Middle Market Growth - April 2014

Growth MIDDLE MARKET

// APRIL 2014

TRUNK CLUB Starting a Retail Revolution One Well-Dressed Man at a Time

A publication of

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EXECUTIVE SUMMARY PAM HENDRICKSON // ACG Global Board Chairman and COO, The Riverside Company

The Future of Retail Is Here

A

s I pored over the articles in this month’s Middle Market Growth, I was fascinated by all of the latest trends in consumer goods revealed in the issue. ACG members and their

companies have done a remarkable job of innovating, and we’re proud to share some really compelling stories this month on either setting trends or harnessing the current ones for growth.

I recently discussed these consumer trends with Riverside Principal Jeremy Holland, a Riverside Origination pro who has delivered a number of retail, franchising and consumer deals for our firm. It was interesting to get his perspective on the featured stories to see if what we’re discussing in the magazine mirrors what he’s seeing in the way of opportunities out there today.

We both agreed that the cover story on Trunk Club is a good demonstration of the continued rise of eTailers. Companies like Trunk Club offer customized service without relying on brick-andmortar to reach consumers—a growing trend as many smaller retailers are using sites like Amazon as a channel to expand their consumer brands. The need to succeed in retail using brick-and-mortar outlets continues to diminish, particularly for value-added specialists like Trunk Club.

Based on Riverside’s experience, we’re not surprised the CorePower Yoga acquisition is also covered in this issue. Concepts promoting a healthy lifestyle, very specific exercise concepts and companies that can provide their offering in a small physical footprint are becoming more popular. The CorePower Yoga story is easily one of the biggest deals in the sector of late.

But fitness is only one facet of this movement. Healthy-living retailers are benefitting from baby boomers seeking to extend their healthy years, as well as younger people seeking to stay fit longer. The proliferation of retailers like Whole Foods, Trader Joe’s and others that cater to health-conscious consumers also is allowing for smaller niche brands to take hold and grow more rapidly. These circumstances have opened many opportunities for private equity investors to drive growth and capture opportunities. Whether it’s with a niche retailer, a restaurant concept that offers healthy options or a vitamin maker with a unique offering, there are many investment options related to healthy lifestyles. I’m delighted we’re showcasing some of them.

This issue also features insights from experts in the retail and consumer field, including Marty Okner, founder and managing director of SHM Corporate Navigators™, and Casey Chroust, former EVP of the Retail Industry Leaders Association.

Besides this issue of Middle Market Growth, the arrival of April also means Intergrowth 2014.® This year’s gathering, April 28-30 at the ARIA in Las Vegas, brings together some great speakers, including Twitter Co-Founder Biz Stone, star NFL quarterback Peyton Manning and a CEO panel of top middle-market executives. It is going to be an incredible event, and I hope to see you there! //

Reason says: bigger is better.

Instinct says: nimble is better for driving growth.

Your private equity firm must act swiftly to execute deals in today’s fast-paced global market.

We provide short decision-making chains, seamless global service and a comprehensive understanding of the industry. To unlock your firm’s potential for growth, visit GrantThornton.com/PrivateEquity.

“Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please see grantthornton.com for further details.

EXECUTIVE SUITE CHUCK MORTON // Partner, Venable LLP, and Immediate Past Chairman, ACG Global Board of Directors

Q

WHAT TRENDS OR AREAS OF GROWTH ARE YOU SEEING IN THE MIDDLE MARKET?

CM: We see highly regulated industries, such as health care, big data (including private and public sector applications of analytics), financial services, consumer goods and education technology as very robust sectors.

Q

HOW DO YOU HELP YOUR CLIENTS ACHIEVE THEIR DESIRED GOAL(S)? IS THERE A DEAL YOU ARE MOST PROUD OF?

CM: I listen carefully, and try to stand in my client’s shoes. My collection of experiences gives me insights that help get a deal done, and get it done in a timely fashion. I always work to reflect my client’s values throughout the process.

I tell each of my four children he or she is my favorite. To a certain extent, I think of the deals I work on the same way. Each has its own twists and turns that make it special. I really enjoy the deals that are more complicated or reflect a carefully mapped out strategic vision.

Q

DO YOU SEE PENDING REGULATION CAUSING CHALLENGES FOR FUTURE DEAL MAKING AND, IF SO, IN WHAT WAYS?

CM: Anything that makes it more difficult to form capital drives up the cost of that capital and means there are fewer resources available to fuel economic activity. While I certainly appreciate the need for the markets to be regulated, I think we should be able to expect that regulation to make sense. Sadly, today, not all existing regulation makes sense.

BIO // CHUCK MORTON co-chairs Venable’s Corporate Practice Group. He has a national practice, solving complex problems for lenders, investors and entrepreneurs as they create, build, buy or sell businesses. He advises on mergers and acquisitions and financings, and regularly acts on behalf of private equity groups and banks.

Q

WHAT ARE THE BIGGEST CHALLENGES YOU’VE SEEN IN A RECENT DEAL OR TRANSACTION AND WHY?

CM: Uncertainty in the economy has made it more difficult to get deals closed and has driven up the costs of transactions. That uncertainty has made regulatory and industry insight essential in the diligence and risk assessment process.

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Growth MIDDLE MARKET

// APRIL 2014

GROWTH STORY

Trunk Club Most men think shopping is a chore. Enter Chicago-based Trunk Club, which in just five years has grown a West Coast start-up into a profitable niche retail model that is revolutionizing the way men shop. By offering custom orders created by stylists with the ease of in-home delivery, Trunk Club and CEO Brian Spaly have found a winning combination of e-commerce and good old-fashioned customer service.

Read more.

“A BIG PART OF WHAT WE DO IS TO LEAD OUR GUY INTO A PLACE OF ELEGANCE THAT’S APPROPRIATE FOR HIS AGE AND STATION IN LIFE.” // BRIAN SPALY, FOUNDER AND CEO OF TRUNK CLUB

Growth MIDDLE MARKET

// APRIL 2014

TRUNK CLUB Starting a Retail Revolution One Well-Dressed Man at a Time

A publication of

ON THE COVER // A new way to shop.

Photo By Trunk Club

TABLE OF CONTENTS

PRESIDENT & CEO Gary LaBranche, FASAE, CAE glabranche@acg.og

VICE PRESIDENT, COMMUNICATIONS & MARKETING Kristin Gomez kgomez@acg.org

EDITOR-IN-CHIEF Deborah L. Cohen dcohen@acg.org

FEATURE

IN EVERY ISSUE

Yoga Masters Catterton Partners’ investment last year in CorePower Yoga was the culmination of proactive research into a category that has demonstrated strong underlying fundamentals and a growth outlook driven by a sustained trend in consumers’ endeavors to live longer, healthier and more recreational lifestyles.

Read more.

Executive Summary Face-to-Face The Ladder It’s the Small Things The Leadership

VICE PRESIDENT, CONFERENCES & PARTNERSHIPS Christine Melendes, CAE cmelendes@acg.org

MANAGER, COMMUNICATIONS & MARKETING Larry Guthrie lguthrie@acg.org

MANAGER, CREATIVE AND BRANDING Brian Lubluban blubluban@acg.org FOR ADVERTISING OPPORTUNITIES

DEPARTMENTS THE ROUND • Trends in the Retail Space.

• Network with Intergrowth CONNECT. • Opportunities in the Cosmetics Industry.

• How to Know Your Customers.

Read more.

A QUALIFIED OPINION Martin Okner of SHM Corporate Navigators™ discusses the outlook for retailers.

Read more.

ACG@WORK • Pittsburgh Mixes Fun and Giving.

• New York Welcomes Women’s Leadership Summit.

• Orange County Holds Upscale Dealmaking Event.

Read more.

THE PORTFOLIO

DIRECTOR, STRATEGIC DEVELOPMENT Meredith Rollins mrollins@acg.org

The latest middle-market trends and

Custom media services provided by Network Media Partners, Inc.

thought leadership written exclusively by the team of expert ACG Partners.

Read more.

Association for Corporate Growth 125 South Wacker Drive, Suite 3100 Chicago, IL 60606 ACG Membership: membership@acg.org www.acg.org Copyright 2014 Middle Market Growth®, InterGrowth and the Association for Corporate Growth, Inc. All rights reserved.

DON’T MISS OUT! O N L I N E R E G I S T R AT I O N C L O S E S A P R I L 1 7 .

APRIL 28 – 30, 2014

ARIA

CONNECTIONS

LAS VEGAS, NEVADA

DEALS

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

CAPITAL

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

2014 Brings You a Reimagined and More Efficient InterGrowth This year, ACG has made InterGrowth® a more productive and efficient meeting experience than ever before. Join more than 2,000 top professionals from across the globe for the preeminent middle-market networking and deal flow event. Plus, you’ll have access to the latest thought leadership with 50 executive roundtables and four concurrent breakout sessions.

Join fellow dealmakers in Las Vegas on April 28-30 for the most productive three days you will spend in 2014—connecting you with the people you need to create real dealmaking opportunities for you and your firm.

“AS A REGULAR INTERGROWTH ATTENDEE, THE EXPERIENCE CONTINUES TO GET MORE VALUABLE EACH TIME. IN ADDITION TO THE ENTERTAINING SPEAKERS AND VALUABLE CONTENT, THE PRIMARY BENEFIT FOR MY INVESTMENT BANKING BUSINESS IS THE NUMBER OF QUALITY CONTACTS I MAKE WITH THE PRIVATE EQUITY COMMUNITY.” // BRAUN JONES, PARTNER, OUTCOME CAPITAL GROUP

Biz Stone, Peyton Manning to Speak at InterGrowth Biz Stone, cofounder of Twitter, will give one of three keynote presentations at InterGrowth 2014, joining five-time NFL MVP Peyton Manning and a CEO panel of top middle-market executives.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

INTERGROWTH // WHAT’S NEW IN 2014?

Intergrowth CONNECT— Networking Will Never Be The Same

Biz Stone, Twitter Co-Founder, Delivers Keynote

Launched in March, this

From GQ’s “Nerd

networking and scheduling solution is

of the Year” to one

transforming InterGrowth as you know

of Time magazine’s

it. InterGrowth CONNECT lets you view

most influential people in the world,

attendee lists and profiles, as well as

Biz Stone’s work is nothing short of

schedule appointments that integrate

revolutionary. As co-founder of Twitter,

with Outlook and iCalendar. It’s the place

he transformed the way the world gets

where InterGrowth attendees can connect

its news and how quickly information

before, during and after the event with

spreads across the globe. He’ll share his

rich, customizable profiles, including the

compelling business philosophy and in-

ability to upload information from exist-

sights on ingenuity at InterGrowth 2014.

ing LinkedIn profiles.

