up But Is It Too Green for PE?

24

middlemarketgrowth.org

BY KATHRYN MULLIGAN

B

lockbuster mergers and acquisitions among agriculture industry giants have grabbed headlines for the last several years. But while Bayer courted Monsanto, and Dow and DuPont moved closer to merging, young agricultural technology companies were proliferating.

This sector, dubbed “agtech,” started turning heads in 2013, the year agriculture conglomerate Monsanto announced it would pay nearly a billion dollars to acquire The Climate Corporation, a provider of weather data and crop insurance to farmers. (Climate Corp. sold its insurance arm in 2015.) The price tag suggested that the sector—made up of companies using technology and data to improve the efficiency of farming—was ripe for investment.

Four years later, private equity investors are closely watching. While only a few specialized firms have begun opening their checkbooks for an outright purchase of an agricultural technology asset, some ag-related PE portfolio businesses are employing these tools to gain efficiencies on the farm.

MIDDLE MARKET GROWTH // FALL 2017

25

“WE CAN THINK ABOUT WHAT THE FUTURE OF AGTECH WOULD LOOK LIKE 20 YEARS FROM NOW, BUT THERE NEEDS TO BE A WHOLE BUNCH OF TECHNOLOGICAL DEVELOPMENT TO GET THERE.” ROB LECLERC CEO, AgFunder

VENTURING IN

Rob Leclerc AgFunder

Eric O’Brien Fall Line Capital

Patrick Seese Integris Partners

26

There’s an increasingly urgent need for technological solutions to agriculture challenges.

Global population growth and middle-class expansion in countries like China and India are driving the demand for more food. Meanwhile, urbanization, overuse of arable soil, and depletion of freshwater sources are straining the ability to produce it.

“You’ve got both increasing demand at the same time you have potentially decreasing supply, so the fundamental macro here is increasing prices for agricultural commodities over time,” says Eric O’Brien, co-founder and managing director of Fall Line Capital, a private equity firm that invests in farmland and agricultural technology businesses.

The solutions agtech companies are putting forth are wide-ranging, addressing aspects across the farming cycle—from the genetic makeup of seeds to how food is transported to consumers. They can include everything from enhanced soil that improves crop yields, to sensors that increase irrigation efficiency, to software systems that aggregate and analyze data to assist farm management.

Private equity firms typically look for proven business models and steady revenue sources, but many agtech companies have yet to prove that their technology works or to turn a profit.

“You have a lot of VC-backed companies, but it’s really sporadic in terms of the private equity groups that have investments in the agtech sector,” says Patrick Seese, managing director

middlemarketgrowth.org

of Integris Partners Ltd., an investment bank whose focus areas include food and agriculture.

Venture capital investment in agricultural technologies increased exponentially between 2012 and 2015, reaching $4.6 billion before slipping to $3.2 billion in 2016, according to a report from AgFunder, an agtech investment platform that publishes research on the sector.

The dip reflects a decline in investment in bioenergy, drone technology and food delivery. It also coincides with a 10 percent drop across global venture capital markets overall, attributed to a sensitivity to high valuations and a weak environment for public exits. Agricultural technology companies have been slow to go public, which has dampened enthusiasm among investors who expected the market to develop more quickly, says AgFunder co-founder and CEO Rob Leclerc.

“It’s sort of like 1995 for the internet,” Leclerc says. “We can think about what the future of agtech would look like 20 years from now, but there needs to be a whole bunch of technological development to get there.”

Even companies mature enough for private equity investment pose a challenge. Getting products into the hands of farmers requires resources investors often don’t have: a sizable sales force, advertising muscle and time for a new product offering to gain acceptance.

“It’s going to be a pretty unusual private equity investor that has the infrastructure in place to get products into the market,” says J. Powell Carman, a partner at the law firm Bryan Cave, who has worked on a number of acquisitions and divestitures for biotech and agribusiness companies. “Without that, it’s going to be hard for an investor to capture the margin to get the return on their investment.”

NOT QUITE A REVOLUTION Fall Line’s O’Brien estimates about a dozen investment firms are focused on agtech, while Integris’ Steese puts that figure even higher, at 15 to 20, with another eight to 10 firms fundraising as of July.

Most of that cohort is early-stage investors,

H Planet satellite imagery of Clinton, Iowa, in RGB (left); and near-infrared composite images that identify healthy vegetation in red (Images courtesy of Planet) G A Planet “Dove” satellite

but Fall Line is among the middle-market firms integrating agricultural technology investments into their portfolios. It primarily targets underperforming farmland but has allocated a portion of its fund to agtech. That allocation is flexible, allowing Fall Line to invest when it sees opportunities and to pull back should the sector face a downturn in the future.

The nine agtech companies within Fall Line’s portfolio strategically complement its farmland investments, helping it source and underwrite land and manage its farmland holdings.

In 2015, Fall Line invested in Planet Labs, which has more than 150 high-frequency imaging satellites. Fall Line uses Planet’s tools to help evaluate new farmland investment opportunities, including how land has been managed during previous seasons; for existing holdings, it can monitor fields on a daily basis, detect changes, and assess overall crop health.

Another investor, AGR Partners, targets mature agribusiness companies, but it tracks

“THERE ARE SOME TRENDS AND TECHNOLOGIES THAT ARE REALLY GOING TO FUNDAMENTALLY CHANGE THE LANDSCAPE AROUND AGTECH.” ERIC O’BRIEN Co-Founder & Managing Director, Fall Line Capital

MIDDLE MARKET GROWTH // FALL 2017

27

H Tru-Test’s weighing and tagging systems collect livestock data (Photos courtesy of Tru-Test)

J. Powell Carman Bryan Cave

developments in agtech with an eye toward introducing new technologies into its portfolio companies.

“When we think about agtech, we don’t think about it as a revolution. It’s just incremental, slow, 1 or 2 percent gains on what are big production systems,” says Daniel Masters, a managing director with the firm.