Reimagined Networking

New: Reserved And Semi-Private Remote Office Space

Networking is moving out of the ballroom

You can now secure a dedicated meeting

and going poolside for ACG Capital Con-

location to use for two full days, giving

nection® on Monday night. This relaxed

you a convenient place to host the meet-

reception allows buyers and sellers to con-

ings you schedule through InterGrowth

nect early at the conference. More than

CONNECT. Reserving a remote office is

100 equity providers and corporate stra-

easy; just contact the ACG Events team at

tegic acquirers will be on site to discuss

events@acg.org. Please note, only firms

partnership opportunities and promote

participating in ACG Capital Connection

their funds.

or DealEXPO, along with InterGrowth sponsors and ACG Global partners, are eligible to purchase a remote office.

ACG DealEXPO – A New Marketplace DealEXPOSM gives investment banks an open forum to network with the full InterGrowth community—expanding the audience from a few hundred people to nearly 2,000.

Exhibitors are looking to buy or sell companies and also are eager to discuss transaction opportunities with business owners, capital providers and other M&A professionals.

Read more about InterGrowth CONNECT in The Round section of this issue.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS APRIL 2, 2014 ACG Chicago Europe: Black Swan or Hidden Opportunity?

More info

APRIL 1, 2014 ACG Columbus Executive Leadership Breakfast: Anatomy of a Well-Run Meeting More info APRIL 1, 2014 ACG Denver 2014 Rocky Mountain Corporate Growth Conference More info APRIL 2, 2014 ACG 101 Corridor The Outlook for Mergers and Acquisitions Activity More info APRIL 2, 2014 ACG Dallas/Fort Worth Women in ACG DFW Event More info

Visit www.acg.org for an up-todate list of events in your area.

APRIL 2, 2014 ACG Tampa Bay Sarasota Event: Funding Growth— Discussion of Capital Sources for Lower Middle Market Companies More info APRIL 3, 2014 ACG Barcelona Resolución de conflictos (Conflict Resolution) More info APRIL 7, 2014 ACG Chicago Sports Night: Division I Men’s Basketball Championship More info APRIL 7-8, 2014 ACG British Columbia 2014 Capital Connection® More info

To have your chapter’s upcoming events featured in Middle Market Growth, please send the details to Editor-In-Chief Deborah L. Cohen. Be sure to include the name of the event, time, date, location, cost and information or link to register for the event.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS APRIL 9, 2014 ACG Central Texas ACG in Austin: Cordell Bennigson, President and CEO, Durcon Inc. More info

APRIL 7, 2014 ACG Houston 1st Annual Golf Tourney More info APRIL 7-8, 2014 ACG Raleigh Durham 11th Annual Capital Conference More info APRIL 8, 2014 ACG New York Monthly Luncheon Meeting: How Does the Independent Sponsor Community Succeed in Today’s Deal Making Universe?

More info

APRIL 9, 2014 ACG Holland HPE Growth Networking Lunch More info APRIL 10, 2014 ACG Barcelona Cena con José Maria Gay de Liébana (Dinner with Jose Maria Gay de Liébana) More info APRIL 10, 2014 ACG Tampa Bay Emerging Professionals Present Tod Leiweke and Lightning vs. Flyers More info APRIL 11, 2014 ACG Kansas City Breakfast Featuring Kansas City Chiefs President Mark Donovan More info

To have your chapter’s upcoming events featured in Middle Market Growth, please send the details to Editor-In-Chief Deborah L. Cohen. Be sure to include the name of the event, time, date, location, cost and information or link to register for the event.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS APRIL 17, 2014 ACG Columbus M&A Panel: M&A Trends in the Lower Middle Market More info

APRIL 15, 2014 ACG San Diego M&A and Growth Capital Markets Outlook More info APRIL 16, 2014 ACG Orlando Perspectives on the State of the Capital Markets in 2014 More info APRIL 17, 2014 ACG Atlanta Dinner Series with David Walker More info APRIL 17, 2014 ACG Boston DealMakers Breakfast featuring New Balance’s Matt LeBretton More info

APRIL 17, 2014 ACG Kansas City ACG Cup Round 2 Competition & Cocktail Reception More info APRIL 17, 2014 ACG Philadelphia Breakfast Briefing: State of Private Equity with Pam Hendrickson, COO of The Riverside Company and ACG Global Board Chairman More info APRIL 18, 2014 ACG St. Louis Breakfast Meeting with Greg Diekemper of Swank Motion Pictures More info APRIL 24, 2014 ACG Atlanta Young ACG Event Series More info

To have your chapter’s upcoming events featured in Middle Market Growth, please send the details to Editor-In-Chief Deborah L. Cohen. Be sure to include the name of the event, time, date, location, cost and information or link to register for the event.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS APRIL 24, 2014 ACG National Capital Corporate Growth Awards Gala More info

APRIL 24, 2014 ACG Charlotte 7th Annual Social at BB&T Ballpark More info APRIL 24, 2014 ACG Indiana Annual Awards Dinner More info

APRIL 29, 2014 ACG Central Texas ACG in San Antonio: Luncheon featuring Kim Bowers, CEO, CST Brands More info APRIL 29, 2014 ACG Minnesota Minnesota Twins Game More info

APRIL 24, 2014 ACG Nebraska Breakfast Meeting with Doug Nielsen, President & CEO, Hayneedle More info

To have your chapter’s upcoming events featured in Middle Market Growth, please send the details to Editor-In-Chief Deborah L. Cohen. Be sure to include the name of the event, time, date, location, cost and information or link to register for the event.

ACCESS THE MOST COMPLETE COLLECTION OF RESOURCES AVAILABLE TO MIDDLE MARKET EXECUTIVES The National Center for the Middle Market is the leading authority on the nation’s economic bedrock: the mighty middle market. Our sole focus is to help middle market executives drive growth, increase competitiveness, and create jobs for the U.S. economy.

GET INSTANT ACCESS TO:

TOPICAL PERSPECTIVES

RESEARCH DRIVEN INSIGHTS

INTERACTIVE BENCHMARKING TOOLS

VISIT: middlemarketcenter.org

THE ROUND NEWS THAT MATTERS

RETAIL OUTLOOK

Key Trends to Watch A conversation with Casey Chroust Managing Partner & Founder of Retail Strategic Ventures Casey Chroust is a retail executive and strategy consultant with 17 years of experience guiding retailers and the retail industry as a whole. He currently serves as managing partner of Retail Strategic Ventures, an advisory services and venture firm. He previously served as executive vice president for the Retail Industry Leaders Association, the trade association for the world’s largest and most successful retailers. Chroust recently shared his insights with Middle Market Growth on the current and future retail landscape.

MMG: What trends are you seeing in the retail space?

CC: Retail is an incredibly dynamic industry. It has become an innovate-or-die marketplace, demonstrated by the sheer number of retailers who did not survive the economic downturn and went bankrupt over the last several years. On a macro industry level, segments continue to blur. Mass merchants are drug stores. Drug stores are grocery stores. Grocery stores are dollar stores. Dollar stores are mass merchants. Similarly, channels continue to proliferate and also blur. It’s no longer catalogs and brick-and-mortar stores. Retailers now enable consumers to shop by mobile phones, tablets and PCs … through apps, websites, social media sites and blogs. A retailer today must compete on these terms to be successful: increase the Continued on next page

THE ROUND NEWS THAT MATTERS frequency of visits, increase the basket size (how much consumers buy per visit), improve the customer experience and, overall, maximize sales.

Not surprisingly, the art and science of retail has changed dramatically as well. Retail operations are now built on a backbone of information systems that continually use data to optimize decision-making. From store locations to store layouts, from inventory levels to pricing and marketing, information technology plays a central role in optimizing a retailer’s performance. And in many cases, it’s become a non-negotiable requirement for retailers even to conduct business. While today’s supply chain is more global than ever, with products sourced and transported from countries around the world, the local market offering (online or offline) is more niche, tailored and customized than at any point in the era of big retail.

MMG: Can you explain omni-channel retailing and why it matters? What role does social media play into this?

CC: Omni-channel retailing is exactly what the name implies: selling products to customers across any and all sales channels. In the past, traditional retailing meant selling products from a physical storefront to customers who walked in the front door. Omni-channel retailing not only includes physical stores, but also encompasses e-commerce, m-commerce (mobile) and s-commerce (social media) channels. It’s the present and future of retail. It allows customers to shop when they want, where they want, for whatever they want. Done properly, omni-channel also allows customers to seamlessly move from channel to channel and still have a consistent customer experience. For example, buy online and return to a local store; buy online and pick up in a local store; place an item in your online shopping cart and then buy it later from your mobile phone—all with the brand and experience resonating the same way. The research data shows again and again that a customer who shops multiple channels buys more overall from that retailer.

Interestingly, omni-channel also has created unique situations in retail. Today, you can shop a channel WITHIN another channel. For example, using a smartphone you can stand in a physical store and, with a matter of three taps or scanning of a product’s barcode, shop its main competitor across the street or all of its competitors for that matter. It’s a game changer.

Social media has equally shaped the new retail realm. From marketing to customer service to research and development, social media allows retailers to engage customers in new, more profound ways. Customers now want to be part of the conversation, and social media enables retailers to present content and communications in the manner the customer wants. The viral aspect of social media presents a very compelling opportunity for retailers to gain organic, free marketing. Retailers also can obtain fantastic feedback and ideas, used in research and development, from their most loyal customers. It’s not all roses and compliments, though. Customers now take to social media to complain via tweets, Facebook Continued on next page

THE ROUND NEWS THAT MATTERS comments, YouTube videos and various review sites. Gone are the dinosaur days of letters and phone calls for issues and customer support. Social media sites must be monitored; customers expect their posted issues to be heard and resolved by the company.

MMG: What are some of the economic forecasts for the retail industry? After a rough couple of years, what sectors of the retail industry are the strongest?

CC: The past several years were tough on retailers. Not all segments were affected the same.

The recession played into the business models of the club and warehouse, dollar and discounter segments. These segments thrived and continue to thrive in the current environment.

Although the most consistently resilient segments in retail—luxury and tween retailers—were affected negatively, they have bounced back the fastest as the economy turns the corner. The apparel, home goods and DIY segments, which are highly dependent on discretionary spending, were hit the hardest. They continue to work toward a full recovery.

Looking further forward, the industry overall is cautiously optimistic the economy will continue to grow and pick up speed, benefiting retail sales. In particular, the industry will closely track the monthly jobs and consumer confidence numbers, with the first telling retailers their customers’ ability to purchase and the second signaling their willingness. Simply stated, as long as both continue to slowly yet steadily increase in 2014, which we expect, retailers on the whole will fare well.

MMG: With the recent data breaches at Target, Neiman Marcus and Michaels, what precautions should investors take when considering a retail acquisition?

CC: Start with the organizational structure. Ask them to identify the chief information security officer. While someone may not have this exact title, someone should clearly own this responsibility. Sometimes it is even two people—perhaps IT and legal, or IT and asset protection.

Next, dig into what data and personal information the retailer retains. Find out who has access to it, especially remotely including third parties, and how it is protected with firewalls, virus protection and intrusion software. Last, compare internal employee and customer privacy policies to industry-recommended standards. Most importantly, remember that the safest data is data not stored! And although data empowers a great customer experience, when improperly protected and managed, it can harm the very experience you are trying to embody.

Continued on next page

THE ROUND NEWS THAT MATTERS

MMG: How can smaller, mid-size firms make the changes necessary to compete in a sales environment that is constantly changing? How does the science of retail play into this?

CC: Although larger retailers have scale and, often, more capital to invest, smaller retailers can be more nimble. Less encumbered by bureaucracy and rigid cultures, these mid-size retailers need to watch trends closely and use their size advantage to react quickly and pivot successfully to these trends. Furthermore, as new sales platforms, systems and operational practices continue to advance (the science of retail), mid-size retailers can leapfrog their larger counterpart’s legacy systems and gain operational advantages, as long as they invest carefully with purpose. And, with the advent of cloud computing and software as a service (SaaS), the technology pricing models are no longer a cost-prohibitive roadblock for the smaller retailer. In the end, the mid-size retailer who can anticipate trends well, and then implement technology and align organizational structures the fastest to these trends, has a major competitive advantage that will allow it to capture customers and market share.

MMG: Tell us about your experience working with private equity and how your retail background influenced any decisions?

CC: I have a deep respect for private equity and the role it plays. Working for the Retail Industry Leaders Association and its top executives, I interacted with several private equity companies that own retailers. This past year I left the trade association and tried to buy a specialty retailer with 200-plus stores. Over the course of several months, we met with and presented to dozens of equity companies. It was a new and terrific learning experience for me. I was amazed at the diversity present in the private equity space and the niche investment profiles targeted. It was a Goldilocks ride for us, trying to find the right fit—we were too large or too small; too risky or not risky enough; too much of a value-turnaround play or not enough; they only provided debt financing or equity financing; they only invested in online-only retailers versus our “click-andmortar” model. In the end, just like my retailers, in order to be successful and raise the financing, we had to stay focused on our differentiators and the associated value proposition, while staying true to our strategic vision and ourselves, to find the right private equity partners. //

THE ROUND NEWS THAT MATTERS

Tap to see images of how InterGrowth CONNECT can work for you.

InterGrowth CONNECT is Here and Networking Will Never Be the Same

CONNECT with InterGrowth’s New Remote Office Spaces

Launched in March

office spaces for purchase. Conveniently

As an added convenience this year, ACG is offering reserved or semi-private remote

2014, this official networking and schedul-

located in the InterGrowth Lounge, these

ing solution is transforming InterGrowth® as

spaces will be available to you during lounge

you know it. InterGrowth CONNECT

hours to schedule all of your meetings.

lets you view attendee lists and profiles, as

Combined with InterGrowth CONNECT, it

well as schedule appointments that inte-

makes scheduling meetings a breeze.

grate with Outlook and iCalendar. It’s the

Interested in purchasing a table?

place where InterGrowth attendees can

Contact the ACG Events team at

connect before, during and after the event

events@acg.org. Firms exhibiting in ACG

with rich, customizable profiles, including

Capital Connection®, DealEXPOSM, spon-

the ability to upload information from exist-

sors and ACG Global partners are eligible

ing LinkedIn profiles.

to purchase semi-private or reserved

Through InterGrowth CONNECT, at-

remote office spaces.

tendees have access to a fully searchable directory through which you can contact, with other InterGrowth attendees. It helps

Getting Started with InterGrowth CONNECT

you maximize your time at InterGrowth by

Once you’ve registered for InterGrowth

building your own personal schedule with

2014, you’ll receive an email inviting you to

InterGrowth events and one-on-one meet-

InterGrowth CONNECT. Simply log in using

ings (exportable & printable), and attendees

the link provided to activate your account

can enjoy the full mobile experience on

and get started:

iPhone, iPad, Android and Blackberry with

• Complete your profile by importing your

communicate and schedule meetings

a native app.

LinkedIn profile or adding your own bio.

You can even add digital materials, such as PowerPoints, PDFs, YouTube videos

InterGrowth CONNECT Webinar ACG recently hosted a webinar on how to use CONNECT. ACG also has included quick pro tips online to provide fast guidance on the basics.

Tap to Watch.

and more.

• View the fully searchable attendee and exhibitor lists and their profiles.

• Connect with other attendees and exhibitors by sending in-app messages and meeting invites.

• View and schedule thought leadership sessions to personalize your agenda.

THE ROUND NEWS THAT MATTERS

To learn more visit PitchBook.

PitchBook Mobile App Available to InterGrowth 2014 Attendees Time spent behind a desk and in front of the computer is getting rarer. The typical day now is spent in meetings, shuttling between offices, traveling or visiting distant companies and clients. However, the need for information accessible on the computer has only increased.

This is why PitchBook is excited to announce PitchBook Mobile. You can now easily access all of the detailed intelligence on investors, advisers, companies and people you have come to rely on (or should be relying on) in the PitchBook Platform directly on your phone. PitchBook Mobile is available for Apple, Android and Blackberry devices and has been designed specifically for the phone so that it takes full advantage of the functionality and power of today’s smartphone. We are excited also to announce that all InterGrowth attendees will get access to PitchBook Mobile for a limited time before, during and after the conference. If you are already registered for InterGrowth, PitchBook and ACG will be reaching out soon to provide you with your login. If you have not registered for InterGrowth, what are you waiting for? With PitchBook Mobile at your side, you will be able to quickly look at a firm’s activity and preferences, or a lunch tablemate’s bio and alma mater, or an adviser’s area of expertise and key deal professionals. //

THE ROUND NEWS THAT MATTERS

Top Trends in the Cosmetic Industry & Opportunities for the Mid Market SHM Corporate Navigators™ recently released a report about the opportunities for buyers and sellers in the middle-market prestige beauty market. The prestige market is defined by luxury cosmetic and beauty products available mostly at fine department stores or through online vendors. According to the report, the prestige beauty industry is expected to match historical growth trends with skin care and color cosmetics as key drivers and sales in the United States reaching $5 billion in just the first half of 2013. However, the industry faces challenges due to the follower factors: Luxury for the Masses. Consumers are experimenting with lower-cost products found in drugstores that claim to have the same benefits as their more luxury-priced counterparts.

This trend is common in cosmeceutical skin care products such as OlayÂŽ Pro X and Loreal Garnier Skin RenewÂŽ.

Increasing competition for key distribution channels. Smaller brands face increasing barriers to entry due to vendors that now expect numerous financial concessions.

Low cost and availability of formulation and premium packaging on a global scale.

Traditionally, prestige products have relied on their superior formulation and unique packaging to justify their high cost. However, this is being challenged by increased mass production with equal formulations that are all now widely available to consumers. // Read the full report here.

THE ROUND NEWS THAT MATTERS DEAL WITHOUT DOUBT

Get Smarter by Knowing the Customer Thanks to a number of customer segment assessments, private equity firms are becoming increasingly more confident when it comes to diagnosing the growth potential of investment opportunities. Originating from the strategic marketing field, these frameworks use data to derive insights from new and existing customers to test each investment hypothesis and to ultimately make better acquisition decisions.

Here’s how one firm used a customer segmentation assessment to understand the Dianna Spring Senior Manager, Private Equity Practice CMG Partners

potential growth of an opportunity in the quick-service restaurant industry:

SITUATION Before confidently investing in a top-100 quick-service restaurant (QSR) company, one private equity firm needed a few key questions answered. The QSR had recently implemented a number of alterations in a portion of its stores in hopes of improving financial performance. The firm needed to know what to expect. How would these changes, which focused on the customer experience (everything from menu redesign to store renovations), impact core customers?

APPROACH To get a straightforward answer to the question, the firm needed to examine the effect of different factors on (1) frequency of customer visits and (2) alienation of existing customers.

To examine factors impacting frequency of customer visits, two assessments were used: Historical Same-Store Assessment – This first analysis measured the effects of recent menu redesign, aesthetic updates, etc. on same-store sales, visitation and product mix. With this data, the firm could then examine the relative impact of the same initiatives on unchanged stores vs. control groups to identify the associated risk or benefit.

Marketing Survey Assessment – To benchmark visitation frequency for the QSR vs. its competitors and to understand the plausible upper limit of visitation frequency, the firm augmented insights from the historical same-store assessment with insights from marketing survey data and input from industry subject-matter experts.

Continued on next page

THE ROUND NEWS THAT MATTERS Results: • Customer experience changes made in locations to date would indeed increase core customer visitation rates and traffic at respective locations.

• Continued investment in store upgrades at unchanged locations, including stores about to open, would lead to a continued increase in the frequency of visits.

Data from the survey was used to evaluate whether shifting to healthier menu options for a more health-conscious brand image would alienate core customers and impact customer attitude and usage traits. The firm started by identifying profiles of high- and low-volume customers and then examined what drove the frequent users to choose the QSR.

Results: • The QSR could add healthy choices to its menu in an attempt to expand its customer base without alienating core customers. Moreover, research suggested the possibility that new healthy menu options could increase use (while high-volume users chose to eat at QSRs for convenience, value and taste, they also expressed concern about healthy eating and that nutritious food options mattered to them).