Among AGR’s portfolio companies is New Zealand-based Tru-Test, which helps improve farm productivity through livestock tools and systems. The company’s wide-ranging products include electronic identification systems to help farmers track herds using an online management tool, and weigh scales to measure and spot problems among individual animals. Electric fences, milk tanks and milk cooling systems are among its other offerings.

PROMISING INNOVATION Daniel Masters AGR Partners

28

Agricultural technology companies that ultimately attract private equity investment will be those with offerings farmers can actually use.

Millions of dollars have been invested in information and data retrieval technologies, yet 40 percent of rural Americans lack access to

middlemarketgrowth.org

high-speed internet, notes Integris’ Seese. That makes seed technologies or hydroponics, for example, potentially more useful than drones or farm management software.

“Farmers have to adopt these technologies and show them to be sustainable. That’s when private equity money will start flowing in,” Seese says.

Crop technologies may be among the most promising for future private equity investment.

Startups in this category raised $523 million across 61 deals in 2016, according to AgFunder.

Among them are environmentally friendly pesticides and fungicides, known as biologicals, which can help protect crops from insects and weeds, increasing yield while making it easier to stay organic. Also included are technologies like gene editing and techniques to enhance soil to improve crop growth.

Another technology disrupting agriculture is robotics. Startups like GV-backed (formerly Google Ventures) Abundant Robotics, which developed an apple-picking robot, are using these technologies to tackle complex tasks, or to act as a substitute for human workers amid minimum wage hikes and immigration restrictions.

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Share repurchase from Warburg Pincus Private Equity VIII for NYSE-listed higher education leader

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For more information on how seriously we take our deals, get in touch with BRIAN KERWIN, chair of our global Corporate Practice, at 312.499.6737 or bpkerwin@duanemorris.com.

www.duanemorris.com

E Milk storage tanks and cooling systems (left) and electric fence solutions are among Tru-Test’s offerings

Other robotics applications are geared toward plant health. Blue River Technology, backed by growth capital investor Pontifax AgTech and others, uses computer vision and robotics to inspect and spray plants individually, rather than saturating an entire field. The company claims its technology enhances weed control and can dramatically reduce the use of chemicals, earning it a place on Inc.’s 2017 “25 Most Disruptive Companies of the Year” list.

SEEDING THE FUTURE In 2016, 670 investors backed 580 agtech deals, AgFunder data shows, and the venture capital support is helping startups to mature and prove the effectiveness of their technologies.

Companies with late-stage funding are beginning to acquire younger agricultural technology businesses, which could “FARMERS HAVE hasten their growth and make them attractive to TO ADOPT THESE private equity investors.

TECHNOLOGIES AND Acquisitions of agtech SHOW THEM TO BE companies by middle-marSUSTAINABLE.” ket firms with established sales channels can help PATRICK SEESE overcome a major chalManaging Director, Integris Partners lenge within the industry—getting new products to market.

For the past several years, large industry players have been busy with their own M&A proceedings, which has distracted them from pursuing innovation and

30

middlemarketgrowth.org

sidelined a source of competition. That’s given younger startups a chance to grow, priming them to be future private equity targets, says Fall Line’s O’Brien. Rising crop prices could also help. Low commodity prices have made it difficult for farmers to turn a profit, creating a tough environment for agtech companies looking to grow.

“I think there will be an interesting growth equity and private equity expansion opportunity for those companies,” O’Brien says. “That’s probably between two to three years out, based on the momentum that we’re seeing among the quality earlier-stage companies.”

Agtech assets carved out during the large mergers may also appeal to private equity buyers looking to back them as independent companies. O’Brien sees an opportunity for investors to partner and take advantage of new technologies to compete with corporations like Syngenta and Monsanto.

“I think we’ll see interesting syndication opportunities between groups at different stages and different expertise coming together for what I think will be a pretty interesting segment for private equity over the next 10 to 15 years,” he says. “There are some trends and technologies that are really going to fundamentally change the landscape around agtech.” // Kathryn Mulligan is Middle Market Growth’s associate editor.

S TAT U S Q U O L I M I T S Y O U .

Status Go

™

LI F TS YO U. Ready for fresh thinking that moves you forward?

Welcome to Status Go. gt.com/statusgo

“Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL), and/or refers to the brand under which the independent network of GTIL member firms provide services to their clients, as the context requires. GTIL and each of its member firms are not a worldwide partnership and are not liable for one another’s acts or omissions. In the United States, visit grantthornton.com for details. © 2017 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd

POLICY POINTS

Framing Cybersecurity Issues in the Middle Market

C

BEN MARSICO ACG Global

MORE ONLINE Find a roundup of the top public policy stories of the week each Friday on middlemarketgrowth.org.

32

middlemarketgrowth.org

ybersecurity remains a top priority both inside and outside the Beltway amid the recent rash of ransomware attacks and questions surrounding cyber interference by Russia in the U.S. presidential election. Cybersecurity vulnerabilities can pose an existential threat to businesses (and governments) of all sizes. The middle market is no exception.

On the legislative side, bills are not designed in a way that they can be implemented into law fast enough to craft policy related to the use of specific technologies. For this reason, decision-makers are embracing guiding frameworks that put into place practices and infrastructure to minimize the cyberrisk to organizations.

These frameworks are designed to be implemented by organizations of all sizes and levels of cybercompetency.

A perfect example is the National Institute of Standards and Technology’s “Framework for Improving Critical Infrastructure Cybersecurity,” which was designed to be useful to a wide spectrum of organizations. After gaining traction within the private sector, the framework was implemented by President Trump as the standard for federal agencies with his executive order on cybersecurity.

Best Practices for Compliance ACG’s Private Equity Regulatory Task Force has also established cybersecurity best practices as part of its Private Equity Regulatory & Compliance Principles. The practices are designed

to help midsize private equity firms stay compliant with the regulatory regime imposed by the Dodd-Frank Act. This information is more pertinent than ever. In the wake of the May 2017 WannaCry ransomware attacks, which demanded bitcoin payments from affected Microsoft operating system users, the SEC issued a cybersecurity ransomware alert. It stated that after examining 75 SEC registered investment management firms, 26 percent did not periodically conduct risk assessments of critical systems to identify cybersecurity threats and vulnerabilities. Meanwhile, 57 percent of firms did not conduct penetration tests and vulnerability scans on critical systems.