• As long as the brand could make changes while staying true to its original value proposition, core users would remain frequent and loyal customers (despite changes, core customer loyalty ultimately came down to price and value). // —Dianna Spring specializes in strategic marketing and competitor analysis for CMG Partners Private Equity Practice. Read more case studies from CMG Partners.

THE ROUND NEWS THAT MATTERS

VERTICAL VIEW // THE RETAIL SECTOR Neiman Marcus Group conducted the top retail deal of 2013, a $6 billion buyout by Ares Management LLC and Canada Pension Plan Investment Board.

1

6

BILLION

More retail capital was invested in the department store sector than any other in 2013.

Fewer retail deals were done in 2013 than in each of the last 10 years. But the $14.57 billion in capital invested in retail deals in 2013 is the fifth-highest during the past decade.

Specialty retail has consistently been the top sector for retail deals every year since 2004.

-+

Every year but one in the last decade, the Mid-Atlantic region has seen more retail deals than any other geographical area in the United States.

Leonard Green & Partners, Freeman Spogli & Co. and Sun Capital Partners have been the top investors in retail over the past five years, with six investments each.

All statistics are from PitchBook for the middle market (deal values from $25 million to $1 billion).

Venable.

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DRESSING THE PART // Brian Spaly, Trunk Club founder and CEO.

BY DEBORAH L. COHEN

TRUNK CLUB Starting a Retail Revolution One Well-Dressed Man at a Time

Photos by Trunk Club

M

any professional men don’t like to shop. They’re not good at it.

They feel inadequate, overwhelmed, frustrated by surplus choices and a lack of knowledge about the best designers for their body type and lifestyle. Often they don’t have time to spend in stores.

That’s the premise behind Trunk Club, the latest menswear fashion innovation of entrepreneur Brian Spaly, a former private equity analyst at Wind Point Partners, Parthenon Capital and Bain & Co., and co-founder of the online apparel company Bonobos, known for its great-fitting men’s pants.

Trunk Club takes the hassle out of dressing with flare. The majority of its customers purchase their clothes remotely, working with one of more than 150 personal stylists. The stylists pay close attention to each man’s individual characteristics and fashion preferences to develop customized wardrobe selections.

Then they hand-select items, pack them up with personalized notes and instructions, and ship them directly in a cardboard box—the “trunk”—to the client’s home or office. The recipient keeps what he likes and sends the rest back using prepaid postage.

CARE PACKAGE // Trunk Club customers receive a specially packed box of merchandise chosen just for them.

COMFORT & STYLE // Trunk Club’s Chicago showroom.

“We’re primarily a service company,” Spaly, 37, said during a recent interview at Trunk Club’s Chicago showroom. “The fact that you can get a trunk from us sent anywhere in the U.S. makes it really easy to get new clothes.”

Could Trunk Club be likened to an adult version of Garanimals, the mix-and-match line of children’s separates known for helping parents create no-fail coordinated outfits?

Not quite. Trunk Club is not a cookie-cutter idea; each wardrobe is unique. Customers depend on the one-on-one relationship with a stylist who keeps tabs on their preferences and buying history and has a strong working knowledge of the designers Trunk Club carries.

“Every guy is so different. I don’t think I can put them into one box,” says Lindsey Tamblyn, a Trunk Club stylist whose customers range from CEOs to young men shopping for college. “My favorite reaction is, ‘I would never have picked this out for myself and I love it.’”

“WE’RE PRIMARILY A SERVICE COMPANY. THE FACT THAT YOU CAN GET A TRUNK FROM US SENT ANYWHERE IN THE U.S. MAKES IT REALLY EASY TO GET NEW CLOTHES.” Brian Spaly founder and CEO of Trunk Club

The four-year-old concept is catching on. Trunk Club is betting on sales of $100 million for 2014—nearly 17 times those of 2010. With more than 300 employees, the company also is adding brick-and-mortar sites: Washington, D.C., opened in March and possibly Los Angeles and Miami later this year. Those are in addition to its headquarters in Chicago and a branch in Dallas. Customers can choose to come to these spots to work with their stylists face-to-face, further cementing the personal relationship.

“Whatever channel you want to use us for, we’re going to lean in and help you,” Spaly says.

His business model seems to be filling a niche that highend retailers such as Neiman Marcus, Saks Fifth Avenue and Nordstrom—which offer customized service in the form of personal shoppers—are missing.

Trunk Club “solves a very simple and pervasive problem—men want to look good and they need help doing it,” says board member and investor Tom Ryan, the former CEO of Chicago-based Threadless, the T-shirt company that relies on crowd-sourcing for its designs. “They are building a service that guys love.”

Consider James Kelly, a 32-year-old time-strapped business development manager for an e-commerce company and co-founder of Woolly Clothing Co., an outdoor performance wool retailer, who has trouble finding brands to fit his tall frame. He tried personal shoppers in department stores but felt they were too aggressive about making a sale.

“My Trunk Club stylist knows what works for me and pre-screens for clothes that have a good chance of fitting,” he says. “Trunk Club is laid back and focused on your needs.”

With no formal fashion training, Spaly unwittingly began his foray into the apparel business out of personal necessity. As a 26-year-old private equity analyst living in Boston, he became frustrated when he couldn’t find offthe-rack pants to fit his thin but athletic build. So he borrowed a girlfriend’s sewing machine and began reworking them to meet his specific needs.

That experience was the seed for Bonobos, the idea he hatched at Stanford with fellow MBA student Andy Dunn that morphed into a successful e-commerce apparel company; Spaly left in December 2009 to run Trunk Club, which is now a reseller of Bonobos pants.

“I don’t think anyone would be surprised that I ended up in a career that was a little more creative,” he says. The well-tailored CEO is the perfect emissary for his brand, sporting a pink checked Eton shirt, brown corduroy Paul Smith blazer, Fidelity Denim trousers and caramel-colored Fratelli Rossetti shoes.

He is seated in one of the many nooks in the downtown loft, replete with retro-style sofas, chairs and private dressing rooms, allowing stylists to present selections to their charges in a personalized setting. Norah Jones plays in the background; there’s a bar area where the gents can kick back and enjoy a beer after trying on clothes, and a rooftop deck for special events.

“A big part of what we do,” Spaly says, “is to lead our guy into a place of elegance that’s appropriate for his age and station in life. Fit comes first and then we make sure things work together as an ensemble.”

SHOE SHOPPING // CEO Brian Spaly and staff review trendy footwear for Trunk Club clients.

REMOTE OFFICE // The view inside the Trunk Club Dallas showroom.

He is quick to point out that Trunk Club doesn’t bend to runway trends but instead works to curate fashion with staying power. It’s a look Spaly describes as “classic sensibility with updated style,” one that justifies the regular retail prices of garments Trunk Club sells in an average trunk purchase of about $500. Spaly takes a disparaging view of the type of “disposable” fashion spearheaded by the likes of H&M and other low-priced retailers.

The private equity background he shares with C-suite officers Rob Chesney, COO, and Kevin Price, CFO, gives Trunk Club a leg up in an environment where investor confidence lives or dies by forecasts. Their comfort with analytics also helps with technology, which is an integral part of their business.

“This model to me seems the next logical step a retailer would take versus something that’s purely e-commerce, where there is no physical experience to it at all,” says Dana Settle, a partner with Greycroft Partners, a Trunk Club investor. “The reality is it’s hard to do. You have to build the systems and the data and the whole psychology and culture of the company up from scratch. That’s where opportunity is.”

To date, Trunk Club has raised some $13 million from a consortium that besides Greycroft includes U.S. Venture Partners, Anthos Capital and Apex Venture Partners.

There is additional money, including Spaly’s own, which he declines to disclose.

But it hasn’t all been smooth sailing. Among the startup’s many hurdles, Spaly says, was persuading clothing designers to partner with an unproven concept.

“We really had to beat down some doors to get the brands in here,” he says.

Recently the iconic labels Ralph Lauren and Ferragamo signed on with merchandise available this spring. They are part of a group of 100 designers that includes Jack Spade, Barbour, Theory and Gant—all higher-end but not over the top. Trunk Club also offers custom suiting.

“THIS MODEL SEEMS TO ME THE NEXT LOGICAL STEP A RETAILER WOULD TAKE VERSUS SOMETHING THAT’S PURELY E-COMMERCE, WHERE THERE IS NO PHYSICAL EXPERIENCE TO IT AT ALL.” Dana Settle partner, Greycroft Partners

UNWIND // Trunk Club’s Chicago headquarters goes beyond clothing and shoes to make clients feel comfortable.

Erik Wilkinson, sales director for the up-and-coming shirt maker Eton, was among those who warmed early to the Trunk Club concept.

He recalls meeting with Spaly in New York to discuss the nascent idea.

Wilkinson had some reservations, but says Spaly’s personal enthusiasm for Eton products—including showing him his own suitcase filled with Eton shirts—was a positive sign. Today Trunk Club is among Eton’s most consistent customers.

“They really rely on their team to sell at regular price,” says Wilkinson, whose company now offers some exclusive styles just for Trunk Club. “I would say their regular price sell through is as good as anybody in the business.”

While brick-and-mortar retailers haven’t yet developed anything similar, there are other startups focused on a heavily customized experience.

In Berlin, for instance, Modomoto offers customers hand-selected boxes of clothing not unlike Trunk Club. In North America, J. Hiburn and Indochino sell custom-tailored clothing.

“I think the market is so big that we don’t really view them as competitors versus compadres,” Spaly says.

“THEY REALLY RELY ON THEIR TEAM TO SELL AT REGULAR PRICE. I WOULD SAY THEIR REGULAR PRICE SELL THROUGH IS AS GOOD AS ANYBODY IN THE BUSINESS.” Erik Wilkinson sales director, Eton

He thinks he can stay ahead of the curve, and he’s not shy about tapping Trunk Club’s board for expertise. For instance, he brought board member Mike Gamson, head of global sales for business networking site LinkedIn, into the office to help run strategy sessions with his sales team.

“We talk to them all the time,” Spaly says.

Among the ideas currently being mulled by Trunk Club management and its six-member board: the possibility of a Trunk Club concept for women and the development of the company’s own fashion label. Longer term, there’s also the possibility of taking Trunk Club public.

“We’re not out of the woods yet,” Spaly says. “I think if we double sales again in the following year, then it starts to feel like it could make a lot of sense.”

Deborah L. Cohen is editor-in-chief of Middle Market Growth. //

THE TEAM // Marc Magliacano (left), partner, and Scott Dahnke, managing partner, of Catterton Partners.

Yoga Masters

Catterton Partners Sees Strength in CorePower Yoga

BY JERRY SOVERINSKY

Photo by Richard Freeda

Photo by Eric Laurits

I

t’s a frigid, sub-zero evening on a gritty block in Chicago’s edgy Uptown neighborhood, and CorePower Yoga is bustling with activity. Twenty-, thirty- and fortysomethings stream in and out of the sleek storefront, clutching mats, gym bags and at least one portable dog carrier, it appears.

Hard to tell on the last detail as I’m huddled in my car across the street, surreptitiously observing the comings and goings in an effort to gain insights on a company whose store count has mushroomed in the Chicago area over the past few years (19 and counting). You see, despite being an avid cyclist, runner and weightlifter, I’ve not yet mustered the self-confidence to publicly showcase my limited stretching ability and utter lack of flexibility. So I watch—for now—from a distance.

I’m a dwindling minority, with the number of yogaphiles growing rapidly across the United States. Interest in yoga and Pilates has soared over the past two decades as consumers have become more aware of their benefits and interested in alternative health practices. Market research firm IBISWorld has singled out CorePower as one of the industry’s top four companies, making it very appealing when the Denver-based yoga studio operator went looking for a private equity investor to help grow its U.S. presence.

That enthusiasm was fueled no doubt by the successful PE investment in yoga apparel maker Lululemon in 2005.

For CorePower, the process played out quickly.

“CorePower Yoga’s unique and proven business model, along with its attractive financial profile and substantial growth opportunity, led to an extraordinary level of investor interest in the company,” says Paul Jevnick, managing director at middle-market M&A specialist Green Holcomb Fisher, which advised CorePower on its recapitalization.

In July 2013, Greenwich, Conn.- based Catterton Partners, a consumer-focused private equity firm, announced it had initiated a capital investment with the “fastest growing yoga studio operator in the U.S.” with the intent to accelerate the company’s growth and expansion. For Catterton, the investment was the culmination of proactive research into a category that has demonstrated strong underlying fundamentals and a growth outlook that is driven by a sustained trend in consumers’ endeavor to live longer, healthier and more recreational lifestyles.

“We’ve been investing in health and wellness for decades ... and yoga surfaced as an area of increased adoption. In fact, it is the fastest-growing fitness category of scale in the marketplace,” says Scott Dahnke, managing partner of Catterton.

The firm spent more than two years researching the yoga industry, looking at the service side as well as products. “And during that time, nothing compared to the dominant business model and positioning of CorePower,” he says.

“The substantial health benefits of yoga continue to be better understood and thus are driving the growing adoption,” added Marc Magliacano, a partner at Catterton, in announcing the deal. “As the leading and most innovative yoga studio brand, CorePower Yoga is well-positioned for continued success in this large and fragmented growth market.”

WELLNESS VISION // Trevor Tice, founder & CEO of CorePower Yoga.

Photo by Richard Freeda

“AS THE LEADING AND MOST INNOVATIVE YOGA STUDIO BRAND, COREPOWER YOGA IS WELL-POSITIONED FOR CONTINUED SUCCESS IN THIS LARGE AND FRAGMENTED GROWTH MARKET. Marc Magliacano (above right) partner at Catterton Partners

Indeed, part of the appeal of CorePower to Catterton was its relatively large national presence, a rarity for the yoga industry.

“The Pilates and yoga studios industry is highly fragmented and most players operate a single location that caters to a narrow local market,” according to IBISWorld. But CorePower’s footprint already included more than 80 locations by the time Catterton completed its deal. These were not pop-up, franchised storefronts sharing just a common name, either. Rather, the CorePower brand had become well known for its creative blend of yoga and fitness, in-housetrained instructors and managers, pristine facilities and remarkable consistency coast to coast.

“As you look at independent yoga studios, you’re hardpressed to find a viable economic model of scale,” Magliacano says. “But CorePower developed a consistent, replicable and profitable model that is highly compelling.”

Photo by Eric Laurits

For CorePower, which enjoyed a healthy stable of active suitors, the decision to partner with Catterton was an easy one.

“We were already at 80 studios but Trevor’s (CorePower founder and CEO Trevor Tice) and my vision was to build something much bigger,” says Chad Kilpatrick, president and chief financial officer of CorePower. “We were looking for a true partner that brought experience in health and wellness, retail expansion and a great track record of success. Once we were introduced and Catterton expressed interest, we did our diligence on them as much as they did on us.”

Kilpatrick was impressed with Catterton’s background and its ability to help consumer and retail companies succeed through both strategy development and operational excellence. “When we took a look at their experience with other retail concepts such as Restoration Hardware (2008) and Noodles & Co. (2010), we quickly realized Catterton was the best partner for us in the high-growth consumer retail space,” he says. “Without them, yes, we would grow, but they bring experience, credibility and a proven track record to accelerate our growth. They’re a perfect fit.”

For more than 25 years, Catterton has concentrated on investing in growing consumer companies, which includes food and beverage, retail and restaurants, and consumer products and service companies. “We believe it’s important to invest in areas where one has deep expertise and an ability to add real value,” Dahnke says. “We’ve been able to build an entire business model around investing in and growing consumer businesses.”

While Catterton’s investment provides CorePower with critical access to capital, it’s the company’s operational expertise that will ensure a well-executed growth strategy.

“Most of us have run companies and held C-level positions,” Dahnke says. “That enables us to be better partners.

We also have a deep bench of operating resources and capabilities in key areas where we can directly impact the performance of our portfolio companies.”

Dahnke says Catterton offers world-class expertise in pricing, product supply chain, manufacturing and even digital marketing. “We’re then able to deploy those experts as necessary to pull on some of those key operating levers to further improve (a company’s) performance.”

“We’re tapping our resources for branding and marketing, too, (implementing) creative marketing tools to help in the acquisition, retention and reactivation of their student base,” Magliacano adds. “That’s important for growth. And with respect to real estate, we bring vast experience with site selection and new market entry strategy.”

It’s not an operational takeover by any means. In fact, CorePower’s sound management style was a major selling point to Catterton when evaluating the deal.

“We generally supplement existing teams,” Dahnke says.

“We’re investing in growing businesses and growing businesses have needs … which often require additional management to maximize the profitable growth of the business.”

“OUR GOAL IS TO CREATE A MULTI-HUNDRED MILLION DOLLAR BOUTIQUE BUSINESS AND THE PREEMINENT YOGA BRAND ON A NATIONAL BASIS. WE’RE VERY CONFIDENT IN OUR ABILITY TO ACHIEVE THAT.” Chad Kilpatrick president and chief financial officer of CorePower Yoga

Photo by Eric Laurits

Despite a physical separation of more than 1,800 miles, the transition since last July has been overwhelmingly positive for both Catterton and CorePower, a smooth process that Magliacano attributes to a strong affinity and appreciation for similar goals and values. “From the early days of our relationship, we saw the world in much the same way—in particular, recognition of their special, culturally driven model and the tireless work of their passionate instructors,” he says. “I couldn’t ask for a more productive relationship. There’s mutual respect, collaboration and even healthy dissonance, when appropriate. It’s been a great nine months, and we anticipate it will be a very productive, ongoing relationship.”

The sentiments are echoed by Kilpatrick. “It’s been incredibly smooth and quick, which speaks to the health of our relationship with Catterton,” he says. “After we closed the deal, it didn’t take long to realize the team at Catterton has an incredible appreciation for high-quality health and wellness brands and a deep understanding of the yoga industry.”

For CorePower’s growth to be successful, it wasn’t just about adding store counts and getting the word out. Kilpatrick says it was critical for a PE firm to strongly respect and retain its distinct corporate culture—and Catterton succeeded.

Photo by Richard Freeda

“Of all the people I met over the years in private equity, Marc and his team best understood the origin and evolution of the yoga industry and what a culturally driven business means,” Kilpatrick says. “It’s important that someone coming in recognizes the value that a positive and passionate culture means for a company such as ours.”

As for CorePower’s immediate growth plans, Magliacano speaks in broad terms. “We just opened our 95th studio, and we’ll accelerate the openings year-after-year. We’re on pace to do that this year.”

Kilpatrick was a bit more specific, while affirming that the road ahead indeed looks bright. “Our goal is to create a multi-hundred-million-dollar boutique business and the preeminent yoga brand on a national basis,” he says.

“We’re very confident in our ability to achieve that.”

Who knows? As the company becomes even more popular, I may just find the courage to venture out from my car and join the enthusiastic masses. // Jerry Soverinsky is a freelance writer and contributor to Middle Market Growth.

YOGA // DEMOGRAPHICS AND STATISTICS

20

DEMOGRAPHICS BY AGE

1939+41

PERCENT

Other

25-54

BILLION

18.4%

41%

18-34

$27

The average annual increase of the number of people who practice yoga

Amount spent annually in the United States on yoga products

40.6%

MALE/FEMALE RATIO

71.4

27.8%

PERCENT

are college graduates

44

PERCENT

15 MILLION

Number of Americans who practice yoga earn more than $75k annually

Source: Statistic Brain

72.2% 87 PERCENT Percent increase on yoga product spending over the last 5 years

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A QUALIFIED OPINION MARTIN OKNER // Founder and Managing Director, SHM Corporate Navigators™

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artin Okner has 20 years of experience in branded consumer goods. He applies his strategic planning, marketing and channel development background with Revlon, Cadbury and Philip Morris to strengthen and grow companies in the middle market. At SHM Corporate Navigators™, Okner defines and implements new business planning processes to improve new product innovation pipelines, optimize advertising and promotional spending, improve product lifecycle management, forecasting and resale of obsolete inventories, and distribution drives to more than 200,000 diverse retail outlets.

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WHAT TRENDS ARE YOU SEEING IN THE RETAIL SPACE?

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he U.S. consumer is all about extremes, either seeking super premium brands or looking for the best deal. As a result, we see the growth of luxury goods and volume discount stores putting pressure on mid-tier retailers.