In the current congressional session, there is potential for a bill that would require any entity handling consumer financial data to be subject to the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999. It contains a provision on cybersecurity that requires financial institutions to create “appropriate standards” to safeguard the financial information of customers. These standards must protect against any unauthorized access or threats and hazards, and they must ensure confidentiality. These standards are currently only applicable to “any institution engaged in the business of providing financial services to customers who maintain a credit, deposit, trust, or other financial account or relationship with the institution.”

FIND YOUR

E The Caucus for Middle Market Growth held a cybersecurity briefing on June 26.

IDEAL CANDIDATE WITHOUT SORTING THROUGH

ACG HAS BEEN DOING ITS PART TO EDUCATE LAWMAKERS ON CYBERSECURITY ISSUES IN THE MIDDLE MARKET.

ACG has been doing its part to educate lawmakers on cybersecurity issues in the middle market. On June 26, in collaboration with the National Center for the Middle Market, ACG hosted a briefing for congressional staffers on the issue.

Before a packed house, cybersecurity experts Israel Martinez of Axon Global; John Lainhart IV of Grant Thornton; and Daimon Geopfert of RSM US LLP discussed the issues facing midsize companies and possible legislative actions. //

HUNDREDS THAT AREN’T.

WATCH FOR HIGHLIGHTS ACG Leadership Week and Public Policy Summit Sept. 26–28, 2017 St. Regis Hotel

POST YOUR JOB O P E N I N G T O D A Y. JOBSOURCE.ACG.ORG

Washington, D.C.

Ben Marsico works on public policy

Read a recap on

issues for ACG Global.

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© 2017 Association for Corporate Growth. All Rights Reserved.

MIDDLE MARKET GROWTH // FALL 2017

33

GROWTH ECONOMY

COLORADO // 1998–2015 Colorado is known for its diversified economy and notable concentration of high-tech industries. The state’s private equity-backed middle-market businesses grew jobs by nearly 114 percent between 1998 and 2015, compared with just 31.3 percent for all businesses across the state over the same time period.

JOBS GROWTH % BY SEGMENT

SALES

0% 19.9% 31.7% 48.4%

DENVER 0%

COLORADO SPRINGS

SALES GROWTH % BY SEGMENT 2.8% 32.3% 26%

145% SALES GROWTH IN PE-BACKED BUSINESSES

44.1%

SALES GROWTH IN ALL BUSINESSES

39% 0%

Small: Less than $10M in sales MM Seg 1: $10-50M in sales MM Seg 2: $50-100M in sales

2015 TOTAL CAPITAL INVESTED IN COLORADO:

$3.2 BILLION

MM Seg 3: $100M-1B in sales Large: More than $1B in sales

JOBS

GROWTH IN PE-BACKED BUSINESSES

GROWTH IN ALL BUSINESSES

113.8% 31.3%

JOBS CREATED

BY PE-BACKED BUSINESSES

17,024

MORE ONLINE See the impact of middlemarket private equity on your state at GrowthEconomy.org.

All stats are from PitchBook and the Business Dynamics Research Consortium at the University of Wisconsin-Extension.

34

middlemarketgrowth.org

© 2017 Wipfli LLP

To Get to Higher Ground, You Gotta Go Through the Mud. The middle market is rife with opportunity but it’s also clear as mud. That doesn’t mean you shouldn’t take the road less traveled. When you’re interested in the territory, you want a guide who thoroughly knows the terrain.

Wipfli is your Private Equity Guide, taking you where you’re going, faster, with audit, tax, technology consulting, and advisory services. From fund and transaction advisory services, to portfolio performance and management, you get powerful direction to navigate the muddy middle market, achieving growth while balancing compliance, without getting bogged down or stuck.

Your Private Equity Adventure is Calling. Let’s Get Out There.

wipfli.com/PrivateEquity

PE Compliance Experts: CT’s Amanda Panaggio, Ian Bone and Angel Shearer

Photos by Richard Freeda

IN FOCUS CT CORPORATION

Covering Compliance CT Corporation Takes the Burden off PE

A

s midmarket private equity firms and their portfolio companies grow and expand to new areas, compliance responsibilities can increase exponentially, sapping energy and diverting focus from the firms’ strategic goals.

Firms always end up facing a choice. They can hire more attorneys, paralegals and administrative staff in-house, which usually increases overhead and requires a fair amount of management’s time. Or they can outsource to a thirdparty provider. The latter may be a smart option, but only if the firm can trust the breadth and depth of the provider’s expertise and its commitment to great service.

CT Corporation has more than a century of experience, specialized expertise, outstanding service and global reach. These strengths have already given more than 1,000 private equity funds the confidence to offload some of their burgeoning compliance responsibilities to the company.

“We take care of those tear-your-hair-out tasks,” says Ian Bone, senior manager of strategy and innovation at CT. “We free up intellectual capital at the private equity firm and its portfolio companies so they can focus on running their businesses.”

A STELLAR PEDIGREE CT was founded in 1892 as The Corporation Trust Company by James B. Dill, a business

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lawyer who helped draft the first modern corporation laws in the United States. In 1995, CT was acquired by Wolters Kluwer, a global leader in professional information services. Today, CT is part of Wolters Kluwer’s Governance, Risk & Compliance division and provides a variety of services, including entity formation, annual report filing and corporate business compliance, to firms of all sizes. The portfolios of its private equity customers range from two to 2,000 companies.