Mobile and digital shopping also provide innovative ways to interact with consumers and extend the experience. Additionally, more affordable CMS platforms, warehousing and fulfillment make it easier to launch an e-commerce platform.

Customers today also have very high expectations at all price tiers. Ten years ago, retailers could retain consumers with a modern and fresh look. Five years ago, consumers wanted superior service. Now it is about being hip, modern, fresh, having superior customer service, a knowledgeable staff, and delivering a customized shopping experience.

We call it the “High Fidelity” shopping experience.

Photo by Brad Trent

A QUALIFIED OPINION MARTIN OKNER // Founder and Managing Director, SHM Corporate Navigators™

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artin Okner has 20 years of experience in branded consumer goods. He applies his strategic planning, marketing and channel development background with Revlon, Cadbury and Philip Morris to strengthen and grow companies in the middle market. At SHM Corporate Navigators™, Okner defines and implements new business planning processes to improve new product innovation pipelines, optimize advertising and promotional spending, improve product lifecycle management, forecasting and resale of obsolete inventories, and distribution drives to more than 200,000 diverse retail outlets.

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WHY IS THE E-COMMERCE MODEL WORKING AND WHAT DOES IT SAY ABOUT TODAY’S CONSUMER?

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he e-commerce model is working simply because the technology is advancing to where the shopping experience delivered online and on mobile devices is user-friendly, consistent across all platforms, personalized and branded.

E-commerce used to be a tactic to expand the points of distribution and it has evolved into an extension of the brand experience. As a result, consumer expectations are higher, which puts a lot of pressure on middle-market companies to ensure their execution of e-commerce is done right. This can be challenging when the company is in a category like apparel, accessories or cosmetics, where the e-commerce and directto-consumer channels can make up more than 30 percent of a company’s sales. Luckily, the cost of technology and creative services for e-commerce enabled, responsive websites has come down significantly over the past four years.

Photo by Brad Trent

A QUALIFIED OPINION MARTIN OKNER // Founder and Managing Director, SHM Corporate Navigators™

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artin Okner has 20 years of experience in branded consumer goods. He applies his strategic planning, marketing and channel development background with Revlon, Cadbury and Philip Morris to strengthen and grow companies in the middle market. At SHM Corporate Navigators™, Okner defines and implements new business planning processes to improve new product innovation pipelines, optimize advertising and promotional spending, improve product lifecycle management, forecasting and resale of obsolete inventories, and distribution drives to more than 200,000 diverse retail outlets.

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HOW DOES CUSTOMER SERVICE PLAY INTO THE VALUE OF A COMPANY?

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etailers need to exceed the consumer’s expectations on everything—product, customer service and the shopping experience. This is why stores that have integrated a lifestyle experience into their brand story are so successful. It becomes more about what the purchase represents to the consumer rather than what it satisfies. Consumers also demand greater transparency from retailers, which has fueled several startups where the cost of goods are disclosed to the consumer in addition to the retail price. Everlane, for example, uses the same factories to produce apparel and accessories as many of the high-end designers. Consumers can see how much markup they are paying. Are consumers upset that Everlane makes a profit? No, they just question why the designer markups are so much higher and this merchandise looks equally, if not more, unique and timeless.

Photo by Brad Trent

A QUALIFIED OPINION MARTIN OKNER // Founder and Managing Director, SHM Corporate Navigators™

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artin Okner has 20 years of experience in branded consumer goods. He applies his strategic planning, marketing and channel development background with Revlon, Cadbury and Philip Morris to strengthen and grow companies in the middle market. At SHM Corporate Navigators™, Okner defines and implements new business planning processes to improve new product innovation pipelines, optimize advertising and promotional spending, improve product lifecycle management, forecasting and resale of obsolete inventories, and distribution drives to more than 200,000 diverse retail outlets.

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IN WHAT WAYS ARE CONSUMER HABITS AND TASTES CHANGING?

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onsumers increasingly want to shop in the stores that touch them personally. As a result, retailers will be adopting more polarized and clearly defined positioning statements and advertising messages for their brands. We see this as presenting some unique rollup opportunities in the retail industry, where merchants of similar lifestyle or life stage products can integrate their back office functions—administration, finance and supply chain—yet have a variety of brands with their own DNA, marketing departments and retail banners on the exterior, servicing broad and differentiated consumer segments. This trend has been occurring for more than 20 years in the apparel industry as indicated by the success of VF Corp., Kellwood, and Philips Van Heusen. We believe this model can be replicated in sporting goods, consumer electronics, beauty, fitness and many other categories.

Photo by Brad Trent

A QUALIFIED OPINION MARTIN OKNER // Founder and Managing Director, SHM Corporate Navigators™

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artin Okner has 20 years of experience in branded consumer goods. He applies his strategic planning, marketing and channel development background with Revlon, Cadbury and Philip Morris to strengthen and grow companies in the middle market. At SHM Corporate Navigators™, Okner defines and implements new business planning processes to improve new product innovation pipelines, optimize advertising and promotional spending, improve product lifecycle management, forecasting and resale of obsolete inventories, and distribution drives to more than 200,000 diverse retail outlets.

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SELECT ABOVE TO SEE Q&A

WHAT CHANGES CAN SMALLER AND MID-SIZED FIRMS MAKE TO COMPETE IN THIS SALES ENVIRONMENT?

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f the website isn’t responsive to mobile and has stale creative, upgrade it. If the store isn’t modern and sales people aren’t knowledgeable, make capital improvements and invest in training. If merchandise isn’t selling, mark it down.

Smaller and mid-sized companies have an advantage because larger companies are perceived as being cookie cutter.

Consumers demand more customized shopping experiences, so smaller outlets or larger stores that behave like small stores are seeing the strongest growth. Consumers also have realigned their behavior on price. Today’s consumer has been retrained to buy at full price or look to a different store for a comparable item at a lower regular suggested retail price. This dynamic helps smaller stores that did not have the bargaining power with their suppliers or the cash resources to fund deep, long-term price promotions because they are now able to sell their goods at full price.

Photo by Brad Trent

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

PITTSBURGH NEW YORK ORANGE COUNTY

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ACG PITTSBURGH

ACG Pittsburgh Celebrates with an Eye on Charity ACG Pittsburgh closed out 2012 with one of the region’s largest holiday gatherings, held at historic Heinz Hall, the cornerstone of the city’s vibrant downtown Cultural District.

Joining the chapter for the annual get-together were members and friends from four other prominent Pittsburgh business associations: the Turnaround Management Association, the Financial Industries Network, Financial Executives International and the National Association of Corporate Directors, Three Rivers Chapter. The event was an evening of cocktails, conversation, entertainment and charitable giving, which has become central to the celebration in the past few years. Attendees raised more than $2,000 through raffle ticket sales for Flashes of Hope, a nonprofit that partners with professional photographers to take portraits of children fighting cancer.

“Everything that evening was wonderful, but for me the highlight was supporting such a wonderful organization that benefits sick children and their families, especially during the holidays,” said Kelly Szejko, ACG Pittsburgh president. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

LEADERSHIP TEAM // The event was planned by the Women of Leadership Committee members (from left): Jennifer Lu (Stanwich Advisors), Tanya Marvin-Horowitz (Allegiance Capital Corporation), Michelle Van Hellemont (chair, Accordion Partners), Nanette Heide (Duane Morris LLP), and (not pictured) Bonnie Harland (Pouschine Cook Capital Management LLC).

ACG NEW YORK

First Women of Leadership Summit for ACG New York The Women of Leadership Committee of ACG New York held its first Women of Leadership Summit on Jan. 23, sponsored by BDO, Duane Morris LLP and Murray Divine. The Summit gathered more than 150 women, both industry professionals and service providers, for a memorable event. Fashion designer Nanette Lepore kicked off the summit, continuing the committee’s theme of showcasing successful women entrepreneurs. Particularly compelling was her interview with Mergers & Acquisitions Editor-in-Chief MK Flynn, in which Lepore discussed building her leading fashion brand from the ground up and her interactions with potential private equity investors.

Additionally, five panels were held throughout the afternoon, discussing the latest information and topics affecting middle-market private equity, including Private Equity and Its Role as an Asset Class, M&A Outlook for Deal Sourcing and M&A Sector Updates for the B2B and B2C market segments. Another highlight was the Women in Finance

Tap to view a slideshow of the Women of Leadership Summit.

panel in which top women industry leaders candidly discussed their evolution in the private equity industry. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

Photo by Scott Noot

ACG ORANGE COUNTY

ACG Orange County Showcases PE at Dealmakers Marketplace Those looking for an early 2014 indicator on deal flow came away feeling bullish if they attended ACG Orange County’s Dealmakers Marketplace. The marquee event, which attracted some 600 of the nation’s top mergers and acquisitions professionals in the middle market, took place in mid-January at the posh St. Regis Resort in Dana Point, Calif.

Now in its 12th year, the upscale affair featured world-class wines, golf, a women’s reception, a special pre-event reception (for those seeking first-mover advantage) and, of course, the main event. Dealmakers Marketplace—or Private Equity Night, as it’s often called—consistently ranks as ACG OC’s most well-attended event. Among those participating were top private-equity professionals, investment bankers, attorneys, lenders, business owners, chief financial officers, chief executive officers and commercial bankers. More than 40 equity and capital firms from across the country also exhibited.

“The people and firms who have the greatest success here are those focused on building relationships,” said Gerik Degner, event chair and partner at Alpine Pacific Capital LLC. “Our role is to be a catalyst for those connections—and we’re continually thinking of new ways to spark them.”//

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

MAKE YOUR MARK IN MMG MAGAZINE Tell Us Your Growth Stories

Share Recent Chapter News

Middle Market Growth is currently accept-

Middle Market Growth wants to highlight

ing ideas for cover stories. If you are part

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news coming from the local chapter level.

was positively affected by private-backed

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A NEW WAY TO NETWORK

HAS ARRIVED

InterGrowth CONNECT is now live!

This is the place where attendees can connect before, during and after the event!

• Easily join the InterGrowth community immediately after completing your conference registration.

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• Full mobile experience on iPhone, iPad, Android and Blackberry. Download the native app closer to the event to always be connected.

LEARN MORE Note: You must be a registered InterGrowth attendee to access InterGrowth CONNECT.

THE PORTFOLIO INSIGHT FROM THE EXPERTS SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

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IN THIS ISSUE SOUND DECISIONS The consumer sector is bouncing back, with retail, food and restaurants expected to drive growth in 2014. Full-year figures published in the Deal Drivers Americas report by Mergermarket and Merrill DataSite indicate the consumer industry accounted for 10.7 percent of value and 9.4 percent of volume of all M&A Activity in 2013 in North America.

BY THE NUMBERS New Accounting Standards Updates represent a significant step in providing relief to private companies within U.S. GAAP (Generally Accepted Accounting Principles) while still providing users with decision-useful information.

MID-MARKET TRENDS American middle-market companies are setting the gold standard for national growth, reporting 5 percent revenue growth during the fourth quarter of 2013 and projecting 4 percent growth in the year ahead.

MID-MARKET TRENDS The latest issue of Duane Morris’ PE Connections in the Middle Market examines the core competency that builds value in middle-market private equity—the mechanics and practices of platform acquisitions and add-on strategies.

COMING SOON Check out the Portfolio section of the May issue for more on the latest middle-market trends, written exclusively by our team of expert ACG Partners. To learn more about contributing to this section, please contact Meredith Rollins, (312) 957-4260.

These articles are brought to you by ACG’s Global Partners.

THE PORTFOLIO SOUND DECISIONS // Richard Martin, Senior Director, Merrill DataSite

SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

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Preparing Your Company for the Consumer Comeback

T

he consumer sector is bouncing back, with retail, food and restaurants expected to drive growth in 2014. Full-year figures published in the Deal Drivers Americas report by Mergermarket and Merrill DataSite indicate that the consumer industry accounted for 10.7 percent of value and 9.4 percent of volume of all M&A activity in 2013 in North America.

Experts predict sector growth will be driven by large established companies looking to fill gaps by acquiring hot, fastgrowing companies.

Despite a falling unemployment rate,

ing certainty in your due diligence process.

expectations are that interest rates will

DataSite allows everyone involved in a deal

remain low, fueling borrowing rates and

to view all the information in real time and

encouraging high levels of activity among

make informed decisions at top speed, with

private equity. Strategists in the space

all the documentation at their fingertips.

continue to maintain large war chests for

In Latin America, the consumer sector

acquisitions, with unprecedented cash

accounted for 20.7 percent in value and 14.4

reserves. At the same time, rising con-

percent in volume for M&A in 2013. Colom-

sumer spending should fuel an increase

bia’s retail sector has become increasingly

in income across the consumer and retail

competitive with the arrival of major Chil-

industries, making sellers more attractive

ean operators in the past few years; four

as their profits swell.

or five targets remain in the supermarket

Industry experts predict that the sector

space with room for deals in apparel and

growth will be driven by large established

appliances. The country’s demographics

companies looking to fill gaps in their

and the expansion of consumer credit will

offerings by acquiring hot, fast-growing

help maintain growth in the consumer seg-

companies in 2014.

ment. Central America also will continue

When investing in this dynamic, growing

to consolidate in the retail and consumer

market you need a technology platform that

products segments on the heels of several

enables you to keep your finger on the pulse

major financial services transactions that

of critical information that can affect your

have strengthened the position of Colom-

strategy. The value of utilizing Merrill Data-

bian banks in the region. Retail in Latin

Site is in mitigating risk. Our solution pro-

America is attracting attention from strate-

vides secure, virtual document hosting creat-

gists in the EU and United States.

THE PORTFOLIO SOUND DECISIONS // Richard Martin, Senior Director, Merrill DataSite

SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS In cross-border transactions, virtual

Richard Martin

Download your free copy of the Deal

data rooms can be a critical intelligence

Drivers Americas FY2013 report, which

gathering tool, providing key commercial

provides a comprehensive review of all

and strategic insights. For acquisitions

M&A activity in both North and South

where the company has any kind of inter-

America, with targeted analysis of region-

national footprint, it is no longer sufficient

al and sector-specific trends.

to focus due diligence only on legal and

Do you have a deal in the pipeline?

financial aspects of the transaction. A con-

Merrill DataSite is an award-winning

fidential, intelligence-gathering exercise

virtual data room (VDR) solution that

focused on identifying hidden risks can

can be a command center for every stage

help ensure the transaction is priced accu-

of your M&A plans. Contact us here for a

rately and also determine areas where risk

free demo. //

mitigation is critical once the transaction is completed. By conducting detailed due

Richard A. Martin Jr. is a senior director at

diligence of this kind, buyers can ensure

Merrill Corporation, responsible for Merrill

that they are aware of all undisclosed

DataSite’s global marketing group. His 18 years

risks, price the transaction appropriately,

of marketing experience in the United States,

and put in place a clear mitigation plan

United Kingdom and Europe has developed

for the post-acquisition phase. It can also

Martin’s understanding of disparate business

highly assist in communication with regu-

cultures and the global financial industry. Mar-

lators, and limit successor liability, which

tin currently works with financial professionals

has become a key theme of FCPA enforce-

to provide first class virtual data room solutions

ment in recent years.

for their transactions and due diligence needs.

THE PORTFOLIO

BY THE NUMBERS // Brad Newkirk, Partner, Regional Managing Partner of Dixon Hughes Goodman

SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

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New Accounting Alternatives Provide Relief to Private Companies

O When adopting any changes in accounting principles, various factors should be considered prior to electing these alternatives.

n Jan. 16, 2014, the Financial Accounting Standards Board (FASB) issued two Accounting Standards Updates that provide private companies with accounting alternatives for goodwill and simplified hedge accounting for certain qualifying interest rate swaps. They are the first standards proposed by the Private Company Council (PCC) that have been endorsed by the FASB. This represents a significant step in providing relief to private companies within U.S. GAAP (Generally Accepted Accounting Principles) while still providing users with decision-useful information.

The new standard allows all entities

• Quantitative impairment model is

except public business entities, nonprofits

reduced to a one-step model from

and employee benefit plans to simplify the

the current two-step model.

accounting for goodwill after initial mea-

• Impairment is recorded when the

surement and recognition. The main pro-

carrying value of the entity (or

visions are as follows:

reporting unit) exceeds its fair value.

• Allows amortization of goodwill on a

This standard is effective prospectively

straight-line basis over 10 years, or less

for the first annual period beginning after

than 10 years if the entity demonstrates

Dec. 15, 2014, and interim periods within

another useful life is more appropriate.

annual periods beginning after Dec. 15,

• Provides an alternative model for

2015. Early application is permitted for

evaluating and testing goodwill for

any annual or interim period for which an

impairment:

entity’s financial statements have not yet

• Accounting policy election to test

been made available for issuance (e.g. 2013

for impairment at the entity level

financial statements not yet made avail-

or reporting unit level.

able for issuance). Also, all provisions of

• Impairment testing only required with a triggering event

the alternative must be elected. For example, the entity cannot elect the impairment alternatives without electing the amortization alternative.

THE PORTFOLIO

BY THE NUMBERS // Brad Newkirk, Partner, Regional Managing Partner of Dixon Hughes Goodman

SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

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Simplified Hedge Accounting

This standard applies to all entities

This standard allows alternative ac-

except public business entities, nonprof-

counting treatment to use the simplified

its, employee benefit plans and financial

hedge accounting approach to account

institutions. The effective date is for an-

for receive-variable, pay-fixed interest

nual periods beginning after Dec. 15, 2014,

rate swaps entered into for the purpose of

and interim periods within annual periods

economically converting a variable-rate

beginning after Dec. 15, 2015, and early

borrowing into a fixed-rate borrowing.

adoption is permitted. Entities may elect

In order to apply the alternative, certain

to adopt the alternative on either a full ret-

criteria must be met with respect to the

rospective approach or a modified

nature of the swap instrument.

retrospective approach.

The main provisions include:

Final Thoughts

• A common stumbling block for private

When adopting any change in accounting

companies attempting to apply hedge

principles, various factors should be con-

accounting was the contemporaneous

sidered prior to electing these alternatives.

documentation requirement. This

The PCC is active in working on ad-

alternative would allow the hedge

ditional accounting proposals that could

documentation to be completed at any

result in alternative accounting treatment

time until the date that the financial

for variable interest entities and account-

statements are available to be issued.

ing for identifiable intangible assets in a

• A practical expedient allowing an entity to assume no ineffectiveness

business combination. Please stay tuned for developments of these important issues.

in the hedge in order to qualify for cash flow hedge accounting. As such,

Brad Newkirk serves as the Regional Manag-

the value of the qualifying hedges

ing Partner of Dixon Hughes Goodman’s Triad

would be recognized in other

North Carolina and is a lead partner in the

accumulated comprehensive income

firm’s Private Equity Services line, providing

instead of in the income statement.

services to private equity funds and portfolio

• An alternative to record the swap at settlement value rather than fair value.

companies. //

THE PORTFOLIO MID-MARKET TRENDS // Doug Farren, Associate Director, National Center for the Middle Market

SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

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Middle Market Expects To Create 1 Million Jobs In 2014

A

When it comes to federal policy, middlemarket executives affirm that high corporate tax rates and a lack of tax incentives are impeding growth.

merican middle-market companies are setting the gold standard for national growth, reporting 5 percent revenue growth during the fourth quarter of 2013 and projecting 4 percent growth in the year ahead. These survey results, part of the National Center for the Middle Market’s (NCMM) latest quarterly Middle Market Indicator (MMI), also reveal that mid-sized firms grew employment at a rate of 2.5 percent over the same time period.

The U.S. middle market, made up of businesses with revenue of $10 million to

GE Capital and The Ohio State University Fisher College of Business.