Time-consuming yet imperative compliance duties can sneak up on firms, Bone says. “A lot of times these funds were started based on a certain business model,” he explains. “Then, several years into the fund, compliance regulations change.” Middle-market firms may not have the expertise or the bandwidth to dedicate more staff time to keeping up to date with compliance, and a misstep could be costly, resulting not just in fines and a damaged reputation but also in the inability to carry out a business strategy or structure business deals in certain ways. A firm might, for example, lose access to the over-thecounter derivatives markets and the hedging capabilities it is able to offer fund managers when structuring deals.

CT’s expertise spans many industries and levels of government—local, state, national and international—a range of specialization that few private equity firms have in-house. It’s hard enough to keep up with all the domestic local

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“WE FOCUS ON CONSTANT AND CONTINUAL INNOVATION WITH THE CUSTOMER’S NEEDS AT THE CENTER OF OUR PROCESS.” IAN BONE Senior Manager of Strategy and Innovation

and state regulations, licensing requirements and deadlines, much less those overseas. For example, CT understands the intricacies of the Foreign Account Tax Compliance Act, a U.S. law that requires U.S. persons and companies to file yearly reports on non-U.S. financial accounts to the Financial Crimes Enforcement Network.

What’s more, CT has a pulse on new compliance needs and offers innovative products and services to meet them. When a new U.S. regulation, stemming from the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, required companies that trade or are counterparties to over-the-counter derivatives to have a Global Market Entity Identifier, or GMEI code, CT was the first in the industry to offer a full-service GMEI compliance solution.

The CT solution handles the burden of filing for a GMEI code and keeping track of and fulfilling all maintenance requirements.

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Such codes need to be renewed periodically, and if a company doesn’t have the required GMEIs or keep up with the requirements, it can be fined or even barred from trading. GMEIs and other regulatory codes and filings don’t all come up for renewal at the same time. If a private equity staffer is charged with managing compliance, then each time a regulatory code or license is due for renewal, he or she must figure out what information is needed, if any requirements have changed, where and how to file, and myriad other details that can take hours or days.

Because CT does this routinely for many different companies, it has the latest information and can file in a snap, Bone says.

That’s just one example of how CT keeps up with requirements and trends in compliance to make sure it meets customers’ needs. “At CT, we know that it isn’t enough to meet today’s challenges,” says Bone. “That is why we focus on constant and continual innovation with the customer’s needs at the center of our process.”

FULL-SERVICE COMPLIANCE CT provides a range of services available in various configurations. They include overseeing and filing annual reports, managing and renewing business licenses, and filing required documents for the formation of corporate entities. Information and documents are stored on hCue, CT’s centralized repository. CT offers specialized professional services for hCue, which provides a virtual, always-accessible, secure way to house and organize all compliance data, schedules, forms and other info across all local, state, national and international jurisdictions.

Customers can manage this data and file reports themselves using hCue, or they can use CT’s annual report and hCue managed services, for which CT staff handles everything.

For example, a large private equity firm with more than 2,000 entities uses CT managed services through the hCue platform, says Amanda Panaggio, CT’s senior leader for hCue and annual report managed services. Imagine how many details this firm and its portfolio companies must track, she says, noting: “There are

a lot of moving parts. We see this information kept in spreadsheets, PDFs, minute books, all sorts of places.”

Another advantage of the central platform is that it gives multiple users access to the same, up-to-date data, regardless of where the user is located. So a private equity firm can access, send and receive vital information to and from its portfolio companies, legal teams and other parties.

“It’s a really versatile tool that can house not only your compliance information but also keep track of officers and directors, capital and ownership, meeting minutes, bank accounts, property information and codes, to name just a few of its capabilities,” Panaggio says. CT can tailor hCue specifically to the needs of each firm—creating custom fields for internal billing codes, for example. “It’s essentially a customizable database for each of these private equity firms and their portfolio companies,” she adds.

CT offers a specialized service experience to accommodate the needs of private equity customers. For example, CT has staff available who can serve as independent directors as needed and others, like Angel Shearer, senior service leader, who are well-versed in everything that happens in the M&A process, coordinating across the litany of legal advisers and interested parties in a transaction. Under this specialized engagement model, CT’s dedicated experts and resources are available beyond regular business

hours in case a firm needs something done very quickly. “For instance, a firm may be announcing a deal and need to make sure they have all the appropriate forms filed before issuing a press release,” Shearer says. “They may need it done in 24 hours, or even 30 minutes.”

E Amanda Panaggio, senior leader (left); Angel Shearer, senior service leader

A HEALTHY RETURN ON INVESTMENT Because private equity firms operate on a fixed-percentage management fee, outsourcing to CT often makes more economic sense, and yields a healthier return on investment, than trying to hold the line on rapidly expanding compliance costs. “We tend to be the most cost-effective option,” Bone says. CT can do work that might take in-house staff hours of time and effort. Because CT does it so often for so many customers, it stays up to date on regulatory requirements that are constantly shifting.

“We are usually the most experienced vendor because of the breadth of customers we service—we’ve seen it all,” Bone notes.

Most important, CT frees up in-house staff to focus on more pressing strategic initiatives that will advance business goals. CT’s specialized products and managed services, available on a central, reliable platform, help private equity firms and their portfolio companies meet the compliance requirements of today and tomorrow. //

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THE PORTFOLIO

PE Firms Create Value, Fuel Job Growth

BY THE NUMBERS // Fresh Money and Insight Boost Value

P Sal Fira National Managing Partner, Grant Thornton LLP

rivate equity’s laser focus on the value-​ creation process was most certainly a result of increased margin pressure.

Private equity firms started looking for ways to create value and drive outsize returns at a time when achieving strong returns was becoming increasingly difficult.

No two value-creation models work exactly the same way, but all models can be equally effective. Look no further than the stark differences between how The Carlyle Group and KKR create value. These venerable PE firms have many successful outcomes under their belts, but they generate returns using very different processes. Carlyle’s value-creation process focuses on four things: its investment professionals, deep industry knowledge, a stable of C-suite consultants and data. Its deep industry knowledge, transactional expertise and track record help it differentiate itself from competitors, win over clients and make a company a success.

KKR, on the other hand, has an entire team at its fingertips to facilitate its value-creation model. Its in-house consulting arm, Capstone, generates concrete repeatable strategies that can be applied to create value at portfolio companies without engaging outside consultants. For companies looking to hit the ground running, KKR’s in-house model holds appeal in not having to onboard outside consultants or incur thirdparty fees.

As a byproduct of the increased focus on value creation, PE firms have been driving economic growth across the U.S. and in some cases globally. “There’s considerable evidence that private equity firms—in the middle market at least—are providing capital that’s productively invested in new technology, new plants and equipment, and other things that are good for growth,” says Thomas A. Stewart, executive director of the National Center for the Middle Market.

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That said, while the largest brand-name deals usually grab headlines, the middle market is unquestionably providing strong economic growth in the United States. “The large deals, where a company is stripped for parts, get headlines, but most private equity investments in the middle market emphasize new investment, not financial engineering,” Stewart says.

There’s no question PE adds value beyond its intended beneficiaries. During 2017, private equity-owned middle-market companies are forecast to increase revenue by 7.5 percent compared with an increase of 5.5 percent for non-private equity-owned companies. In 2016, employment at private equity-owned middle-market companies increased by 8.1 percent, compared with 5.4 percent at non-private equity-owned companies, according to the National Center for the Middle Market’s Q4 2016 middle-market indicator.

Private equity as a whole makes positive contributions. According to the American Investment Council, 11.3 million Americans are employed by U.S.-based companies backed by private equity, and PE firms invested more than $122 billion in the first quarter of 2016.

“In many cases, private equity firms offer fresh money and fresh insight. They may come into a company when the owner is ready to retire and doesn’t have an heir or other successor,” Stewart says. “In those cases, private equity firms may increase investment and the company’s professionalization. It’s like pouring water on parched soil.” // Sal Fira is the national managing partner, private equity industry, at Grant Thornton LLP.

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THE PORTFOLIO

Third-Party HR Can Improve the Deal

BY THE NUMBERS // Outsourced HR Minimizes Risk, Maximizes Value in PE Space

A Jason Randall Managing

s competition for deals in the private equity space remains heated, PE firms should consider HR outsourcing, which can help in evaluating hidden compliance risks, scaling faster, planning and modeling human capital costs, and building portfolio value.

Outsourcing HR services allows PE management to focus on the strategic success of the acquisition while providing valuable advantages in every stage of the portfolio investment.

Director, Insperity

Donna Astramecki Business Performance Consultant, Insperity

Pre-Investment Due Diligence Sharing deal data with an outsourced HR provider helps identify hidden risk factors. HR professionals under the auspices of a professional employer organization have a vested interest in mitigating employment risk because the PEO business model assumes or shares liability for much of that risk. A PEO brings fresh eyes and a skilled HR perspective to the potential acquisition. Analyzing HR risk through accurate numbers helps to provide insight into whether a company should be bought, risks accompanying the buy, valuation implications, and awareness of the compliance risks assumed if the company is purchased. Most internal HR departments don’t have the bandwidth to conduct this type of deep analysis.

Post-Acquisition Integration After an acquisition, decisions about integrating teams, processes and programs can breed confusion and frustration, and reduce the chances of success. The outsourced HR provider offers a nationwide infrastructure that is ready to go immediately upon a deal’s closing, freeing up leaders to focus on success factors. The HR provider can also help with soft integration issues.

Many mergers fail because of a lack of cultural integration and communication. Outsourced HR professionals can help create a consistent

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infrastructure along with policies and tools to strengthen merging workforces, leading to smoother integration and preventing the unanticipated loss of valuable staff.

Business Optimization A more predictable HR financial model results when an outsourced HR provider can offer access to a Fortune 500-level benefits package for employees and performance improvement, performance management and training resources. Personnel-related cost projections for a predetermined time mean smoother operations and easier bolt-on acquisitions. Evaluating compatibility, risks and potential strength helps companies understand and resolve regulatory, tax and cost issues related to prospective acquisitions.

Divestiture Outsourced HR providers also help to ensure that portfolio companies are compliant and ready to undergo sell-side due diligence. Time to close can be accelerated when the PE firm can: ɋɋ Reduce the risks of potential HR-related hidden liabilities. ɋɋ Help ensure that compliant, effective HR-related policies and procedures are in place. ɋɋ Assist with an efficient transition path for the buyer. ɋɋ Promote post-sale continuity without the burden of a fixed, internal HR department.

ACG members can tap into the depth and breadth of experience that Insperity business performance consultants can provide to PE firms at insperity.com/acg. // Jason Randall is managing director, middle market business development, at Insperity.

Donna Astramecki is an Insperity business performance consultant.

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T H A N K Y O U , A C G G L O B A L PA RT N E R S

O F F I C I A L S P O N S O R O F G R O W T H SM

GROWTH LEADER

GROWTH CHAMPION

GROWTH SUPPORTER

L E A R N M O R E A B O U T A C G PA R T N E R S H I P S , V I S I T A C G . O R G / S P O N S O R S H I P © 2017 Association for Corporate Growth. All Rights Reserved.

THE PORTFOLIO

Avoiding Common M&A Pitfalls SOUND DECISIONS // Seven Critical M&A Transaction Mistakes

S Richard A. Martin Jr. Senior Director, Merrill Corp.

uccessfully completing a large-scale M&A transaction is a complex process. The potential for any number of mistakes and problems is extensive. Failure to adhere to key business principles places both buyers and sellers at equal risk for capsizing even the best potential deal. Beware of these seven pitfalls:

a company doesn’t want to be acquired. Acquisition impediments extend the amount of time necessary to resolve issues and close the deal.

When this process is extended over the course of many months or a year, “deal fatigue” sets in, increasing the chances that one or both parties will walk away from the negotiation process.