$1 billion, contributes one-third of non-

Despite delivering consistently strong

government U.S. GDP and accounts for

performance, there are indications that

44.5 million jobs, or one-third of total U.S.

projected growth in 2014 may be impacted

employment. With a projected employ-

by a variety of factors. According to the

ment growth rate of 2.2 percent in the year

MMI, the federal government is viewed

ahead, the middle market could add as

as a barrier rather than an enabler of

many as 1 million jobs to the U.S. economy

growth; 52 percent of mid-market execu-

in 2014.

tives believe that government uncertainty

“The middle market continues to deliver

is stifling economic growth and 58 percent

consistently strong performance during

say federal policy uncertainty has impact-

both recessionary and growth periods of

ed their business planning. These impacts

the overall economy. That this sector grew

have included:

revenue five times greater than S&P 500

• Discouraged hiring (63 percent)

companies demonstrates the capacity of

• Reduction in business expenses for

this agile sector to contribute to the broad-

travel, bonuses or incentive pay

er economic recovery, but there is still

(63 percent) • Decreased likelihood for capital

work to be done. For starters, enduring uncertainty over federal policy must finally be addressed,” says Dr. Anil Makhija, Academic Director at NCMM, a partnership of

investment (56 percent)

THE PORTFOLIO MID-MARKET TRENDS // Doug Farren, Associate Director, National Center for the Middle Market

SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

“This data should make it very clear to

Doug Farren

According to the MMI, 77 percent of

policymakers that continued uncertainty

mid-market firms are required to follow

does have real consequences on economic

federal regulations. These firms spend an

growth nationwide. When policymakers

average of 8 percent of their workweek

commit to creating a business-friendly cli-

ensuring their business complies with fed-

mate, the capacity for middle-market com-

eral regulations. Middle-market executives

panies to grow is unleashed,� Makhija says.

spend 8.3 percent of their annual revenue

When it comes to federal policy, mid-

on out-of-pocket costs for regulation, while

dle-market executives affirm that high

6.3 percent of firms have to outsource ex-

corporate tax rates and a lack of tax

pertise to understand the regulations. //

incentives are impeding growth. Nationally, 42 percent of middle-market execu-

Doug Farren is Associate Director for the

tives believe that corporate tax rates are

National Center for the Middle Market at The

too high and have a significant negative

Ohio State University.

effect on their business.

Download the full report.

THE PORTFOLIO MID-MARKET TRENDS // Duane Morris Private Equity Group, Duane Morris LLP

SOUND DECISIONS

BY THE NUMBERS

MID-MARKET TRENDS

Duane Morris Presents: Building Out the Platform: 1 + 1 = 3

A

How do you accomplish all that needs to be done within the five-year timeframe for the large majority of sponsored deals?

Tap to see photos from the PE Connections in the Middle Market Forum.

Watch a video from the Duane Morris PE Forum.

s extensively covered and analyzed as the private equity industry has been in the last few years, that spotlight has been directed, on the regulatory and policy sides, at the debate on issues surrounding potential systemic risks to the financial system, registration with the SEC and taxation; and on the media side to the high-living ways sported by the partners of the global buyout behemoths, some of them now public companies involved in multiple lines of the financial services business.

What has been less well-reported and

the table some of the most prominent and

possibly less understood is the core compe-

active operators in the middle market,

tency that actually builds value in middle-

joined by a strategic acquirer versed in

market private equity—the mechanics

horizontal build-out from the corporate

and practices of platform acquisitions and

perspective. Between them, these com-

add-on strategies. What are the optimal

mentators—Jay Jester of Audax Private

approaches to the business of building

Equity, Marty Mannion of Summit Part-

EBITDA that result in multiple expansions?

ners, Tom Wippman of Sterling Partners

What are the pitfalls and triggers that drive

and Phil Mazzini, former head of H&R

go or no-go decisions? How do you spot the

Block Retail—have engineered thousands

bêtes noires hiding in the bushes before

of transactions designed specifically to

they spring out to bite you? And how do

drive incremental value into platform com-

you accomplish all this within the five-year

panies. Each brought with him his unique

window that comprises the timeframe for

views and experiences in the business, but

the large majority of sponsored deals?

in total, the audience took away a compre-

It is that gap in the information market-

hensive understanding of the essential al-

place that prompted the thinking under-

chemy of private equity—how 1 plus 1 can

lying Duane Morris’ thesis for this issue

equal 3. This is the definition of “inside

of PE Connections in the Middle Market,

baseball”— sometimes counter-intuitive to

framed by its PE Forum event held in

the received wisdom in the industry. //

Boston last fall. To examine the issues surrounding this fundamental process for private equity, Duane Morris asked to

THANK YOU ACG GLOBAL PARTNERS ACG Global thanks the following Partners who play a critical role in supporting ACG’s mission of Driving Middle-Market Growth.SM OFFICIAL SPONSOR OF GROWTHSM PARTNER

GROWTH LEADER PARTNER

GROWTH CHAMPION PARTNER

GROWTH SUPPORTER PARTNER

For information on becoming an ACG Partner, download the ACG Global Partnership Program Prospectus or contact Meredith Rollins, mrollins@acg.org/312-957-4260. ©2013 Association for Corporate Growth. All Rights Reserved.

THE LADDER ACG MEMBERS ON THE MOVE Jack Butler of ACG Chicago

Phil Krieger of Young ACG

will join Hilco Global as execu-

Atlanta was promoted to vice

tive vice president in May. As

president at TM Capital, Atlanta.

an attorney with the Skadden firm for 23 years, he spent the Jack Butler

last several years advising un-

Phil Krieger

secured creditors in American Airlines’ reorganization and its $18 billion merger with US

Daniel A. Boarder of ACG

Airways Group, Inc., which

Dallas/Fort Worth has joined

was completed in December.

Whitley Penn as transaction advisory services senior manager in Dallas.

David Weild, former NASDAQ

Daniel A. Boarder

vice chairman, and IssuWorks, which he founded, will begin working with CohnReznick to

Deborah L. Cohen was hired

assist clients with capital needs.

by ACG Global as the new editor-in-chief of Middle Market

David Weild

Growth magazine. She has written for several notable business Jarrad Zalkin of ACG Boston

Deborah L. Cohen

publications, including Reuters,

has been promoted to managing

Bloomberg, Crain’s, The Chica-

director at TM Capital, Boston,

go Tribune and BusinessWeek.

where he leads coverage of the business services sector.

Jarrad Zalkin

To submit your promotions, job changes and other accomplishments, please send information and a color photo (hi-res 300 dpi or above) to Editor-in-Chief Deborah L. Cohen.

LEARN. ACT. JOIN.

I depend on my pension. Investments in middle-market firms help my pension fund grow over the years.

My retirement is the story of middle-market growth.

I Am Private Capital.

Private Capital drives middle-market growth, fuels job growth and builds communities.

Get involved at www.middlemarketvoice.org

Private Capital, Public Good.SM

IT’S THE SMALL THINGS GLOBAL MENSWEAR TRENDS // Dressed for Success

1

BATTLE OF THE SEXES Consumers spend an average of $1,700 a year on clothing, footwear and related products and services. Males 16 and older spend an average of $304, while their female counterparts spend $562.

4

(NOT) MADE IN AMERICA China remains the largest apparel supplier to the United States with 1.09 billion square meter equivalents (SME). Vietnam comes in second with 232 million SME and Bangladesh is in third with 168 million SME.

2

A MORE RELAXED FIT Following economic trends, dress-to-impress fancy suit and sport coat purchases grew at a robust pace, with $4.7 billion in U.S. sales in 2011. Today, the category is on the wane with casualwear picking up the slack.

5

DUDE DOESN’T SHOP LIKE A LADY Fashion is the fastest-growing segment of online commerce, and it’s being propelled by an atypical source: men. As a result, online menswear retailers have attracted the attention of private equity.

3

ACCENTUATE THE POSITIVE Coming out of the recession, men are buying not just menswear, but also driving men’s accessory sales to 20-year highs.

6

A SHARP-DRESSED MAN The world market for menswear is expected to exceed $402 billion in 2014. This represents market expansion of more than 14 percent during a five-year period.

THE LEADERSHIP ACG DIRECTORS ACG BOARD OF DIRECTORS //

CHAPTER REPRESENTATIVE DIRECTORS //

DIRECTORS AT LARGE //

Chairman Pamela Hendrickson* The Riverside Company ACG New York Term expires 8/31/2014

Bradford Adams* TM Capital ACG Boston Term expires 8/31/2015

Jason Brown GE Capital Corp.

ACG Los Angeles Term expires 8/31/2016

Robert Burns Lazard Middle Market, LLC ACG Minnesota Term expires 8/31/2014

Greg Cinnamon Kilpatrick Townsend & Stockton LLP ACG Atlanta Term expires 8/31/2016

J.B. Dollison* Crutchfield Capital Corporation ACG Houston Term expires 8/31/2014

Mike Ehlert Capital One Leverage Finance Corp.

ACG Houston Term expires 8/31/2015

Roy Graham Corporate Finance Associates ACG Central Texas Term expires 8/31/2015

Brian Gilbreath Merrill Corporation ACG Nebraska Term expires 8/31/2015

W. Braun Jones III Outcome Capital, LLC ACG National Capital Term expires 8/31/2014

Ramsey Goodrich Carter Morse & Mathias ACG Connecticut Term expires 8/31/2016

Patricia King Bank of America ACG Tennessee Term expires 8/31/2015

Angie MacPhee RGL Forensics ACG Denver Term expires 8/31/2016

Brian Moll Polsinelli Shughart PC ACG Arizona Term expires 8/31/2014

Frank Mack Merk Capital Corp.

ACG Chicago Term expires 8/31/2014

Robert Napoli* First West Capital ACG British Columbia Term expires 8/31/2015

Gretchen Perkins Huron Capital Partners ACG Detroit Term expires 8/31/2016

Steven Peterson Brass Ring Capital, Inc. ACG Wisconsin Term expires 8/31/2015

Durant (Randy) Schwimmer ACG New York Term expires 8/31/2014

Vice Chairman Doug Tatum Newport Board Group ACG Atlanta Term expires 8/31/2014 Chairman of Finance Stephen V. Prostor Citi Private Bank ACG New York Term expires 8/31/2014 Secretary Richard P. Jaffe Duane Morris LLP ACG Philadelphia Term expires 8/31/2014 Immediate Past Chairman Charles J. Morton, Jr.* Venable LLP ACG Maryland Term expires 8/31/2014 Chairman of InterGrowth 2014 Ken Berryman CapitalSouth Partners ACG Kentucky Term expires 8/31/2014 President & Chief Executive Officer Gary A. LaBranche, FASAE, CAE* ACG Global

Joel Rosenthal Schneider Downs & Co., Inc. ACG Pittsburgh Term expires 8/31/2014 Hans-Josef Vogel Beiten Burkhardt ACG Germany Term expires 8/31/2015

Tom Washbush Bricker & Eckler LLP ACG Columbus Term expires 8/31/2015

ACG HONORARY DIRECTORS // Robert G. Coffey Alan B. Gelband

*denotes member of Executive Committee

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