Ardent Optimism. This common mistake occurs

Inability to Execute the Business Plan. Highly

when one or both parties see a much greater opportunity than is shown via the hard data or than could possibly be achieved if the deal were consummated. This misperception can be the result of several factors, including a desire to preempt a competitor’s offer, the participation of several overexuberant competitive bidders, or a “point of no return” feeling when considerable time and money have been spent performing legal, accounting or consulting-related research.

effective managers can be the “kingmakers” that bring the M&A transaction to fruition. In this case, weaknesses in post-merger management— such as contracts that need to be modified or positions that need to be filled—are not identified and result in a failure to execute the new business plan. In other circumstances, shortsightedness associated with reducing operating costs results in the layoff of essential “functional experts” who are needed to fulfill the business plan.

Poor Structural Engineering. Frequently, one

Lack of Proper Data Preparation. Some informa-

or both parties overlook critical building blocks that contribute to subsequent organizational problems. Examples could include overleveraged financial statements or employment agreements with essential personnel who are hidden during the negotiation process.

tion should be made available to all bidding parties, but other documents containing proprietary information should be reserved for more serious contenders and the final buyer. The failure to segment this information as the M&A process moves forward increases the likelihood that sensitive documents may be released too early, increasing the chances that they will be distributed to competitors and/or media contacts.

Ineffective Organizational Integration. There are

challenges associated with integrating new organizational structures with employees impacted by a merger or acquisition. The M&A process frequently presents restructuring plans such as plant closings, layoffs or scaled-down operations that can distract employees from their normal day-to-day activities.

Insufficient Time Allocation. Completing a takeover is a lot harder than announcing one.

The process of working out all the contractual details tends to slow things down, especially if

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Absence of Secure Business Tools. Information

security is an important element during the M&A discovery and negotiation period. Both buyers and sellers need to secure business documents that hold sensitive, proprietary or copyrighted information that could be used for a competitive advantage if they fell into the wrong hands. // Richard A. Martin Jr. is responsible for Merrill DataSite’s global marketing group.

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I met a contact at an ACG event that led to one of our biggest deals to date.

S E E T H E P O W E R T H AT MEMBERSHIP BRINGS. J O I N T O D AY AT W W W. A C G . O R G

THE POWER OF

© 2017 Association for Corporate Growth. All Rights Reserved.

THE PORTFOLIO

Get Tech Savvy SOUND DECISIONS // High-Impact Returns for Portfolio Cos. with Finance Transformation

T Gavin Backos Principal, RSM US LLP

he deal has closed and the celebration has ended. Now the real work begins.

Everyone knows that the time immediately following the closing of a deal is very busy.

Oftentimes leaders at private equity firms and portfolio companies are laser-focused on growth and innovation, which is perfectly normal; however, they often lose sight of the performance possibilities gained through investments in integrating technology. This is a big mistake.

CFO organizations are often inundated with manual, labor-intensive processes that create difficulty in producing vital and timely financial and management information. It doesn’t have to be this way and let’s face it, the CFO’s role has changed. Decision-makers have learned over the years that CFOs have access to more company performance and operational data, which has made the CFO’s involvement in key operational decisions more important than ever. CFOs and finance teams are no longer number crunchers, but they are increasingly taking more responsibility around company performance. In fact, according to a study completed by Oracle of more than 1,900 finance decision-makers, nearly 40 percent of finance leaders admit that the finance department is becoming more accountable for the success of the business.

That said, without up-to-date, real-time information, finance leaders and decision-makers are at a loss for managing their business and making informed business decisions. Modernized technology can help alleviate the burden on the CFO while producing great results. Updating operations to conform to leading practices that are enabled by modern and integrated technology can drive much-needed efficiencies and performance relief. This type of efficiency empowers organizations to become more focused on value-added initiatives as opposed to the time-consuming transactional workload.

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Each company is unique and manages its own set of challenges. Common reasons for not using technology include time, feeling overwhelmed making the transition, and, of course, budgetary concerns. But it’s critical for key leaders to allocate time and money to understand the tools available to them. Using the right technology will undoubtedly make crucial financial information more accurate when it comes to budgeting and forecasting, and the processes will be quicker. Technology will also allow users to manipulate data in real time with much more sophistication than can be done with spreadsheets.

To understand the appropriate technology fit, first assess the critical requirements and desired outcomes you want to achieve. Each requirement is designed to overcome current pain points while enhancing the operating standards to conform to leading practices. The selection and implementation of technology should follow two basic principles. First, allow the process enhancements to lead the implementation of technology, and second, integrate the technologies governed by appropriate controls to ensure a single version of the truth across platforms. A successful transformation connects an organization’s vision to its strategy—delivering measurable performance improvements. The burden a CFO carries post-transformation is minimized but not eliminated. Continued performance measurement is essential to ensure investments are protected. // Gavin Backos is a principal in RSM’s technology management consulting practice. He also serves as RSM’s national advisory leader for close governance and close automation. He can be reached at gavin.backos@rsmus.com or 404-579-3802.

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THE PORTFOLIO

Let the Seller Beware SOUND DECISIONS // Fraud Carve-outs in M&A Deals Can Spell Trouble

B Andrew Lucano Partner, Seyfarth Shaw LLP

uyers frequently insert fraud carve-outs into M&A agreements; they stipulate that in case of fraud, all bets are off and any limitations on recovery under the agreement’s provisions should not apply. While this sounds fair, sellers should not liberally accept fraud carve-outs. A May 2017 Delaware court decision, EMSI Acquisition, Inc. v. Contrarian Funds, LLC, offers a cautionary tale.

What Happened?

The buyer asserted post-closing indemnification claims against the selling shareholders related to manipulation of the target company’s financial statements by employees. Sellers moved to dismiss, saying the stock purchase agreement limited recourse for indemnification claims regarding breaches of representations and warranties to the amount in an escrow fund.

Conversely, the buyer argued its indemnification claim was not capped by the fund—which was then depleted—due to the broad, undefined fraud carve-out in the stock purchase agreement. Citing, among other things, “inelegant drafting” and conflicting provisions, the court denied the motion to dismiss, finding that extrinsic evidence was needed to interpret the ambiguous indemnification provisions.

Points of Interest The stock purchase agreement contained a nonreliance clause that “specifically disclaimed any reliance on extra-contractual representations”; the court reiterated its validity and the protection it provides against fraud claims for statements made outside the purchase agreement. However, the court noted the broad nature of the fraud carveout “may be read to allow extra-contractual claims for fraud notwithstanding the non-reliance clause.”

Despite certain permissible limitations on fraud claims, the court made clear that Delaware’s

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public policy against intentional fraud does not allow a seller to insulate itself by contract from claims that it made “a knowingly false contractual representation,” including claims that it knew the target company made a false representation in the purchase agreement.

The case raised issues regarding pleading standards for fraud under Delaware law and the type of fraud, as well as who knew about it, who committed it, and who made the fraudulent contractual representations at issue.

Limiting Fraud Carve-outs The EMSI decision shows why sellers should avoid agreeing to undefined, broad fraud carveouts in purchase agreements. Sellers should: 1. Specifically define “fraud,” limiting it to fraud intentionally and knowingly committed by the seller regarding the specific representations and warranties expressly made in the agreement.

2. Avoid a carve-out for fraud committed by others where the selling shareholder was not a knowing participant (the exception should only apply where the representations and warranties made in the agreement by the company or the shareholder were known by the shareholder to be false).

3. Avoid fraud carve-outs that might trump or cloud non-reliance clauses or allow buyers to pursue “extra-contractual” claims. Sellers should provide the carve-out as a specific exception to the indemnity cap and basket, while otherwise staying within the agreement’s indemnity regime, not as an exception to the exclusive remedies provision. // Andrew Lucano is a partner with Seyfarth Shaw, vice chairman of its M&A practice, and editor of its M&A Surveybook. He can be reached at alucano@ seyfarth.com.

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ACG has the top global network for middle-market businesses, hands down.

S E E T H E P O W E R T H AT MEMBERSHIP BRINGS. J O I N T O D AY AT W W W. A C G . O R G

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© 2017 Association for Corporate Growth. All Rights Reserved.

ACG@WORK

H ACG HOLLAND On May 17, ACG Holland and HPE Growth Capital hosted their first Scale Up event in collaboration with Prince Constantijn van Oranje-Nassau in Amsterdam. It drew more than 120 attendees and included presenters Justin Jansen, professor at the Rotterdam School of Management; John Renkema, senior portfolio manager of private equity at APG; and Eva de Mol of HPE Growth Capital.

ACG NEW JERSEY F ACG New Jersey hosted the ACG NJ Women of Leadership event on March 30 in Morristown.

Candace Straight, private investor, independent film producer and director of the film “Equity,” spoke. Pictured (left to right) are attendees Cheryl Moss, Friend Skoler & Co.; Colleen Logan, Sobel & Co.; Marie Burzo, BDO USA; Maureen O’Hare, BDO USA; and Jennifer Core, BDO USA.

H ACG PUBLIC POLICY MEETINGS ACG members met with Republican Rep. Tom MacArthur of New Jersey to discuss provisions of the Investment Advisers Act of 1940. Pictured (left to right) are Martin Okner, SHM Corporate Navigators, and CEO and COO of dpHUE; MacArthur, member of the Capital Markets, Securities and Investments Subcommittee of the House Financial Services Committee; Gretchen Perkins, partner, Huron Capital Partners; and Bob Kent, managing director overseeing private equity firm coverage at Brown Gibbons Lang & Company.

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H ACG NATIONAL CAPITAL ACG National Capital hosted more than 400 attendees at its 15th Annual Corporate Growth Awards to celebrate corporate growth success, deals and deal teams in the D.C. metro area on May 11 at the Ritz-Carlton Tysons Corner. Pictured (left to right) are Board Director Michael Lustbader, Arlington Capital Partners; David Wodlinger, Arlington Capital Partners; Ben Ramundo, Arlington Capital Partners; Neal Beggan, Cherry Bekaert; Board Director Leigh Ann Schultz, Streetsense; and Board Director Shooter Starr, Brown Advisory.

ACG ORLANDO F ACG Orlando hosted its 11th Annual SMART Awards Luncheon at the Alfond Inn on May 17. The awards recognize businesses in Central Florida with accomplishments in culture, growth, business creativity and economic contribution. Pictured (left to right) are Karen Martorelli, Keri Salem, Marty McAndrew, Michael Williams, Kris Dake, Paul Robertson and Valeri McDonald.

H ACG CINCINNATI Over 500 people attended ACG Cincinnati’s 18th Annual Deal Maker Awards on May 17 at the Hyatt Regency Cincinnati to honor middle-market companies committed to corporate growth. Candace Kendle was the first woman to receive the Lifetime Achievement Award. Pictured (left to right) are Dean Neil MacKinnon, University of Cincinnati College of Pharmacy; Kevin Jones, market president, Huntington Bank; Candace Kendle, retired CEO, Kendle; and Jane Portman, wife of Ohio Sen. Rob Portman.

MIDDLE MARKET GROWTH // FALL 2017

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ACG@WORK

G ACG HOUSTON ACG Houston’s inaugural Corporate Development Peer group meeting took place on May 11 at the Houstonian Club, the first event for the newly formed Corporate Development Committee. These invite-only gatherings ensure that corporate executives have the opportunity to network, compare strategies, and share ideas and experiences with their peers to help improve acquisition success.

E ACG INDIANA ACG Indiana’s Annual Awards Dinner took place on April 20 at the Indianapolis-Union Station Grand Ballroom. More than 200 people attended the dinner, and awards were given to individuals who have exemplified growth and made an impact on the Indiana economy and community. Pictured (left to right) are Wilbur, Bertha and Derald Bontrager, the family behind RV company Jayco Corp.

H ACG KANSAS CITY The Kansas City ACG Capital Connection and Wine Tasting event, hosted on May 11 at The Grand Hall, brought together over 200 capital providers, private equity firms, investment bankers and business leaders for an afternoon of networking and sampling fine wines from around the world.

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ACG MINNESOTA F ACG Minnesota held its 16th Annual Golf Tournament on June 5 at the Golden Valley Golf and Country Club in conjunction with its ACG Capital Connection conference. Deal-makers enjoyed the opportunity to network on the golf greens. Pictured (left to right) are Jordan Risse, RB Kiernat, Craig Kleis, James Knudson, Steve Kozachok and Mike Davies.

H ACG NEW YORK On June 15, ACG New York and the M&A Advisor hosted the 7th Annual Champion’s Awards at the Metropolitan Club. The awards benefited ACG Cares, a charity helping college and graduate students from a range of social backgrounds find their first job in business. The Champion’s Awards recognize leading middle-market transactions, firms and deal-makers within the local ACG community.

ACG CENTRAL TEXAS F ACG Central Texas hosted its annual Growth Awards on June 8 at the Four Seasons Hotel in Austin. More than 150 people attended. The awards highlight market-leading companies that make Central Texas a thriving business community.

Gordon B. Logan, CEO and founder of Sport Clips, was the keynote speaker. Finalists and winners are pictured.

—Compiled by Hollie Merrick, ACG Global

CONTACT Want to share news from your recent chapter event? Email us at editor@acg.org.

MIDDLE MARKET GROWTH // FALL 2017

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THE LADDER

JASON BYRD (top) and MICHAEL BROM launched Concurrence Capital Holdings LLC, a private investment and management firm, in Grand Rapids, Michigan. Concurrence will work with management teams to grow and improve companies in the lower middle market. Byrd and Brom worked together at Huizenga Group, a privately held firm that provides management services. Most recently, Brom was chief financial officer of Huizenga Group and Byrd was a managing director for Charter Capital Partners, a lower middle-market investment bank.

JANICE KONG joined Dixon Hughes Goodman as a private equity tax director in the Tysons, Virginia, office. Kong brings more than 16 years of public accounting experience to DHG, where she will lead cross-functional teams that execute tax due diligence and strategies for private equity groups.

RSM US LLP, a provider of audit, tax and consulting services for the middle market, named JOEL SHAMON (top) national audit leader and DON LIPARI national industry leader. Shamon joined RSM in 2010 and most recently served as the northeast region audit leader. Lipari most recently served as the market managing partner for RSM’s New York office.

Perkins Coie announced JASON QUINTANA has joined the firm in Chicago as mergers and acquisitions practice partner. Quintana brings experience advising on strategic domestic and cross-border transactions and representing corporate and private equity buyers and sellers.

Previously, Quintana worked for The Boeing Company, where he served as senior M&A counsel.

CPA-led business advisory firm Aprio LLP named DEREK PITTS (top) and CARDELL MCKINSTRY partners in its transaction advisory services group in Atlanta, Georgia.

With more than 13 years of experience, Pitts has completed financial due diligence for over 150 potential acquisitions. McKinstry brings more than 18 years of experience focusing on mergers and acquisitions services.

As of January, Aprio rebranded from Habif, Arogeti & Wynne.

McDermott Will & Emery, an international law firm, added two corporate partners, IVAN PRESANT (pictured) and JEFFREY MEYERS, to the corporate and transactional practice group in its New York office.

Presant was previously a partner at Greenberg Traurig, where he advised on domestic and international M&A transactions. Meyers previously served as the head of Stroock’s energy and project finance practice, where he worked on energy transactions, sales and acquisitions across the globe.

MORE CAREER INFO Watch for more career information in The Ladder newsletter delivered to your inbox.

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M AY 2 – 4 , 2 0 1 8 | S A N D I E G O M A R R I O T T M A R Q U I S & M A R I N A | S A N D I E G O , C A

S AV E T H E DAT E. R E G I S T R A T I O N

O P E N S

T H I S

F A L L .

W W W . I N T E R G R O W T H . O R G

© 2017 Association for Corporate Growth. All Rights Reserved.

IT’S THE SMALL THINGS

AGRIBUSINESS INDUSTRY TRENDS // Grow, grow, grow your boat…

1

2

3

OLD MACDONALD DID INDEED HAVE A FARM (A LOT OF THEM)

GROWING VOICE OF CONSUMERS SAYING, ‘GM-OOOOH NO!’

According to the most recent USDA Census of Agri-

Sales of food labeled “non-GMO” grew more than

culture, there are 3.2 million farmers operating 2.1

$8 billion between 2012 and mid-2016, reaching

million farms covering 915 million acres. The average

$21.1 billion, according to supermarket scan data

farmer is 58 years old; 33% of farmers are over 65.

from research firm Nielsen.

—United States Department of Agriculture

—Progressive Grocer

THAT’S A LOT OF MOUTHS TO FEED The U.N. expects the world population to grow to

6

THE XX-FACTOR IN AGRIBUSINESS In developing countries in Africa, Central America

8.6 billion by 2030 from 7.6 billion in 2017. Around

and parts of Asia, women farmers are often able to

2024, the population of India is expected to surpass

generate up to a 30% greater return on investment

that of China, the global population leader today.

with the same resources as men.

—United Nations

—WisCONTEXT

WEED ALL LOVE TO HAVE A BUSINESS AS STRONG AS CANNABIS

7

SOWING THE SEEDS OF AGTECH More than $800 million was invested in the agtech

The legal North American marijuana market posted

space between 2012 and 2016. That activity picked

$6.7 billion in revenue in 2016, up 30% from the

up significantly in 2014 after the nearly $1 billion

year before. Sales are projected to grow at a com-

acquisition of The Climate Corporation by Monsanto.

pound annual growth rate of 25% through 2021.

—CB Insights

—Business Insider

4

5

PUT THAT IN YOUR PIPE AND SMOKE IT! By 2020 the legal cannabis market will create more than a quarter of a million jobs. This is more than those expected from manufacturing, utilities or even government, according to the U.S. Bureau of Labor Statistics.

—Forbes

—Larry Guthrie, director, communications & marketing, ACG Global

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